Working Paper: CEPR ID: DP18160
Authors: Clément Imbert; Gabriel Ulyssea
Abstract: This paper studies the economic effects of rural-urban migration on Brazilian cities. Using a shift-share IV design, we show that immigration lowers formal and informal wages, increases the number of formal firms and jobs, reduces the share of informal workers, and has no effect on unemployment. These findings contradict the traditional “Harris-Todaro-Fields” view that rural-urban migration contributes to urban informality and unemployment. To explain these surprising results, we develop and estimate a model of firm dynamics and informality. The model generates “Harris-Todaro-Fields” predictions if we impose formal wage rigidity but, once we allow formal wages to adjust, the model replicates the IV results. It also reveals that many new formal firms come from the informal sector, which serves as a “stepping-stone”. However, the economic benefits of immigration are higher in a counterfactual with no informality.
Keywords: Informality; Rural-Urban Migration; Labor Markets; Firm Dynamics
JEL Codes: D22; E26; J46; O17; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| immigration rate (J11) | formal sector wages (J31) |
| immigration rate (J11) | informal sector wages (J46) |
| immigration rate (J11) | formal employment (J46) |
| immigration rate (J11) | share of informal workers (J46) |
| immigration rate (J11) | number of firms (L20) |
| immigration rate (J11) | formal jobs (J46) |
| informality (J46) | formalization (L23) |