The Determinants of Rising Informality in Brazil: Evidence from Gross Worker Flows

Mariano Bosch, Edwin Goni Pacchioni and William Maloney

No 2970, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies gross worker flows to explain the rising informality in Brazilian metropolitan labor markets from 1983-2002. 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. Focusing first on cyclical patterns, we confirm Bosch and Maloney’s (2006) findings for Mexico that the patterns of worker transitions between formality and informality correspond primarily to the job-to-job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. However, we also confirm 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, we find 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 the rising labor costs and reduced flexibility arising from Constitutional reform.

Keywords: gross worker flows; labor market dynamics; informality; labor costs; trade liberalization (search for similar items in EconPapers)
JEL-codes: F16 J23 J38 J63 J65 O17 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2007-08
New Economics Papers: this item is included in nep-dev and nep-int
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Citations: View citations in EconPapers (97)

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Working Paper: The determinants of rising informality in Brazil: Evidence from gross worker flows (2007)
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