Hence there is some evidence of a cleansing effect from the GFC foreign shocks.

The burden of the crisis is shared across firms and workers in Brazil as not only do firm profit rates decline but so do firm total employment and wages. The negative and significant coefficients in columns (4) and (5) of Table 5 show that harder-hit firms adjust by persistently reducing their total employment and total wage bill until 2017, relative to less hard-hit firms.

We conduct several robustness checks to the findings of persistent reductions in firms’ labor market outcomes (with differences in the persistence of the effects) and increases in firm exit identified in Table 5. First, given the important commodity boom experienced by Latin America during the 2003–2013 period, we estimate Equation (6) excluding commodity-related sectors from the sample. Second, while the sector-year and region-year fixed effects included in our specifications go a long way towards accounting for domestic economic cycles, we also estimate Equation (6) excluding the period of domestic economic recession in Brazil from 2014 onward from our sample. Third, we estimate two variants of Equation (6): dropping the vector of firm covariates and including separate 2-digit sector, region, and year fixed effects. The results from these regressions provided in Appendix Table D2 show impacts of GFC foreign shocks on firms’ employment, wages, and exit that are mostly unchanged relative to the baseline impacts. We conduct further robustness checks estimating Equation (6) considering the two alternative shock measures discussed in Section III.C. The impacts of these shock measures on firms’ employment, wages, and exit in Appendix Table D3 are similar to those in Table 5.

To confirm the role of GFC foreign shocks for firm labor market outcomes and performance - even outside of financial crisis periods - we estimate an alternative specification that links time-varying firm foreign shocks to time-varying firm outcomes using data for the entire sample period before and after the GFC (2004-2017) controlling in some cases for firm fixed effects.<sup>39</sup> This specification captures firm-level adjustment in employment, wages and other performance measures during crises but also during growth and recovery periods. The results show that firms experiencing a negative foreign shock decrease significantly their total employment and wages (see Appendix Table D4) as well as their inputs and productivity (see Appendix Table D5). The impacts on firm employment and wages are also qualitatively similar when alternative time-varying shock measures are used (see Appendix Table D6).

# **Occupational Restructuring, Productivity, and Technological Change Effects**

> 39The specifications are described in Appendix D and control for time-varying measures of import shocks or real exchange rate shocks computed using the same formula as the firm foreign shocks. For the measure of import shocks, GDP growth in destination countries is replaced by GDP growth in countries from which imports are sourced. For the measure of real exchange rate shocks, GDP growth in destination countries is replaced by the change in the bilateral real exchange rate between Brazil and the destination countries. Bilateral real exchange rates are computed based on bilateral nominal exchanges rates from the International Monetary Fund’s International Financial Statistics and consumer price index data from the World Development Indicators.

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