Trade and Labor Reallocation with Heterogeneous Enforcement of Labor Regulations

55 Pages Posted: 4 May 2013

See all articles by Rita Almeida

Rita Almeida

World Bank; IZA Institute of Labor Economics

Jennifer P. Poole

University of California, Santa Cruz

Abstract

This paper revisits the question of how trade openness affects labor market outcomes in a developing country setting. We explore the fact that plants face varying degrees of exposure to global markets and to the enforcement of labor market regulations, and rely on Brazil's currency crisis in 1999 as an exogenous source of variation in access to foreign markets. Using administrative data on employers matched to their employees and on the enforcement of labor regulations at the city level over Brazil's main crisis period, we document that the way trade openness affects labor market outcomes for plants and workers depends on the stringency of de facto labor market regulations. In particular, we show for Brazil, a country with strict labor market regulations, that after a trade shock, plants facing stricter enforcement of the labor law decrease job creation and increase job destruction by more than plants facing looser enforcement. Consistent with our predictions, this effect is strongest among small, labor-intensive, non-exporting plants, for which labor regulations are most binding. These findings are consistent with the hypothesis that, in the context of strict de jure labor market regulations, increased enforcement limits the plant-level productivity gains associated with increased trade openness. Therefore, increasing the flexibility of de jure regulations may allow for broader access to the gains from trade.

Keywords: employer-employee data, globalization, enforcement, labor market regulations

JEL Classification: F16, J6, J8

Suggested Citation

Almeida, Rita and Poole, Jennifer, Trade and Labor Reallocation with Heterogeneous Enforcement of Labor Regulations. IZA Discussion Paper No. 7358. Available at SSRN: https://ssrn.com/abstract=2260673

Rita Almeida (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jennifer Poole

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

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