the result of two factors: a) wages are more flexible in the informal sector, and hence falling productivity results in a larger hiring drop in the formal sector; and b) the shock has been primarily to the tradable sector, composed mostly of formal-sector firms. The rise in informality is worrisome because the working conditions of the jobs are in general more precarious than in the formal sector. Herrera and Mohamed (2010) also find that wages in the informal sector are 13 to 14 percent lower than their equivalents in the formal sector.

The impact of the global crisis on poverty in Egypt is much less clear-cut than the impact of the crisis on employment and unemployment. Given the low elasticity of employment to output growth and the small size of the Okun coefficient described above, the only likely channel for the crisis to affect poverty is through the household income reduction originated by the fall in remittances from abroad. The balance of payments (BoP) shows that private remittances fell by 10 percent between FY08 and FY09, from US$8.6 billion to US$7.8 billion. Though the fall is moderate, it still leaves the level of post-crisis remittances above historical values. Using household income data for 2009, we found that only 7 percent of households that receive remittances from abroad are poor.<sup>16</sup> How this reduction affects poverty is fuzzy for two reasons. First, because most households that have a migrant are non poor; Roushdy et al. (2008) report that 87 percent of the migrants belong to non-poor households. Our estimates based on household income and expenditure survey reported in the previous paragraph show that in 2009, only 6.6 percent of the households who received remittances were poor. We did a simple partial equilibrium exercise of reducing the value of remittances by 10 percent, and examining how this would change the number of poor households: it increased to 6.7 percent, which is a trivial change. This result confirms Roushdy et.al.’s finding that whether a household receives remittances is not a significant determinant of the poverty likelihood of households. The second reason that explains the difficulty in assessing the impact of remittances on poverty lies in their effect on labor supply decisions, which also affect poverty. Initially Roushdy et al (2008) reported that having a migrant in the household reduces the likelihood of being poor by 4 or 5 percentage points, though the same study reported that receiving remittances did not affect the likelihood of a household being poor. Subsequent work by Assaad and Binzel (2009b) showed that most recipients of remittances are females and that their labor participation rates increase with remittances. Hence, any analysis of the impact on poverty of remittances would have to control for the labor supply effect, which, to our knowledge, has not been done. All this evidence casts serious doubt of any significant poverty impact of reduced remittances from abroad in the case of Egypt.

# **_3) The stabilization package_**

> 16 Poor are defined as those having an income lower than 2,232 LE per person per year (World Bank, 2010). To determine whether the household is poor, we multiply the 2,232 LE by the number of persons in the household and compare it with its income.

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