The Determinants Of Rising Informality In Brazil : Evidence From Gross Worker Flows

Abstract

This paper studies gross worker flows to explain the rising informality in Brazilian metropolitan labor markets from 1983-2002. This period covers two economic cycles, several stabilization plans, a farreaching trade liberalization, and changes in labor legislation through the Constitutional reform of 1988. Focusing first on cyclical patterns, we confirm Bosch and Maloney's (2006) findings for Mexico that the patterns of worker transitions between formality and informality correspond primarily to the job-to-job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. However, we also confirm distinct cyclical patterns of job finding and separation rates that lead to the informal sector absorbing more labor during downturns. Second, focusing on secular movements in gross flows and the volatility of flows, we find the rise in formality to be driven primarily by a reduction in job finding rates in the formal sector. A small fraction of this is driven by trade liberalization, and the remainder seems driven by the rising labor costs and reduced flexibility arising from Constitutional reform.

Informal Workers across Europe: Evidence from 30 European Countries

“…The first approach is used in studies focusing on transitions between sectors and labor market states (e.g. Bosch et al (2007), Bosch and Maloney (2010), Nikolova et al (2010)), as well in cases when data come from surveys where questions on shadow activities refer to a much longer period (e.g. 12 months) than the ones used in ILO definitions of employment (e.g.…”

Does Informal Employment Respond to Growth Opportunities? Trade-Based Evidence from Bangladesh

“…Recent evidence from Vietnam demonstrates that reductions in export tariffs caused a reallocation of workers away from household business enterprises towards the formal sector (McCaig and Pavcnik 2014). In contrast, Bosch et al (2007) find little evidence of a link between trade liberalization in Brazil and informality. Similarly, Goldberg and Pavcnik (2003) find no impact of import tariff reductions in Brazil on informal employment and weak effects in Colombia.…”

“…is potentially endogenous in Equation 5. For instance, due to social or political pressures, OECD countries might choose to import more from sectors which have higher formal employment and provide a broad array of employee benefits, which would generate reverse causality between employment in a particular category and exports.…”

“…5 We might expect contemporaneous demand to have an impact on employment if employers hire more workers, or individuals start or expand their businesses, in order to fulfill new export-driven orders. But we also examine the effects of lagged trade shocks on employment for two reasons.…”

Economic expansion and increase in labout market formality: a poaching approach

“…First, as pointed out in Barros et al (1993), the dualism theory is not compatible with the fact that the wage gap between the formal and informal sectors is procyclical, a phenomenon that has been previously observed in Brazil in other periods. Second, the imposition of restrictions on the flow of workers between the informal and formal sectors was empirically contested by Bosch et al (2007), among others.…”