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The determinants of rising informality in Brazil : Evidence from gross worker flows

  • Bosch, Mariano
  • Goni, Edwin
  • Maloney, William

This paper studies gross worker flows to explain the rising informality in Brazilian metropolitan labor markets from 1983 to 2002. This period covers two economic cycles, several stabilization plans, a far-reaching trade liberalization, and changes in labor legislation through the Constitutional reform of 1988. First, focusing on cyclical patterns, the authors confirm that for Brazil, the patterns of worker transitions between formality and informality correspond primarily to the job-to-job dynamics observed in the United States, and not to the traditional idea of the informal queuing for jobs in a segmented market. However, the analysis also confirms distinct cyclical patterns of job finding and separation rates that lead to the informal sector absorbing more labor during downturns. Second, focusing on secular movements in gross flows and the volatility of flows, the paper finds the rise in informality to be driven primarily by a reduction in job finding rates in the formal sector. A small fraction of this is driven by trade liberalization, and the remainder seems driven by rising labor costs and reduced flexibility arising from Constitutional reform.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4375.

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Date of creation: 01 Oct 2007
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Handle: RePEc:wbk:wbrwps:4375
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  1. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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  7. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
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  9. Ricardo Paes de Barros & Carlos Henrique Corseuil, 2004. "The Impact of Regulations on Brazilian Labor Market Performance," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 273-350 National Bureau of Economic Research, Inc.
  10. Gabriel Ulyssea, 2005. "Informalidade no Mercado de Trabalho Brasileiro : Uma Resenha da Literatura," Discussion Papers 1070, Instituto de Pesquisa Econômica Aplicada - IPEA.
  11. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  12. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2007. "Informal Labor Markets and Macroeconomic Fluctuations," Proceedings of the German Development Economics Conference, Göttingen 2007 6, Verein für Socialpolitik, Research Committee Development Economics.
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  14. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  15. Gustavo Gonzaga, 2003. "Labor Turnover and Labor Legislation in Brazil," Textos para discussão 475, Department of Economics PUC-Rio (Brazil).
  16. Leonardo Gasparini & Leopoldo Tornarolli, 2007. "Labor Informality in Latin America and the Caribbean: Patterns and Trends from Household Survey Microdata," CEDLAS, Working Papers 0046, CEDLAS, Universidad Nacional de La Plata.
  17. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  18. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  19. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  20. Geweke, John & Marshall, Robert C & Zarkin, Gary A, 1986. "Mobility Indices in Continuous Time Markov Chains," Econometrica, Econometric Society, vol. 54(6), pages 1407-23, November.
  21. Jack, William, 2000. "Health insurance reform in four Latin American countries : theory and practice," Policy Research Working Paper Series 2492, The World Bank.
  22. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
  23. Gustavo Gonzaga & Naércio Menezes Filho & Maria Cristina Terra, 2005. "Trade liberalization and the evolution of skill earnings differentials in Brazil," Textos para discussão 503, Department of Economics PUC-Rio (Brazil).
  24. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc.
  25. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
  26. Neri, Marcelo Cortes, 2006. "Informalidade," Economics Working Papers (Ensaios Economicos da EPGE) 635, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  27. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
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