Informal Work as a Fallback: Vision Impairment, Employment, and Policy in Brazil

Informal work may allow workers with functional limitations to remain employed when formal jobs become too costly to hold, rather than reflecting exclusion from good jobs. In Brazil’s 2019 Pesquisa Nacional de Saude, severe but partial vision impairment is associated with a formal employment rate 20.9 percentage points lower than among individuals with no difficulty, but with no difference in informal employment. The asymmetry survives adjustment for observables and other functional limitations, and it is not shared by mobility, upper-limb, or mental limitations. These patterns alone cannot reveal where affected workers would go if informal work were unavailable, or how policy would reallocate them. To answer these questions, we build a general-equilibrium incomplete-markets model in which individuals choose among formal work, informal work, and non-employment. Informal work is less productive, while formal work carries a rigidity cost that rises with functional limitation. We calibrate the model to occupational shares across four vision states. In the model, eliminating informal work lowers employment by 17.6 percentage points among individuals with a vision limitation. In illustrative counterfactuals, policies that reduce informality send workers to different destinations: stricter enforcement into non-employment, workplace accommodation into formal jobs, and broader disability-benefit eligibility into supported non-employment. Changes in informality are therefore an unreliable guide to the effects of disability and formalization policy.