Natural Disasters and Informality: Are local labor markets impacted after an earthquake?

Abstract

This article studies the probability of being part of informal labor markets after a natural disaster. We consider different concepts of labor market informality and use empirical definitions for employment in the informal sector and informal employment. Since the Ecuadorian earthquake may be considered a natural experiment, we perform a two stage identification strategy using both coarsened exact matching (CEM), and nonlinear difference in differences (DD) using individual panel data. We use a fully exogenous measurement of intensity (Peak Ground Acceleration, PGA), which is continuous, and has not been subject to possible arbitrariness in its definition. We found that the earthquake had a positive effect in the likelihood of being part of informal sector if workers are located in the affected areas; we also identified significant gender differences, since a causal effect for men was found, but not for women. When we use the concept of informality based in jobs (informal employment) instead of companies (informal sector), no robust evidence of a causal effect was found. Our results suggest that the government's reconstruction efforts could had attenuated the effect of the disaster over informality in the most affected zones.

Workplace Situation and Well-Being of Ecuadorian Self-Employed

“…Two main motivations led us to focus our analysis on the Ecuadorian Manabí entrepreneur: his high weight in the Ecuadorian economy [164] and the new labor economic context that arose due to the pandemic in precarious terms [55]. The self-employed have been affected by the COVID-19 crisis in many different ways.…”

Regional labor markets after an earthquake. Short-term emergency reactions in a cross-country perspective. Cases from Chile, Ecuador, Italy

“…Although the literature has already empirically determined some effects of disasters on labor markets, some studies have focused on high income countries (Horwich 2000;Belasen and Polachek 2008;Di Pietro and Mora 2015;Karnani 2015;Dresdner and Sehnbruch 2010), while others have looked at developing and middle income countries (Mueller and Quisumbing 2009;Rodríguez-Oreggia et al 2013;Gagnon 2013;Mendoza and Jara 2020).…”

“…Ewing et al (2005) evaluate changes in the labor market as a result of Hurricane Bret (1999) and the following recovery, finding that the unemployment rate in the long run is reduced. In developing countries other perspectives must be considered, such as social vulnerability, segregation and informality (Mendoza and Jara 2020).…”

“…Therefore, it is reasonable to think that labor markets dynamics within the seismic zones will be affected. Research in this area has documented increases in unemployment (Xiao and Feser 2014) and shifts towards informality (Mendoza and Jara 2020), how job seekers change their behavior (Ohtake et al 2012) and mismatches between job offers and demand (Higuchi et al 2012;Ohtake et al 2012). Earthquakes could also cause structural changes in the medium or long run (Belasen and Polachek 2008;Mehregan et al 2012).…”

Regional differences in the epidemic shock on the local labor market and its spread

“…Numerous other studies have also analyzed the regional heterogeneity of the damage caused by, and the recovery from economic recession (Davies, 2011;Fingleton et al 2015;Giannakis and Bruggeman, 2020;Martin et al 2016). Not only has recovery from economic shock been analyzed, but also the recovery of regional economies from disasters such as hurricanes, floods, and earthquakes (Bondonio and Greenbaum, 2018;Mendoza and Jara, 2020;Wickes et al 2015;Zottarelli, 2008).…”