relocation, for instance, compensation of moving expenses could be provided to workers showing proof of relocation, with the level of compensation potentially tied to the destination market.

Even for the same industry, mobility costs vary by workers’ skill level. In Georgia, Hollweg and Ruppert Bulmer (2015) find that it is more costly for unskilled workers to enter manufacturing and service jobs than skilled workers. Unskilled workers find it easier to access the agricultural and construction sectors of Georgia’s economy. If workers in the bottom 40 percent of the income distribution are more likely to be low-skilled, these individuals may find it more costly to re-enter employment through other sectors of the economy and may be disproportionally affected by a trade shock.

Entry costs into formal employment are significantly higher than for informal employment. This result of Arias-Vázquez et al. (2013) is not intuitively surprising, and is illustrated by data on worker flows into and out of formal and informal employment. In Morocco and Mexico, for example, Arias-Vázquez et al. find that informal workers are more likely to exit to the residual sector (unemployed/out of the labor force) rather than enter formal employment. In Brazil, by contrast, informality and formality are equally likely entry points for employment, and workers in the informal sector are more likely to move to the formal than to the residual sector.

The fact that informal jobs are easier to access is critical to understanding how the poor are affected by trade-related shocks. Given the preponderance of informal employment in developing countries<sup>14</sup> , and the relatively poor “quality” of informal jobs in terms of job security, benefits and earnings compared to formal jobs, on average vulnerable population groups at the bottom of the income distribution are more likely to be engaged in poorly paid informal activities. Hollweg, Lederman and Mitra (2014) conclude that trade liberalization that increases real wages can indeed be associated with increases in the share of informal employment. But the resulting increase in informal employment is not driven by an influx of displaced formal workers (which would represent a welfare loss), but rather by the entry into informality of previously marginalized workers, namely the unemployed or those outside the labor force. This result is illustrated by AriasVázquez et al. (2013) in simulations of the adjustment paths of sector wages and employment following an assumed trade shock that reduced manufacturing prices. The results indicate that a trade-related shock that permanently reduces domestic prices in developing countries leads to higher real wages (except in the negatively affected sector), which in turn provides incentives for workers to enter the labor force as the opportunity costs of remaining inactive rise. Alternatively, the increase in informal employment could be due to the “added worker” effect in which a second earner may enter the workforce from households hit by income losses. In both cases, workers choose to enter the labor force but mainly informally because entry costs are lower. This conclusion is consistent with evidence that trade opening increases economy-wide employment, and that the predominance of informal employment creation represents a welfare gain rather than indicating the destruction of “good” jobs.

Labor adjustment costs can be very large, and some workers will lose out in the short run, but workers generally gain in the long run through more jobs and higher wages. How are poor workers likely to fare in the short run? How long will it take for a displaced worker to return to his/her

> 14 According to the recent _World Development Report on Jobs_ (World Bank 2012), global studies of the incidence of informal employment in the developing world suggest that informality ranges from 40 to 80 percent of those employed.

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