Trade, Informal Employment and Labor Adjustment Costs

36 Pages Posted: 20 Apr 2016

See all articles by Javier Arias

Javier Arias

World Bank

Erhan Artuc

World Bank; World Bank - Development Research Group (DECRG)

Daniel Lederman

World Bank - Latin America and Caribbean Region

Diego Rojas

World Bank

Date Written: September 1, 2013

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

Suggested Citation

Arias, Javier and Artuc, Erhan and Lederman, Daniel and Rojas, Diego, Trade, Informal Employment and Labor Adjustment Costs (September 1, 2013). World Bank Policy Research Working Paper No. 6614, Available at SSRN: https://ssrn.com/abstract=2328994

Javier Arias (Contact Author)

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Erhan Artuc

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Daniel Lederman

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

Diego Rojas

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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