Trade and Informality in the Presence of Labor Market Frictions and Regulations

Rafael Dix-Carneiro, Pinelopi Goldberg, Costas Meghir () and Gabriel Ulyssea
Additional contact information
Costas Meghir: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/costas-meghir
Gabriel Ulyssea: University College London

No 2271, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show that: (1) Trade openness unambiguously decreases informality in the tradable sector, but has ambiguous effects on aggregate informality. (2) The productivity gains from trade are understated when the informal sector is omitted. (3) Trade openness results in large welfare gains even when informality is repressed. (4) Repressing informality increases productivity, but at the expense of employment and welfare. (5) The effects of trade on wage inequality are reversed when the informal sector is incorporated in the analysis. (6) The informal sector works as an "unemployment," but not a "welfare buffer" in the event of negative economic shocks.

JEL-codes: F14 F16 J46 O17 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021-01
New Economics Papers: this item is included in nep-dev, nep-dge, nep-int, nep-iue, nep-lam, nep-lma and nep-ltv
References: Add references at CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
https://cowles.yale.edu/sites/default/files/files/pub/d22/d2271.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Trade and Informality in the Presence of Labor Market Frictions and Regulations (2021)
Working Paper: Trade and informality in the presence of labor market frictions and regulations (2021)
Working Paper: Trade and Informality in the Presence of Labor Market Frictions and Regulations (2021)
Working Paper: Trade and Informality in the Presence of Labor Market Frictions and Regulations (2021)
Working Paper: Trade and Informality in the Presence of Labor Market Frictions and Regulations (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:2271

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Brittany Ladd ().