Dix-Carneiro and Kovak Trade Reform and Regional Dynamics sectors are strongly integrated. Workers initially employed in the nontradable sector experienced very similar employment and earnings effects to those initially employed in the tradable sector, with only a slightly smaller magnitude. Employment losses for initially tradable sector workers were partly offset by transitions into nontradable employment. More strikingly, employment losses for initially nontradable sector workers occurred primarily through reduced subsequent transitions into tradable employment, highlighting the close integration of the two sectors.

# **7 Informal Employment and Non-Employment**

In the preceding analyses, we focus on outcomes for formally employed workers. The formal sector is of particular interest for a variety of reasons. It is more capital intensive, dynamic, and productive than the informal sector, and formal jobs are generally seen as being of much higher quality than informal jobs (LaPorta and Schleifer 2008, Fajnzylber, Maloney and Montes-Rojas 2011, LaPorta and Schleifer 2014). Formal employment gives workers access to all of the benefits and labor protections afforded them by the legal employment system, while informal jobs generally provide minimal benefits and fail to comply with various labor regulations. Hence, transitions out of formal employment generally involve important declines in worker wellbeing even if displaced workers later find informal employment. Finally, focusing on formal employment allows us to carefully observe worker adjustment by taking advantage of the RAIS administrative panel data.

In this section we supplement the main formal sector results with additional analyses examining the roles of informal employment and non-employment in the regional labor market adjustment patterns documented above.<sup>41</sup> Trade policy’s effects on informality are also of independent interest, as evidenced by a large and growing academic literature.<sup>42</sup> Import competition may increase pressure on firms to cut costs by failing to comply with labor regulations, and informal jobs are often characterized as providing lower compensation, fewer opportunities for training and advancement, and generally less favorable working conditions (Goldberg and Pavcnik 2007, Bacchetta et al. 2009). Together, these concerns have made informality a prominent issue in public debates over globalization in the developing world (Bacchetta et al. 2009).

We examine informal employment and non-employment using the Decennial Census, which covers all individuals, including those outside formal employment. Because the Census consists of repeated cross-sections rather than panel data as in RAIS, our conclusions in this section will necessarily be somewhat more speculative than those for the formal sector. The 1991-2010 Censuses report whether a worker has a work card signed by their employer, which determines formal

> 41We focus on non-employment, which includes both unemployment and out of the labor force. This approach allows us to avoid changing labor force definitions over time and captures transitions into unemployment and out of the labor force, both of which may be affected by trade reform.

> 42See Goldberg and Pavcnik (2007) and Paz (2014) for literature reviews with relevant citations.

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