Publication: Informal Jobs and Trade Liberalisation in Argentina
Rapid trade liberalization can exert profound effects on labor markets. Domestic firms, to sustain competitiveness for survival, could react through cutting labor benefits to achieve cost reductions. Alternatively, trade liberalization may alter the industry composition of firms changing the aggregate formality rates. This paper studies the relationship between trade liberalization and informality in Argentina. Using manufacturing industry-level data for 1992-2003, the results confirm the hypothesis that trade increases informality in industries that experience sudden foreign competition. This explains about a third of the increase in informality. Sectors with higher investment ratios are able to neutralize and reverse this effect.