Summary

Important question

• Does labor informality reduce intergenerational mobility via parental income risk?

Why it matters

• Big in developing economies – but not only (Portugal, Italy)!
• Role of parents in creating opportunities for development pre-transition to the labor market important

Contribution

• Link between informality & uncertainty very intuitive
  
• Very good data and data work – rigorous empirical confirmation
• Clear, relevant mechanism quantified with model

Comment #1: What is “uncertainty”?

Key result: higher residual variance in informal earnings (0.44 vs. 0.32)

• Uninsured risk \(\Rightarrow\) \(\uparrow\) Precautionary saving \(\Rightarrow\) \(\downarrow\) investment

What can residuals reflect?

• Unexplained dispersion may also reflect heterogeneity, hours, measurement error
  
• Pandemic years spike in variance

How do we know earnings risk is not compensated?

• Informal work may to some extent also reflect preferences of workers
• May give rise to higher eqbm \(W\) rate (cond on skill) and workers may be aware

Comment #2: Alternative stories

Main idea:

• Parental background → child informality only for “followers”
  
• Slopes ≈0.6–0.8 vs. ≈0 for non-followers

Alternative channels

• Could networks, beliefs, generally information matter too/more?
• Current model: informality assignment exogenous \(\rightarrow\) scope for model extension?
• Could risk channel be somewhat overstated in model?

Potential tests

• Let job access depend on parental occupation networks
  
• Estimate separately for followers vs. non-followers
  
• Within occupation-year: does parental variance still matter?

Other comments

• Decision unit = household → mothers’ risk may matter
  
• Magnitude: risk equalization effects modest (2–3%)
  
• Sensitivity: γ, α, β_j parameters
  
• Attrition/recall in lifetime informality → balanced panels
• Could try excluding 2019–20 waves?
• Is data deep enough to use siblings: higher pre-school variance → lower education?

Takeaway

• Strong contribution: new link between informality, risk & mobility
  
• Empirical facts well documented, model clear
  
• But “uncertainty” vs. heterogeneity, and networks vs. prudence, need separation
  
• Informality super relevant, present everywhere. But maybe this framework could be extended to other forms of sorting?