Economic expansion and increase in labout market formality: a poaching approach

• Main Authors: Carlos Henrique L. Corseuil, Miguel Nathan Foguel
• Format: Article
• Language: English
• Published: Fundação Getúlio Vargas 2012-06-01
• Series: Revista Brasileira de Economia
• Subjects: Informality; Business-cycle; Hirings
• Online Access: http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402012000200004&lng=en&tlng=en

This paper investigates the relationship between economic expansion and the degree of formalization for the Brazilian labour market in the recent period. We present a theoretical framework that attempts to explain this relationship through the dynamics of firms hiring strategies. The main predictions are: the share of formal employment rises as the unemployment rate falls, and that the formal-informal wage gap increases, at least at the beginning of the economic expansion. In the empirical part, we use longitudinal microdata from a Brazilian household survey to check whether these two predictions are confirmed. To a large extent our results corroborate both predictions.