Firms that are harder-hit by GFC foreign shocks may, in addition to suffering a reduction in revenues and downsizing employment, adjust the occupational structure of their workforce. In turn, changes in the organization of the firm may imply changes in productivity. These adjustments made by firms can have far-reaching long-run consequences.

Tables 5 and 6 identify the effects of firm GFC foreign shocks on firm occupational restructuring: skilled versus unskilled workers and occupation categories.<sup>40</sup> Firms in Brazil respond to the GFC foreign shocks by reducing their total number of both skilled and unskilled workers, as shown by columns (6) and (7) of Table 5. A persistent increase in the share of skilled workers for the most negatively-hit firms in Brazil two years after the GFC onward is evident in column (8), reflecting a larger reduction in employment of unskilled workers than in employment of skilled workers. This finding indicates a firm response to the GFC foreign shock in the form of permanent occupational restructuring towards higher-skilled workers.

Detailed information on workers’ occupations allows us to further decompose this change in firms’ skill use into changes in different professional groups. We consider five occupation categories as described in Section II. Table 6 shows that GFC foreign shocks lead to a lasting expansion by firms of their share of professional and managerial workers and a temporary expansion (in the first two years after the GFC) of the share of skilled blue collar workers. In contrast, GFC foreign shocks lead firms to reduce their shares of both white and blue collar unskilled workers. These findings are in line with evidence from high-income countries, where low-earning workers are shown to exit the labor force in disproportionate numbers during economic downturns (e.g., Carneiro et al. (2012)). The rationale for such findings is that workers with lower levels of human capital are less costly for firms to replace when recovery from the downturn materializes.

Table 7 presents the impacts of GFC foreign shocks on non-labor inputs and productivity: materials, materials per worker, capital, capital per worker, labor productivity, and TFP.<sup>41</sup> Regarding non-labor input use, columns (1) and (2) show that materials and materials per worker decline as a result of the negative demand shock suffered by firms in Brazil whereas there is no evidence of capital-labor substitution in columns (3) and (4).

Finally, our estimates show clear evidence of a negative impact of GFC foreign shocks on firm productivity. The effects in columns (5)-(8) are persistent and consistent across productivity measures. Our TFP estimates are obtained as the part of firm revenues deflated by industry price indexes (to derive quantities produced) that cannot be explained by the contribution of labor, intermediates, and capital. Such estimates, referred to as revenue TFP 40The measures are based on Brazil’s RAIS starting worker-level database. Our regressions rely on a firm sample where the top and bottom 1 percent of the distribution of firms’ continuous outcome variables (except firm worker composition shares) are dropped.

> 41The measures are based on Brazil’s RAIS and PIA manufacturing survey. The definitions of these variables are provided in Appendix A. Our regressions rely on a firm sample where the top and bottom 1 percent of the distribution of firms’ continuous performance variables are dropped.

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