Internal migration and labor market adjustments in the presence of non-wage compensation

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. Like previous studies, we observe a significant negative impact on earnings in the informal 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 that incorporates both formal and informal labor inputs, as well as non-wage benefits, and generates predictions closely aligned with our empirical findings.