On trade policy and workers’ transition between the formal and informal sectors: An application to the MENA region in the time of COVID-19

This paper looks at the transition of workers in the MENA region between formal and informal jobs during the COVID-19 pandemic, and investigates whether trade policy could be adopted as a measure to enhance the transition of workers from the informal to the formal sector. We use the combined COVID-19 MENA Monitor Household Survey constructed by the Economic Research Forum for 5 MENA countries and 11 sectors. This topic is timely and critical for the MENA region where informal employment is widespread, applied tariffs are still high, and female labor participation is low. Our results show that: first, fewer trade restrictions are associated with an increased probability for the worker to become formal and this effect is more pronounced post-pandemic. Second, fewer trade restrictions are linked to an increase in the probability of becoming formal for blue collars only, with an insignificant effect on white collars. Third, fewer trade restrictions are associated with an increase in the probability of men to become formal, with an insignificant effect on women. Finally, the effect of trade policy on job formality depends on the sectoral occupation of the individual with this effect being more pronounced in agriculture and manufacturing relatively to services sectors.