Dix-Carneiro and Kovak Trade Reform and Regional Dynamics with results in Table 10.<sup>48</sup> The results instrumenting for pre-trends in columns (4) and (8) are much less stable than in other analyses, and in Panel D the instruments are very weak, so we focus on columns (1)-(3) and (5)-(7). Formal tradable employment is clearly the category hardest hit when facing negative regional tariff shocks. The offsetting growth in informal employment that we saw in Table 9 occurs primarily in the tradable sector, while nontradables employment experiences much smaller and insignificant effects. Putting these results in context, in Figure 15 we found that formal tradable sector workers were more likely to transition into formal nontradable sector employment when the initial region faced a more negative labor demand shock. Yet here we generally find small positive or insignificant coefficients for the regional formal nontradable employment share, indicating that this portion of the labor market does not expand to absorb the tradable sector workers transitioning into nontradable employment. What, then, happened to nontradable sector workers? Recall from Figure 23 that the biggest employment losses for workers initially in the nontradable sector occurred in the tradable sector. This means that nontradable workers often transition to tradable employment, but these transitions occur much less frequently in markets facing larger tariff declines. It is likely that these nontradable sector workers who are no longer able to find formal tradable or nontradable employment drive a large portion of the growth in informal tradable employment seen in Table 10.

# **7.2 Wages**

In Sections 5 and 6, we found compelling evidence that earnings and wages for formal sector workers declined in regions facing larger tariff cuts, compared to regions facing smaller declines. In Table 11 we perform a similar analysis for informally employed workers, and find quite different results. In 2000 there is no significant relationship between regional wages for informal workers and the regional tariff change. This applies when controlling for 1980-1991 pre-trends, 1970-1980 pre-trends, or when instrumenting the 1980-1991 pre-trend using the 1980 wage premium.<sup>49</sup> The long run results for 2010 are even more imprecisely estimated and vary substantially across specifications. These null results are somewhat surprising, because we expected informal wages to fall along with formal sector wages, both because of declining local labor demand and because displaced formal sector workers flood into informal employment. A potential explanation for the lack of effect on informal wages is that consumers in harder hit regions experience declining incomes and shift toward lowerpriced, lower-quality goods produced in the informal sector, offsetting wage declines for informally employed workers.<sup>50</sup>

> 48Note that although these categories partition all employed workers, the coefficients do not precisely add to zero because of differences in weighting and pre-trends across outcomes. Also, given the lack of information on formality in the 1970 Census, we cannot calculate 1970-1980 pre-trends.

> 49We exclude specifications using the 1970-1980 pre-trends as instruments for the 1980-1991 pre-trends, because instrument is very weak.

> 50Burstein, Eichenbaum and Rebelo (2005) show that lower quality goods gain market share in recessions, while McKenzie and Schargrodsky (2011) make a similar argument in the context of the 2002 economic crisis in Argentina.

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