Dix-Carneiro and Kovak Trade Reform and Regional Dynamics employment status.<sup>43</sup> Table 8 reports the informal share of employment in each Census year overall and by major sector. Informality increased during the 1990s from 58 percent to 64 percent before falling sharply during the 2000s to 49 percent in 2010. Informality rates vary widely across sectors, with very high levels in agriculture and much lower levels for manufacturing and for mining in the later periods. Informality rates fell steadily over time in agriculture and mining, with particularly sharp declines in mining, while manufacturing and nontradable informality shares followed the overall pattern of rising and then falling. This heterogeneity by sector will be important in interpreting our subsequent results.

Because the Census only provides repeated cross sections rather than panel data, throughout this section we use the regional estimation strategy introduced in Section 5. We construct preliberalization trends using the 1980 and, when possible, 1970 Censuses. The 1970 Census contains no information on formal vs. informal employment status, so we use 1970-1980 pre-trends only when they are relevant. Since 1980-1991 pre-trends overlap with the dependent variables in 1991, we instrument for them using the 1980 outcome level. We slightly aggregate regions to be consistent from 1970 to 2010, yielding 411 consistently identifiable regions. As above, we cluster all standard errors by mesoregion to account for potential spatial correlation in outcomes across neighboring regions. Because we are now focusing on labor demand shocks faced by workers in both formal and informal employment, we calculate regional tariff changes using regional industry employment shares, _λri_ , for all workers, as in Panel L of Table 3.

# **7.1 Informal and Non-Employment Shares**

In both the regional and individual analyses presented above, it is clear that workers facing larger tariff cuts spend less time in formal employment, but in the RAIS data we are unable to distinguish between informal employment and non-employment. To address these adjustment margins, we use Census data to examine the share of regional working age population that is informally employed or non-employed. Following our wage analyses and Goldberg and Pavcnik (2003), we calculate regional employment shares controlling for worker composition.<sup>44</sup> We regress indicators for informal employment or non-employment on workers’ observable characteristics and region indicators, and then use the change in the coefficients on those indicators as our dependent variable.

The results appear in Table 9. Panel A shows that regions facing larger tariff declines experience relative increases in the share informally employed. The estimate of -0.171 in column (3) indicates that by 2000 a region facing a 10 percentage point larger regional tariff decline exhibited a 1.71 percentage point larger increase in its informal employment share. Panel B shows that harder hit regions experienced even larger increases in non-employment (including both unemployed and out of

> 43Since the 1980 Census does not include the work card question, when calculating pre-trends we utilize an alternative question on whether contributions were made to the worker’s public pension account. In 1991, the correlation between this measure and the more accurate work card measure is 0.85.

> 44 Results are similar for raw shares, unadjusted for worker composition.

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