On trade policy and workers’ transition between the formal and informal sectors: An application to the MENA region in the time of COVID-19

Abstract

This paper looks at the transition of workers in the MENA region between formal and informal jobs during the COVID-19 pandemic, and investigates whether trade policy could be adopted as a measure to enhance the transition of workers from the informal to the formal sector. We use the combined COVID-19 MENA Monitor Household Survey constructed by the Economic Research Forum for 5 MENA countries and 11 sectors. This topic is timely and critical for the MENA region where informal employment is widespread, applied tariffs are still high, and female labor participation is low. Our results show that: first, fewer trade restrictions are associated with an increased probability for the worker to become formal and this effect is more pronounced post-pandemic. Second, fewer trade restrictions are linked to an increase in the probability of becoming formal for blue collars only, with an insignificant effect on white collars. Third, fewer trade restrictions are associated with an increase in the probability of men to become formal, with an insignificant effect on women. Finally, the effect of trade policy on job formality depends on the sectoral occupation of the individual with this effect being more pronounced in agriculture and manufacturing relatively to services sectors.

KEYWORDS:

• COVID19
• gender
• informal employment
• trade policy
• MENA

JEL Classifications:

• F13
• F14
• F16
• J21
• J62

Acknowledgements

The authors would like to gratefully acknowledge the comments of two anonymous referees and the support by the Economic Research Forum (ERF). We would like to thank participants at the 28th ERF Annual Conference for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The International Labour Organization (ILO) defines informal employment as ‘all remunerative work (i.e. both selfemployment and wage employment) that is not registered, regulated or protected by existing legal or regulatory frameworks, as well as non-remunerative work undertaken in an income-producing enterprise’.

2 Jordan was absent in the first and third wave, Sudan was absent in the first, second and fourth, Egypt was absent in the third and fifth, while Morocco and Tunisia were only absent in the fifth wave.

3 Table A3 in the Appendix shows the results of the baseline regression when country and wave fixed effects are being replaced by country-wave fixed effects, to account for economy-wide trends within each country, such as different government support programs. Table A3 shows that the previously reported results are not affected by this change.