Cyclical Movements in Unemployment and Informality in Developing Countries
This paper analyzes the cyclical properties of worker flows in Brazil and Mexico, two important developing countries with large unregulated or informal sectors. It generates three stylized facts that are critical to the accurate modeling of the...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2008/06/9563341/cyclical-movements-unemployment-informality-developing-countries http://hdl.handle.net/10986/6672 |
| Summary: | This paper analyzes the cyclical
properties of worker flows in Brazil and Mexico, two
important developing countries with large unregulated or
informal sectors. It generates three stylized facts that
are critical to the accurate modeling of the sector and
which suggest the need to rethink the approaches to date.
First, the unemployment rate is countercyclical essentially
because job separations of informal workers increase
dramatically in recessions. Second, the share of formal
employment is countercyclical because of the difficulty of
finding formal jobs from inactivity, unemployment and other
informal jobs during recessions rather than because of
increased separation from formal jobs. Third, flows from
formality into informality are not countercyclical, but, if
anything, pro-cyclical. Together, these challenge the
conventional wisdom that has guided the modeling the sector
that informal workers are primarily those rationed out of
the formal labor market. They also offer a new synthesis of
the mechanics of the cyclical adjustment process. Finally,
the paper offers estimates of the moments of worker flows
series that are needed for calibration. |
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