TD n. 702 2024

Raphael Corbi, Tiago Ferraz, Renata Narita.

In this paper, we argue that adjustments in non-wage compensation are empirically

relevant and have important implications for understanding the effects of labor

supply shocks. We examine the labor market impacts of internal migration in

Brazil through a shift-share approach, which combines weather-induced migration

with historical settlement patterns at each destination. Our findings indicate that

increasing migration inflows lead to a reduction in formal employment while

simultaneously increasing informality by a similar magnitude. Unlike previous

studies, we observe a significant negative impact on earnings within the formal

sector. Additionally, we provide evidence that the proportion of formal workers

receiving non-wage benefits declines, underscoring that substantial adjustments

take place in the formal sector, even in a context of high informality.We interpret our

results within a framework where formal and informal labor inputs are imperfect

substitutes and where non-wage benefits generate predictions that align closely

with our empirical findings