Heterogeneous returns of informality
Evidence from Brazil
Keywords:Informality, labor inspections, segmented labor markets, marginal treatment effects
This paper estimates the marginal treatment effect of informality on wages for Brazil at the individual level using a combination of administrative data on labor inspections and regional data on economic and geographic indicators at the state level for identification. The results indicate that the LATE is zero, which implies that formal workers do not earn a premium, on average, but there are significant heterogeneous effects as workers with lower non-pecuniary costs associated to formality do earn very high premiums up to 100%. Thus, there is evidence of workers self-selecting into the type of jobs that better reward their skills.
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