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Trade, informal employment and labor adjustment costs

Javier Arias, Erhan Artuc, Daniel Lederman and Diego Rojas

No 6614, Policy Research Working Paper Series from The World Bank

Abstract: Informal employment is ubiquitous in developing countries, but few studies have estimated workers'switching costs between informal and formal employment. This paper builds on the empirical literature grounded in discrete choice models to estimate these costs. The results suggest that inter-industry labor mobility costs are large, but entry costs into informal employment are significantly lower than the costs of entry in formal employment. Simulations of labor-market adjustments caused by a trade-related fall in manufacturing goods prices indicate that the share of informally employed workers rises after liberalization, but this is due to entry into the labor market by previously idle labor.

Keywords: Labor Markets; Labor Policies; Economic Theory&Research; Work&Working Conditions; Labor Standards (search for similar items in EconPapers)
Date: 2013-09-01
New Economics Papers: this item is included in nep-dcm, nep-dev, nep-int, nep-iue and nep-lab
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