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This dissertation studies the distinct challenges faced by labor markets in developing countries. The challenges examined in chapters I and II revolve around the prevalence of the informal sector and noncompliance with labor regulations in developing countries. In both of these chapters, I study the impacts of labor inspections, a common tool implemented by governments of developing countries to address these challenges. In the third chapter, I study another unique problem encountered in the marriage markets of developing countries, child marriage, and investigate the risk-coping mechanisms that households implement in response to negative income shocks.
In chapter I, Cristiano Carvalho and I examine the impact of labor inspections on long-run firm and incumbent worker outcomes. Using detailed administrative dataset on labor inspections obtained from the Ministry of Labor of Brazil and matched employer-employee data, we find a 15% employment reduction in inspected firms four years after inspection. For workers employed at these firms prior to inspection, wages also decline persistently, and they are more likely to experience job separation and reduced full-time employment. Our analysis reveals important distributional effects mediated by a key labor market institution in Brazil, the minimum wage. We find that wage declines are concentrated in firms with few minimum wage workers, as firms with many workers earning around the minimum wage are constrained in their ability to adjust wages downwards. Furthermore, by examining separately the wage declines for firm-stayers and leavers, we identify two main mechanisms behind the wage decline: within-firm wage adjustments and reallocation costs from job displacement. Lastly, leveraging the novel detailed data on the type of violations found in each inspections, we find that wage effects vary by the type of labor violation, with firms caught with severance payment violations experiencing more significant wage declines than firms with violations related to the hiring of informal workers.
Chapter II, coauthored with Cristiano Carvalho, documents the broader impacts of labor enforcement at the municipality level on human capital investments in Brazil. Using detailed municipality level data on labor inspections, we show that stricter labor enforcement, through labor inspections, increases schooling attendance of school-going children particularly for older children. Heterogeneity analysis of the results reveals that the effects are stronger for boys and children of less-educated parents. To explain how enforcement affects schooling, we identify three mechanisms. The first mechanism is the direct effect of inspections reducing child labor and allowing kids to go to school. The second mechanism operates indirectly, through income effects. Through this mechanism, inspections improve labor market outcomes of adults, therefore relaxing household budget constraints and allowing kids to go to school. Lastly, the third mechanism is through substitution effect due to changes in expected returns to schooling. Overall, this paper emphasizes the interconnectedness between labor markets and human capital investment, and reveals how a government intervention on the labor market can have reverberating effects on human capital investments.
In the third chapter, I investigate how girls use internal migration as a potential deterrent to child marriage and ultimately as a risk-coping mechanism in response to negative income shocks in developing countries, focusing on Indonesia. This study posits that during times of economic hardship, migration offers girls both economic opportunity and an avenue to escape early marriage pressure. Using Indonesian survey data, I show two key findings related to internal migration and child marriage. First, I find that droughts increase the likelihood of child marriage among girls in bride-price regions. Importantly, these effects are attenuated in districts with lower migration costs, as proxied by a higher baseline migrant share, suggesting that migration plays an important role in reducing child marriage. However, this finding alone does not necessarily imply that girls are the ones migrating in response to these shocks and thus avoid child marriage as hypothesized. My second key finding confirms this hypothesis where I show that droughts increase the probability of migration for girls who are more vulnerable to early marriage. To proxy for vulnerability to early marriage, I use two variables: the traditional practice of bride price and the share of child marriage in the district of birth. Importantly, I show that this relationship is only present for girls and not boys, and only for migration for the purpose of work and not for education. Furthermore, this relationship is only present in districts with low migration costs and high share of employment in agriculture, among girls with female siblings, and among poorer, less-educated households.