Labor Earnings Dynamics in a Developing Economy with a Large Informal Sector
30 Pages Posted: 28 Feb 2018 Last revised: 16 Feb 2020
Date Written: January 18, 2020
We study labor earnings dynamics in a developing economy with a large informal sector. We use nationally representative Brazilian panel data that cover both formal and informal workers. We document large disparities in earnings fluctuations faced by these segments of the labor market, as well as the high frequency of transitions between them. Informality is associated with more volatile earnings, while workers in the formal sector are subject to significant downside risk. Transitions between formal and informal employment bring large asymmetric earnings shocks and have a frequency that depends on age and the initial earnings level.
Keywords: Earnings dynamics, higher-order earnings risk, non-Gaussian shocks, informality
JEL Classification: E24, E26, J24, J31, O17
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