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Title:Informality and macroeconomic fluctuations PDF Logo
Authors:Fiess, Norbert M.
Fugazza, Marco
Maloney, William F.
Issue Date:2008
Series/Report no.:IZA Discussion Papers 3519
Abstract:This paper examines the adjustment of developing country labor markets to macroeconomic shocks. It models as having two sectors: a formal salaried (tradable) sector that may or may not be affected by union or legislation induced wage rigidities, and an informal (nontradable) self-employment sector facing liquidity constraints to entry. This is embedded in a standard small economy macro model that permits the derivation of patterns of comovement among relative salaried/self-employed incomes, salaried/self-employed sector sizes and the real exchange rate with respect to different types of shocks in contexts with and without wage rigidities. The paper then explores time series data from Argentina, Brazil, Colombia and Mexico to test for cointegrating relationships corresponding to the patterns predicted by theory. We confirm episodes of expansion of informal self-employment consistent with the traditional segmentation views. However, we also identify episodes consistent with the sectoral expansion being driven by relative demand or productivity shocks to the nontradables sector that lead to procyclical” behavior of the informal self-employed sector.
Subjects:Informality
labor market dynamics
self-employment
real exchange rates
JEL:F41
Persistent Identifier of the first edition:urn:nbn:de:101:1-20080605148
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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