The informal sector and Covid-19 economic impacts: The case of Bahia, Brazil

Abstract

This paper aims to simulate the economic impacts of the withdrawal of informal workers from the labour market due to the social isolation policy implemented during the Covid-19 pandemic in Bahia state, Brazil, where 66% of workers work in the informal sector. We also consider the government income compensation policy to make up part of their income. The partial hypothetical extraction method was used in a regional input–output matrix, base year 2012 with 42 economic sectors. Our simulations show that the withdrawal of informal workers decreases the productive capacity and leads to strong negative impacts on the economy, mainly in the service sectors. On the other hand, the income compensation policy mitigates the negative impacts by about 50%. Moreover, the public administration is the least impacted sector because it is mostly made up of formal workers.