Dix-Carneiro and Kovak Trade Reform and Regional Dynamics sectors, and restricting the sample based on regional characteristics. Appendix Figure A5 shows the underlying scatterplots, confirming our choice of linear estimating equation and showing that the results are not driven by outliers. Panels B and C of Table 1 further confirm the increasing pattern for formal earnings and formal hourly wages using the Decennial Census. We restrict the Census sample to formally employed workers (those with a signed work card) for comparability with RAIS. The similarity of the earnings and hourly wage results rules out the possibility of substantial offsetting movement in hours, which are unavailable in RAIS. The negative coefficient estimates on the pre-liberalization formal earnings trend controls suggests that, if anything, the growing effects that we see after liberalization represent a reversal of ongoing trends. Figure 5 confirms this point by plotting coefficient estimates from regressing formal earnings growth from 1986 to each pre-liberalization year on _RTCr_ . It is clear that the growing effects after liberalization represent a reversal of the existing trend.

Having seen that regions facing larger tariff declines experienced relatively deteriorating earnings and wages, Table 2 examines liberalization’s effects on regional log formal employment in 2000 and 2010. As with earnings, the patterns are quite consistent across specifications, though the Census point estimates are somewhat smaller.<sup>25</sup> The estimate of 2.762 in Panel A column (3) shows that a region facing a 10 percentage point larger tariff decline experienced a 31.8 percentage point larger proportional decline (smaller increase) in formal employment from 1991 to 2000. Once again, the effect grows substantially from 2000 to 2010, indicating that employment growth continued to diverge for regions facing different regional tariff changes. The Census estimates in Panel B similarly increase over time, and Figure 6 shows that the increase was quite steady for the first decade following liberalization before leveling off in the mid 2000s. Figure 7 shows that there may have been a very modest positive pre-liberalization trend in employment, but it is statistically insignificant and of a far smaller scale than the large post-liberalization growth in Figure 6.

To better understand how regional employment adjusted to local liberalization shocks, Figure 8 separates overall employment into tradable sector and nontradable sector employment. The effects of liberalization are clearly concentrated in the tradable sector, with large and increasing effects on employment during and after liberalization. In the years just after liberalization, harder hit regions experience small relative increases in nontradable sector employment, as the nontradable sector absorbs a small share of the workers displaced from the tradable sector (we will confirm this interpretation below using panel data). However, this reallocation is short-lived; a decade following liberalization, the local nontradable sector has shrunk compared to that in more favorably affected regions.

> 25The magnitude of the Census estimates should be viewed with caution. The employment questions changed from a yearly definition in 1991 to a weekly definition in 2000, so changes in the level of employment are partly confounded by this change in definition. However, since the definition change applied to all local labor markets, we are still able to examine liberalization’s effect on employment, by comparing outcomes _across_ regions.

17