Essays on Labor Market Informality

Orientador(a): Yvan Becard

This dissertation investigates labor market informality through three chapters. In the first chapter, I examine how income and income inequality relate to informality across local labor markets in Brazil. I also evaluate how the increase in household income resulting from the implementation of Auxílio Emergencial, a large-scale cash transfer program introduced during the COVID-19 pandemic, affected formal employment. I find that lower income levels and higher income inequality are associated with higher levels of informality. Moreover, states that received larger cash transfers experienced greater formal job creation. In the second chapter, I develop a theoretical model to explore the mechanisms through which rising income reduces informality. I argue that the declining share of agriculture in national output drives formalization, since agriculture tends to operate more informally than industry and services. I also show that as income rises, individuals increase their consumption of goods and services supplied through formal channels, reinforcing the expansion of formal sectors. In the final chapter, I assess the effects of legislative reforms that reduced the statutory limit on weekly working hours. I apply a  synthetic control approach to analyze the case of Colombia, where a reform approved in 2021 lowered the maximum number of working hours per week. My results indicate that even the anticipation of shorter working hours was sufficient to shift labor market behavior and reduce informality in the short term.