Trade sanctions and informal employment

This paper examines how trade sanctions affect the allocation of workers across formal and informal employment. We analyse case unexpected unprecedented imposed on Iran in 2012. use a difference-in-differences approach compare probability working sector before after 2012 for individuals employed industries with pre-existing different levels exposure to international trade. Combining employment data from Iranian Labour Force Survey Iran’s Customs Administration database years 2008–14, we find that initially facing higher are significantly more likely experience than lower exposure. result suggests that, short run, may absorb significant fraction displaced by shock caused sanctions. estimate increase is highest poorly educated workers, highlighting unequal labour market consequences exclude differentially exposed were already following trend share prior 2012, thus providing empirical support validity our identification strategy. Moreover, show main holds when accounting potential sorting issues an instrumental variable approach. Our findings shed light potentially important dimension reallocation whereby can economy target country. They also provide implications policies designed address assist trade-displaced workers.