2018; Dix-Carneiro et al., 2021). Yet, these effects operate through competition. Our hypothesis is that an environment with low competition and protected firms is likely to hamper these effects. We test this hypothesis by estimating a modified version of Equation (5) using several proxies for the degree of competition or protection: indicator variables for higher than median versus lower than median Herfindahl index of concentration at the 3-digit sector level (based on firm employment shares) and indicator variables for state-owned firms (identified in the RAIS database) versus non-state-owned firms.<sup>42</sup> Table 8 shows that GFC firm shocks do not result in any downward employment or real wage adjustment for workers in sectors where few firms hold a large percentage of the market share nor for workers in state-owned firms, whereas significant negative impacts are found for workers in less concentrated sectors and in non-state-owned<sup>43</sup> All in all, Brazilian workers employed by firms facing less competition are more insulated from the GFC than workers employed by less protected firms. An alternative interpretation might be that this heterogeneity analysis reflects productivity rather than lack of competition. Indeed, higher concentration may reflect the existence of one or a few large firms and such firms tend to be more productive and have better access to credit which may enable them to better cope with negative shocks. In that case, our findings would suggest that more productive firms cope better with shocks and protect employment to a greater extent. This would imply that more productive firms capture larger shares of employment, which in turn could improve productivity in a cleansing sense. However, two elements dismiss this alternative interpretation. One the one hand, there is strong evidence that state-owned firms, while large, have lower rather than higher productivity compared to other firms (Shleifer, 1998; Harrison et al., 2019) and they are connected firms aiming to shield their market position (Colonnelli & Prem, 2022). On the other hand, unreported results show no employment insulation for non-state-owned large firms, suggesting that the connectedness and lack of competition felt by state-owned firms is what drives the results rather than their large size.

# **VI. Effectiveness of Compensatory Mechanisms**

Workers may adjust to changes in employment and earnings by seeking government support. This support normally takes the form of unemployment insurance, need-based cash transfer programs and/or job training. While the Brazilian government provides unemployment insur-

> 42It would be preferable to measure the Herfindahl index of concentration based on firm output shares since heavily concentrated sectors in terms of employment may simply reflect one large and highly productive firm rather than the lack of competition. Unfortunately due to restrictions in access to the Brazilian firm-level PIA data, we can only use firm employment shares. The competition variables are measured based on the worker’s firm and sector as of 2008.

> 43The result for state-owned firms is weak statistically but that is expected given the very small percentage of the sample that is accounted for by workers in state-owned firms (1.5%).

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