Informality and trade
Dix-Carneiro and al. in their paper use two definitions of informality: the first, defines a worker as informal if she does not have permanent and stable employment associated with benefits such as health and social security. The second, defines a worker as informal if, in addition to not receiving benefits, she is invisible to the tax authorities and her employer illegally evades labor market regulations. They find:
- The informal sector works as a buffer when the economy is hit with negative shocks. The effects of a negative aggregate productivity shock on unemployment and welfare are larger in an economy without an informal sector.
- Trade: Increasing trade openness, reducing the burden of labor market regulations and growth are not enough to offset the misallocation caused by taxes and a large informal sector.
T:Tradable, NT:Non-Tradable
Trade and Informality in the Presence of Labor Market Frictions and Regulations
Authors: Rafael Dix-Carneiro, Pinelopi Goldberg, Costas Meghir, Gabriel Ulyssea
From: Duke University, World Bank, Yale University, University of Oxford
