Unfolding Trade Effect in Two Margins of Informality. The Peruvian Case

Camila Cisneros-Acevedo

No 9114, CESifo Working Paper Series from CESifo

Abstract: This paper studies the effect of an increase in import competition on informality along two margins. I consider the extensive margin, where workers are hired by unregistered employers and the intensive margin, where even though jobs are carried out in registered firms, employees are off the books. Peru's relentless informal employment and its unprecedented trade-driven growth provides an ideal case study. Using a rich household survey, I find that exposure to trade impacts on informality through two competing and contrasting mechanisms. On the one hand, extensive-informal employment declines as unregistered employers shrink or exit due to their low productivity. On the other hand, intensive-informal employment rises as registered employers reduce costs by hiring informal workers. Furthermore, results suggest that the intensive margin drives the overall effect. Hence, I find that trade liberalisation increases informality.

Keywords: trade liberalization; labour informality; Peru (search for similar items in EconPapers)
JEL-codes: F14 F16 J46 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-dev, nep-int, nep-iue and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9114

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