Notedoesnotincludechilesurinameanduruguay in mexico

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Unformatted text preview: ased matching across both the informal and formal sectors of the economy. The symmetry of flows, as opposed one where workers transit unidirectionally from unemployment to informality to formality to retirement suggests that job matches in the informal sector are not overall, considered inferior. The queuing view of informality as disguised informality is true for some, but not the majority of those holding informal jobs. • The unemployment rate is countercyclical, rising as output falls, with an elasticity with respect to output of roughly ‐4.5. It is driven primarily by increased job separations of informal workers. Shedding of workers from the formal sector, while important, has not been the dominant driver. • Informality is also countercyclical, not primarily because of increased shedding from the formal sector, but because unemployed workers cannot find jobs in the formal sector.152 Fundamentally, informal job finding rates show much less cyclical volatility than formal ones and hence the sector winds up hiring a disproportionate number of job seekers in downturns. • Together, these stylized facts offer an updated mechanism of the informal sector as a safety net, although without the connotation of a general inferiority of informal employment. The sector absorbs the majority of the newly unemployed, and contributes most to changes in unemployment. However, it is not primarily a direct safety net for those losing formal sector jobs. Why does this matter? Downturns differ from one another. At the most basic level, the elasticities of unemployment and formality vary across episodes within these two countries and we could expect the underlying dynamics to change as well. Hence, extrapolating the lessons from history to the present global crisis is not without risks. However, several implications emerge from the stylized facts presented above: • Job loss in the formal sector is not sufficient as a targeting criterion. New entrants to the labor force, or family members seeking to augment falling real incomes will find themselves unable to access formal employment and will recur to the informal sector. Because no one in the family has lost a job, their declining prospects will not show up on official job registers. • To the degree that job loss is a criterion, the fact that most is from the informal sector suggests that tracking formal employment rolls, or targeting formal workers will miss a critical part of the story. • The increased absorption of labor in the informal sector implies a fall in average earnings there. For instance, small business owners will see more competition from new entrants in the midst of a decline in overall spending. Again, average family incomes, rather than job loss per se, needs to be a central focus of targeting efforts. • The increased rate of job separations from the informal sector suggests that, while the informal sector is absorbing more workers, it is doing so in a dynamically frenetic way, shedding labor at a very high rate as well. This may arise because many of the new entrants to the sectors soon find their micro enterprise to be unviable. Informality is thus something of an unstable safety net. 152 More gene...
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