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Labor earnings dynamics in a developing economy with a large informal sector

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  • Gomes, Diego B.P.
  • Iachan, Felipe S.
  • Santos, Cezar

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.

Suggested Citation

  • Gomes, Diego B.P. & Iachan, Felipe S. & Santos, Cezar, 2020. "Labor earnings dynamics in a developing economy with a large informal sector," Journal of Economic Dynamics and Control, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:dyncon:v:113:y:2020:i:c:s0165188920300245
    DOI: 10.1016/j.jedc.2020.103854
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    Cited by:

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    2. Emilio Colombo & Davide Furceri & Pietro Pizzuto & Patrizio Tirelli, 2022. "Fiscal Multipliers and Informality," IMF Working Papers 2022/082, International Monetary Fund.
    3. Niklas Engbom & Gustavo Gonzaga & Christian Moser & Roberta Olivieri, 2022. "Earnings inequality and dynamics in the presence of informality: The case of Brazil," Quantitative Economics, Econometric Society, vol. 13(4), pages 1405-1446, November.
    4. Luduvice, André Victor D. & Martinez, Tomás R. & Sollaci, Alexandre B., 2024. "Minimum Wage, Business Dynamism, and the Life Cycle of Firms," IDB Publications (Working Papers) 13444, Inter-American Development Bank.
    5. Delalibera, Bruno Ricardo & Ferreira, Pedro Cavalcanti & Parente, Rafael Machado, 2023. "Social security reforms, retirement and sectoral decisions," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 838, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    6. Arbex Marcelo & Corrêa Márcio V. & Magalhães Marcos R. V., 2023. "Tolerance of Informality and Occupational Choices in a Large Informal Sector Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 23(1), pages 241-278, January.
    7. Ursula Mello & Tomas Rodriguez Martinez, 2020. "Trade-induced Local Labor Market Shocks and Asymmetrical Labor Income Risk," Working Papers 1230, Barcelona School of Economics.
    8. Gustavo Leyva & Carlos Urrutia, 2023. "Informal Labor Markets in Times of Pandemic," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 158-185, January.
    9. Leyva Gustavo & Urrutia Carlos, 2021. "Informal Labor Markets in Times of Pandemic: Evidence for Latin America and Policy Options," Working Papers 2021-21, Banco de México.
    10. Delalibera, Bruno Ricardo & Ferreira, Pedro Cavalcanti & Parente, Rafael Machado, 2024. "Social security reforms, retirement and sectoral decisions," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 842, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    11. Colombo, Emilio & Furceri, Davide & Pizzuto, Pietro & Tirelli, Patrizio, 2024. "Public expenditure multipliers and informality," European Economic Review, Elsevier, vol. 164(C).
    12. Central Bank of Brazil, 2023. "Inflation and labour markets in the wake of the pandemic: the case of Brazil," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation and labour markets, volume 127, pages 35-66, Bank for International Settlements.

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    More about this item

    Keywords

    Earnings dynamics; Higher-order earnings risk; Non-Gaussian shocks; Informality;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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