Dix-Carneiro and Kovak Trade Reform and Regional Dynamics tradable industry indicators, tenure at the plant), initial employer characteristics (log employment, exporting indicator, log exports, importing indicator, log imports), and initial region characteristics (state indicators, pre-liberalization (1986-89) earnings and formal employment growth, a control for the pre-liberalization (1986-89) level of each outcome of interest, and controls for other pre-liberalization conditions related to the particular outcome).<sup>35</sup> This specification compares subsequent labor market outcomes for two otherwise observationally equivalent workers who in 1989 happened to live in regions facing different local trade shocks.

This analysis takes advantage of the panel dimension of the RAIS data, and is similar in spirit to the panel-data analysis in Autor et al. (forthcoming). However the studies differ in a number of important ways. We i) focus on regional rather than industry shocks, ii) study a discrete shock and hence focus our analysis on subsequent labor market dynamics, iii) study transitions into the nontradable sector and informal employment, which are salient features of the Brazilian context, and iv) study formal sector migration in response to regional shocks.

# **6.2 Employment**

We begin by examining how the regional tariff change in a worker’s initial location affected their subsequent formal employment status. We first calculate the average number of months formally employed per year from 1990 to year _t_ : where _Monthsis_ is the number of months individual _i_ was formally employed in year _s_ .<sup>36</sup> Figure 13 shows that the average number of months formally employed per year is lower for workers whose initial region faced a larger tariff decline. The effects increase steadily over time, beginning just after liberalization was complete in 1995. This means that workers whose initial regions faced larger tariff cuts worked fewer and fewer months of the year in the formal sector, compared to otherwise similar workers who started in more favorably affected regions. The 2009

> 35Firm-level imports and exports for 1990 come from customs data assembled by the _Secretaria de Com ́ercio Exterior_ (SECEX). Region-specific formal earnings and employment growth between 1986 and 1989 are computed as in Section 5. The pre-liberalization outcome controls are calculated as follows. We draw a sample of workers in December 1986, paralleling the main sample, and estimate a version of (5) replacing _RTCr_ with region indicators. These first step region indicator coefficients enter as controls in equation (5). For example, when the outcome of interest is given by equation (6), we first relate the average number of months formally employed per year between January 1987 and December 1989 to region indicators. When the outcome of interest is given by equation (7), we first relate the fraction of 1989 spent in the formal sector to region indicators. Note that for accumulated earnings, we are unable to normalize by pre-1986 earnings, so we instead include the pre-liberalization control related to months formally employed. For migration-related outcomes, we additionally include 1986-1991 out-migration probability controls obtained from the Census.

> 36RAIS reports the month of accession and separation (if any) for each job, so that we can observe formal employment at the monthly level.

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