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Trade and Labor Reallocation with Heterogeneous Enforcement of Labor Regulations

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  • Almeida, Rita K.

    ()
    (World Bank)

  • Poole, Jennifer Pamela

    ()
    (University of California, Santa Cruz)

Abstract

This paper revisits the question of how trade openness affects labor market outcomes in a developing country setting. We explore the fact that plants face varying degrees of exposure to global markets and to the enforcement of labor market regulations, and rely on Brazil's currency crisis in 1999 as an exogenous source of variation in access to foreign markets. Using administrative data on employers matched to their employees and on the enforcement of labor regulations at the city level over Brazil's main crisis period, we document that the way trade openness affects labor market outcomes for plants and workers depends on the stringency of de facto labor market regulations. In particular, we show for Brazil, a country with strict labor market regulations, that after a trade shock, plants facing stricter enforcement of the labor law decrease job creation and increase job destruction by more than plants facing looser enforcement. Consistent with our predictions, this effect is strongest among small, labor-intensive, non-exporting plants, for which labor regulations are most binding. These findings are consistent with the hypothesis that, in the context of strict de jure labor market regulations, increased enforcement limits the plant-level productivity gains associated with increased trade openness. Therefore, increasing the flexibility of de jure regulations may allow for broader access to the gains from trade.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7358.

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Length: 55 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7358

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Keywords: employer-employee data; globalization; enforcement; labor market regulations;

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References

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  1. Simon D. Woodcock, 2007. "Match Effects," Discussion Papers, Department of Economics, Simon Fraser University dp07-13, Department of Economics, Simon Fraser University.
  2. Gustavo Gonzaga & Naércio Menezes Filho & Cristina Terra, 2006. "Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 216, Centro Studi Luca d\'Agliano, University of Milano.
  3. Moreira, Mauricio Mesquita & Correa, Paulo Guilherme, 1998. "A first look at the impacts of trade liberalization on Brazilian manufacturing industry," World Development, Elsevier, Elsevier, vol. 26(10), pages 1859-1874, October.
  4. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers, National Bureau of Economic Research, Inc 11040, National Bureau of Economic Research, Inc.
  5. Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2014. "Wage Effects of Trade Reform with Endogenous Worker Mobility," Journal of International Economics, Elsevier, Elsevier, vol. 93(2), pages 239-252.
  6. Kaplan, David S., 2009. "Job creation and labor reform in Latin America," Journal of Comparative Economics, Elsevier, Elsevier, vol. 37(1), pages 91-105, March.
  7. Naércio Aquino Menezes-Filho & Marc-Andreas Muendler, 2011. "Labor Reallocation in Response to Trade Reform," NBER Working Papers, National Bureau of Economic Research, Inc 17372, National Bureau of Economic Research, Inc.
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Cited by:
  1. Flach, Lisandra & Irlacher, Michael, 2014. "Product versus Process: Innovation Strategies of Multi-Product Firms," Discussion Papers in Economics, University of Munich, Department of Economics 21022, University of Munich, Department of Economics.
  2. Wolfgang Lechthaler & Mariya Mileva, 2013. "Trade Liberalization and Wage Inequality: New Insights from a Dynamic Trade Model with Heterogeneous Firms and Comparative Advantage," Kiel Working Papers, Kiel Institute for the World Economy 1886, Kiel Institute for the World Economy.

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