Informal Labor Markets in Times of Pandemic

We document the evolution of labor markets of five Latin American countries during the COVID-19 pandemic, with emphasis on informal employment. We show, for most countries, a slump in aggregate employment, mirrored by a fall in labor participation, and a decline in the informality rate. The latter is unprecedented since informality had cushioned the decline in overall employment in previous recessions. Using a business cycle model with a rich labor market structure, we recover the shocks that rationalize the pandemic recession, showing that labor supply shocks and informal productivity shocks are essential to account for the employment and output loss and the decline in the share of informal workers. (Copyright: Elsevier)