Is there a Link between Quality of Employment and Indebtedness? The Case of Urban Low-income Households in Ecuador

This paper explores the incidence of high indebtedness or financial stress among urban low-income households in Eucador, and demonstrates its interconnectedness with the quality of employment. There has been a marked increase of informalization of employment in developing countries. The growing number of informal sector jobs is associated with risk and insecurity.

The implications of financial stress and vulnerability are not trivial. High debt service burden can undermine investment, maintain low productivity and earnings, increase probability of loan default, and result in higher interest rates or termination of credit line.

The study uses 2002 data of urban men and women from poor households in Eucador. By applying tobit and regression analyses, it demonstrates that labor market informalization has led to higher incidence of indebtedness. Study findings indicate that men and women in urban poor households have differentiated patterns of debt servicing. Finally, it recommends rethinking current social and economic policies in order to effectively reduce poverty.