Labor Earnings Dynamics in a Developing Economy with a Large Informal Sector

30 Pages Posted: 28 Feb 2018 Last revised: 16 Feb 2020

See all articles by Diego B. P. Gomes

Diego B. P. Gomes

International Monetary Fund (IMF)

Felipe Iachan

FGV

Cezar Santos

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Date Written: January 18, 2020

Abstract

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

Suggested Citation

B. P. Gomes, Diego and Iachan, Felipe and Santos, Cezar, Labor Earnings Dynamics in a Developing Economy with a Large Informal Sector (January 18, 2020). Journal of Economic Dynamics and Control, Vol. 113, 2020, Available at SSRN: https://ssrn.com/abstract=3126361 or http://dx.doi.org/10.2139/ssrn.3126361

Diego B. P. Gomes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Felipe Iachan

FGV ( email )

Praia de Botofogo, 190
Rio de Janeiro, RJ 22411-060
Brazil

Cezar Santos

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

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

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