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The Determinants of Rising Informality in Brazil: Evidence from Gross Worker Flows

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Author Info
Mariano Bosch () (London School of Economics)
Edwin Goni () (World Bank)
William Maloney () (World Bank and IZA)

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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 far-reaching 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 informality 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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2970.

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Length: 58 pages
Date of creation: Aug 2007
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Handle: RePEc:iza:izadps:dp2970

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Related research
Keywords: gross worker flows; labor market dynamics; informality; labor costs; trade liberalization;

Other versions of this item:

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
  4. Gabriel Ulyssea, 2005. "Informalidade no Mercado de Trabalho Brasileiro : Uma Resenha da Literatura," Discussion Papers 1070, Instituto de Pesquisa Econômica Aplicada - IPEA. [Downloadable!]
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  9. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  10. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508. [Downloadable!]
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  14. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  15. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 397-407, October. [Downloadable!] (restricted)
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  17. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
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  20. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July. [Downloadable!] (restricted)
    Other versions:
  21. Geweke, John & Marshall, Robert C & Zarkin, Gary A, 1986. "Mobility Indices in Continuous Time Markov Chains," Econometrica, Econometric Society, vol. 54(6), pages 1407-23, November. [Downloadable!] (restricted)
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  25. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. A. Kugler, M. Kugler, 2008. "Labour Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia," Working Papers eg0056, Wilfrid Laurier University, Department of Economics, revised 2008. [Downloadable!]
    Other versions:
  2. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who Are the Microenterprise Owners? Evidence from Sri Lanka on Tokman v. de Soto," IZA Discussion Papers 3511, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Bosch, Mariano & Maloney, William F., 2008. "Cyclical Movements in Unemployment and Informality in Developing Countries," IZA Discussion Papers 3514, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Bosch, Mariano & Maloney, William, 2008. "Cyclical movements in unemployment and informality in developing countries," Policy Research Working Paper Series 4648, The World Bank. [Downloadable!]
  5. Kaplan, David S., 2008. "Job creation and labor reform in Latin America," Policy Research Working Paper Series 4708, The World Bank. [Downloadable!]
    Other versions:
  6. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2008. "Informality and Macroeconomic Fluctuations," IZA Discussion Papers 3519, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Norbert Fiess & Marco Fugazza, 2008. "Trade Liberalisation and Informality: New stylized facts," Working Papers 2008_34, Department of Economics, University of Glasgow. [Downloadable!]
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