Cash Transfers and the Local Economy: Evidence from Brazil, with Joana Naritomi and François Gerard (Forthcoming at Econometrica)

This paper studies the impact of a large-scale program (Bolsa Familia in Brazil) on local labor markets in a context where such concerns could be particularly strong: eligibility is means-tested and we focus on the formal labor market, where earnings are more easily verifiable. Yet, we find that an expansion of Bolsa Familia increased local formal employment, using variation in the size of the reform across municipalities.

Export Destinations and Input Prices, with Paulo Bastos and Eric Verhoogen (American Economic Review)

This paper examines the extent to which the destination of exports matters for the input prices paid by firms. We use exchange-rate movements as a source of variation in export destinations and find that exporting to richer countries leads firms to charge more for outputs and pay higher prices for inputs, other things equal. The results are supportive of the hypothesis that an exogenous increase in average destination income leads firms to raise the average quality of goods they produce and to purchase higher-quality inputs.

Adjusting to Transitory Shocks: Worker Impact, Firm Channels, and (Lack of) Income Support, with Ana Margarida Fernandes (World Bank Working Paper)

This paper estimates worker and firm impacts of foreign shocks, and the income support provided by assistance programs. It exploits quasi-experimental variation in firms’ foreign demand resulting from the global financial crisis. Negative employment effects take over a decade to dissipate fully, wage effects persist, and firm restructuring involves occupational adjustment. Underlying firm scarring is caused by selection (exit) and (revenue, employment and productivity) downsizing. Unemployment insurance and cash transfers yield limited wage loss replacement (6 percent). The evidence shows that a temporary shock induces persistent effects: firm restructuring scars incumbent workers and increases long run inequality.

Twenty Years of Wage Inequality in Latin America, with Julián Messina (The World Bank Economic Review)

This paper documents an inverse U-shape in the evolution of wage inequality in Latin America since 1995, with a sharp reduction starting in 2002.  The decline was characterized by rising wages across the board, but especially among those at the bottom of the wage distribution in each country.  Triggered by a rapid expansion of educational attainment, the wages of college and high school graduates fell relative to those with primary education.  The premium for labor market experience also fell significantly.  But the compression of wages was not entirely driven by changes in the wage structure across skill groups. Two-thirds of the decline in the variance of wages took place within skill groups.  Evidence suggests that an important driver was falling wage dispersion across firms.

Networks, Firms and Trade, with Paulo Bastos (Journal of International Economics)

Fixed costs associated with learning about demand and setting up distribution networks are expected to be lower when there are more potential contacts in the destination market, suggesting a greater probability of market entry and larger export revenues. The authors match historically-determined emigration stocks with detailed firm-level data from Portugal to examine the effect of migrant networks on these export outcomes. 

The Quality of a Firm's Exports: Where You Export to Matters, with Paulo Bastos (Journal of International Economics)

What drives export quality? Using Portuguese firm-level data on exports by product and destination market, we find that f.o.b. unit values increase systematically with distance, and tend to be higher in shipments to richer nations. These relationships reflect not only the sorting of firms across markets, but also the within-firm variation of unit values across destinations. Within product categories, higher-productivity firms tend to ship greater quantities at higher prices to a given market, consistent with higher quality. In addition, firm productivity tends to magnify the positive effect of distance on within-product unit values, suggesting that high-productivity, high-quality firms are more able to serve difficult markets. 

Trade Liberalisation and Human Capital Adjustment, with Rodney Falvey and David Greenaway (Journal of International Economics)

This paper highlights the way in which workers of different ages and abilities are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin trade model is supplemented with an education sector which uses skilled labour and time to convert unskilled workers into skilled workers. A skilled worker's income depends on her ability, but all unskilled workers have the same income. Trade liberalisation in a relatively skilled labour abundant country increases the relative skilled wage and induces skill upgrading by the existing workforce, with younger and more able unskilled workers most likely to upgrade. But not all upgraders are better off as a result of the liberalisation. The older and less able upgraders are likely to lose. For an anticipated liberalisation we show that the preferred upgrading strategies depend on a worker's ability and that much of the upgrading will take place before the liberalisation. Hence some workers who would have upgraded had they anticipated the liberalisation will not if it is unanticipated, and adjustment assistance that applies only to post-liberalisation upgraders will fail to compensate some losers and distort the upgrading decisions of others. 

The Great Equalizer: How Firms Reduce Wage Inequality, with Jaime Montana and Martim Leitão (CEPR Working Paper)

We study how firms impact the dynamics of earnings inequality. Using linked employer-employee-job-title data from Portugal, we show that the large decline in wage inequality over the past decades resulted from two factors: (i) a decrease in the pay gap between otherwise similar workers working in more versus less productive firms, and (ii) declining returns to working with highly skilled co-workers.