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EMEs and COVID-19 Shutting Down in a World of Informal and Tiny Firms Laura Alfaro, Oscar Becerra y Marcela Eslava

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  • Laura Alfaro
  • Oscar Becerra
  • Marcela Eslava

Abstract

Emerging economies are characterized by an extremely high prevalence of informality, small- firm employment and jobs not fit for working from home. These features factor into how the COVID-19 crisis has affected the economy. We develop a framework that, based on account-ing identities and actual data, quantifies potential job and income losses during the crisis and recovery for economies with different economic organization structures. Our analysis incorporates differential exposure of jobs across categories of firm-size and formality status, as well as sectors and occupations. We account for the direct supply shock caused by lockdowns, the idiosyncratic demand shock suffered by sectors that rely on high contact with their costumers, the transmission of both shocks through IO linkages, and the overall aggregate demand effect derived from these shocks. Applying our framework to data for Colombia, which exhibits an employment distribution similar to that of other emerging market countries, in particular Latin America, we find that well over 50% of jobs are at risk in the initial stages of the crisis. Because informal jobs and those not fit for telework are at higher risk, this number goes down to 33% if the US employment distribution is imposed on the Colombian data. As the crisis deepens, the risk of unemployment grows. However, informality rebounds quickly in the recovery, an employment at risk is quickly reduced to 20% of the baseline, all concentrated in formal jobs. Our findings point to the importance of action to maintain formal matches from dissolving, given their scarcity and rebuilding difficulty, while protecting the poor and the informal via income transfers.

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  • Laura Alfaro & Oscar Becerra & Marcela Eslava, 2020. "EMEs and COVID-19 Shutting Down in a World of Informal and Tiny Firms Laura Alfaro, Oscar Becerra y Marcela Eslava," Documentos CEDE 018193, Universidad de los Andes - CEDE.
  • Handle: RePEc:col:000089:018193
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    Cited by:

    1. Bardey, David & Fernandez Sierra, Manuel & Gravel, Alexis, 2021. "Coronavirus and Social Distancing: Do Non-Pharmaceutical-Interventions Work (at Least) in the Short Run?," IZA Discussion Papers 14095, Institute of Labor Economics (IZA).
    2. Marcela Eslava & Oscar Becerra & Juan Camilo Cárdenas & Margarita Isaacs & Daniel Mejía, 2019. "The socioeconomic patterns of COVID outside advanced economies: the case of Bogotá," Documentos CEDE 018525, Universidad de los Andes - CEDE.

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    More about this item

    Keywords

    COVID-19; emerging economies; informality; Örm-size distribution; Latin America.;
    All these keywords.

    JEL classification:

    • F - International Economics
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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