Trade and Informality in the Presence of Labor Market Frictions
Early Career Research Award
This project studies the effects of trade on unemployment and informality, with a focus on the role of the informal sector in influencing labor market responses to trade liberalization. We develop a model that can be succinctly described as a Melitz model with firm-level productivity shocks, convex hiring costs, linear firing costs, labor market frictions and formal and informal sectors. The model will be estimated using several sources of micro data from Brazil. Once the model is estimated, we will conduct a series of counterfactual simulations aiming to understand how policies targeting the formal and informal sectors interact with trade liberalization in shaping labor market outcomes and welfare.