Firms, Informality and the Spatial Effects of Labor Market Shocks: Evidence from the Syrian Refugees in Turkey

About this event

This paper develops a new framework to analyse the effects of labor market shocks in developing economies and their distribution across space. It incorporates some of the key features of these countries, in particular the presence of substantial regional disparities, poor enforcement of laws and regulations and high informality. We focus our empirical analysis on Turkey, which has received around 4 million Syrian refugees and is the largest host country in the world. We develop and estimate a quantitative spatial model where low- and high-skill workers can choose where to live/work and firms within each region can choose to operate in the formal or informal sectors and, if formal, whether to hire their workers formally or not. We use the estimated model to quantify the effects of the "refugee shock" on workers, firms and key aggregate outcomes (e.g. TFP and output) across regions and the country as a whole. We show that informality increases among low-skill but decreases among high-skill workers and the skill premium increases. Informality effects are stronger in regions where the national minimum wage is more binding and enforcement is weaker. The main receiving regions experience the largest effects but the shock spreads to all regions via migration of native workers.