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The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case

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  • Paz, Lourenco

Abstract

Several developing countries that underwent trade liberalization experienced an increase in the share of informal workers in manufacturing industries. This phenomenon deserves careful examination because informal jobs are not only generally viewed as low-quality and low-paying jobs, but they also account for more than 30% of the workforce in some countries. In this paper, I examine the effects of the Brazilian trade liberalization episode (1989-2001) on the industry-level share of informal workers and on the average formal and informal wages. I find that a percentage point decrease in import tariffs increases the informality share by 0.09 percentage points and the average informal wage by 0.06%, and decreases the average formal wage by 0.05%. A similar change in foreign import tariffs decreases the informality share by 0.17 percentage points and the average informal wage by 0.34%, and increases the average formal wage by 0.32%. The results are found to be robust to endogeneity and self-selection concerns, which are addressed using instrumental variables and a switching regressions approach.

Suggested Citation

  • Paz, Lourenco, 2012. "The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case," MPRA Paper 38858, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38858
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    References listed on IDEAS

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    Cited by:

    1. Mélika Ben Salem & Chahir Zaki, 2017. "Revisiting the Impact of Trade Openness on Informal and Irregular Employment in Egypt," Working Papers 1107, Economic Research Forum, revised 06 2002.
    2. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex.
    3. Matthew Embrey & Guillaume R. Frechette & Sevgi Yuksel, 2016. "Cooperation in the Finitely Repeated Prisoner's Dilemma," Working Paper Series 8616, Department of Economics, University of Sussex.
    4. Lourenco S. Paz, 2013. "Trade liberalization and inter-industry productivity spillovers: a dynamic spatial panel approach," Economics Bulletin, AccessEcon, vol. 33(3), pages 2379-2393.
    5. Paz, Lourenco, 2012. "The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case," MPRA Paper 38858, University Library of Munich, Germany.
    6. Fairris, David & Jonasson, Erik, 2016. "Determinants of Changing Informal Employment in Brazil, 2000–2010," MPRA Paper 71475, University Library of Munich, Germany.
    7. Irène Selwaness & Chahir Zaki, 2013. "Assessing the Impact of Trade Reforms on Informality in Egypt," Working Papers 759, Economic Research Forum, revised Jun 2013.

    More about this item

    Keywords

    informal labor markets; trade liberalization; Brazil;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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