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Trade, informal employment and labor adjustment costs

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  • Arias, Javier
  • Artuc, Erhan
  • Lederman, Daniel
  • Rojas, Diego

Abstract

Informal employment is ubiquitous in developing countries, but few studies have estimated workers'switching costs between informal and formal employment. This paper builds on the empirical literature grounded in discrete choice models to estimate these costs. The results suggest that inter-industry labor mobility costs are large, but entry costs into informal employment are significantly lower than the costs of entry in formal employment. Simulations of labor-market adjustments caused by a trade-related fall in manufacturing goods prices indicate that the share of informally employed workers rises after liberalization, but this is due to entry into the labor market by previously idle labor.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6614.

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Date of creation: 01 Sep 2013
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Handle: RePEc:wbk:wbrwps:6614

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Related research

Keywords: Labor Markets; Labor Policies; Economic Theory&Research; Work&Working Conditions; Labor Standards;

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  1. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo Group Munich.
  2. Raymundo M. Campos-Vazquez & Melissa A. Knox, . "Social Protection Programs and Employment: The Case of Mexico's Seguro Popular Program," Working Papers UWEC-2011-10, University of Washington, Department of Economics.
  3. Erhan Artu� & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-45, June.
  4. Erhan Artuç & John McLaren, 2012. "Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility," NBER Working Papers 18503, National Bureau of Economic Research, Inc.
  5. Artuc, Erhan, 2013. "PPML estimation of dynamic discrete choice models with aggregate shocks," Policy Research Working Paper Series 6480, The World Bank.
  6. Rafael Dix-Carneiro, 2010. "Trade Liberalization and Labor Market Dynamics," Working Papers 1273, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. Angel-Urdinola, Diego F. & Tanabe, Kimie, 2012. "Micro-determinants of informal employment in the Middle East and North Africa region," Social Protection Discussion Papers 66594, The World Bank.
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