Working Paper: NBER ID: w20455
Authors: Brian McCaig; Nina Pavcnik
Abstract: We study the effects of a positive export shock on labor allocation between the informal, microenterprise sector and the formal firm sector in a low-income country. The U.S.-Vietnam Bilateral Trade Agreement led to large reductions in U.S. tariffs on Vietnamese exports. We find that the share of manufacturing workers in Vietnam in the formal sector increased by 5 percentage points in response to the U.S. tariff reductions. The reallocation was greater for workers in more internationally integrated provinces and for younger cohorts. We estimate the gap in labor productivity within manufacturing across the informal and formal sectors. This gap and the aggregate labor productivity gain from the export-induced reallocation of workers across the two sectors are reduced when we account for worker heterogeneity, measurement error, and differences in labor intensity of production.
Keywords: Export Shock; Labor Allocation; Informal Sector; Formal Sector; Vietnam
JEL Codes: F14; F16; O17; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US tariff reductions (F13) | labor allocation from informal microenterprise sector (J46) |
| US tariff reductions (F13) | labor allocation to formal firm sector (J29) |
| labor allocation from informal microenterprise sector (J46) | labor productivity in formal sector (J24) |
| labor allocation from informal microenterprise sector (J46) | aggregate productivity gains (O49) |
| labor productivity gap (O49) | aggregate productivity gains (O49) |