Brian McCaig, Wilfrid Laurier University

"Export markets and labor allocation in a low-income country"


We study the effects of a positive export shock on labor allocation between the informal, microenterprise sector and the formal enterprise sector in a low-income country. The U.S.-Vietnam Bilateral Trade Agreement led to large, exogenous reductions in U.S. tariffs on Vietnamese exports that varied across industries. We find that 5% of manufacturing workers in Vietnam reallocated from informal, microenterprises to formal enterprises in response to the U.S. tariff reductions.

The reallocation was greater for workers in more internationally integrated provinces and for younger cohorts. Using data on both informal microenterprises and formal enterprises, we estimate the gap in average labor productivity within manufacturing across the informal and formal sectors. Accounting for worker heterogeneity significantly reduces this gap, lowering the estimated labor productivity gain from the export-induced reallocation of workers from the informal to the formal sector.

Contact person: Neda Trifkovic