How Do Regulated and Unregulated Labor Markets Respond to Shocks? Evidence from Immigrants During the Great Recession

Abstract

We study wage adjustment during the recent crisis in Italy using a unique dataset on immigrant workers that includes those employed in formal and informal sector. We find that before the crisis immigrants' wages in the formal and informal sectors moved in parallel (with a 15% premium in the formal labor market). During the crisis, however, formal wages did not adjust down while wages in the unregulated informal labor market fell so that by 2013 the gap had grown to 32%. The difference was particularly salient for workers in occupations where the minimum wage is likely to be binding, and in "simple" occupations where there is high substitutability between immigrant and native workers. Calibrating a simple partial equilibrium model of spillovers between formal and informal markets, we find that less than 10% of workers who lost a formal job during the crisis move to the informal sector. We also find that if the formal sector wages were fully flexible, the decline in formal employment would be in the range of 1.5-4.5%-much lower than 16% decline that we observe in the data. (JEL E24, E26, J31, J61)

Not just a work permit: EU citizenship and the consumption behaviour of documented and undocumented immigrants

“…These values are considered to be high (see, for example, Bellows and Miguel 2009, Guriev et al. 2019, Nunn and Wantchekon 2011). Therefore, we conclude that our estimates cannot be attributed to unobserved heterogeneity.…”

“…2007, Borjas and Tienda 1993, Fasani 2015, Guriev et al. 2019, Kaushal 2006, Kossoudji and Cobb‐Clark 2002.…”

Losing Control? Unions’ Representativeness, Pirate Collective Agreements, and Wages

“…Other studies looked into the role played by collective bargaining systems in shaping employment and unemployment dynamics (Brändle and Goerke 2018; Bryson and Dale‐Olsen 2008; DiNardo and Lee 2004; Magruder 2012; Martins 2014) as well as employer‐specific wage differentials (Gürtzgen 2009; Martins 2009; Rusinek and Rycx 2013). In general, most empirical studies find that under sector‐level collective agreements, wages are less resilient to economic shocks and more likely to translate into employment adjustments or working hours reductions (Guriev et al 2019; Izquierdo et al 2017; Ronchi and Di Mauro 2017).…”

Growing apart or moving together? Synchronization of informal and formal economy cycles

“…In terms of employment, such a causal link is not found: whereas informal output behaves procyclically, informal employment behaves acyclically. The latter may indicate that informal labor markets do not adjust in terms of employment status during economic cycles but in terms of wages or working hours (Guriev, Speciale, and Tuccio 2016;Meghir, Narita, and Robin 2015).…”

“…Similarly, it was shown that foreign interest rates are inversely and significantly related to formal job creation but insignificantly related to informal job creation and destruction, resulting in the countercyclicality of the share of informal employment(Leyva and Urrutia 2020).20 For discussions of these arguments, seeGuriev, Speciale, and Tuccio (2016),Loayza and Rigolini (2011), Maloney (2004), and Meghir, Narita, and Robin (2015.…”