The Impact of Bank Credit on Employment Formality in Uruguay

This paper examines the effect of bank credit on employment formalization in Uruguay. Using a difference-in-differences methodology proposed by Catão, Pagés and Rosales (2011), the paper finds that financial deepening decreases informality, especially in more financially dependent sectors. The effect is additionally found to be greater for women and younger workers. Despite the severe economic crisis and a sharp contraction of bank credit experienced by the economy in the period of analysis, no evidence is found that the effect of bank credit on employment formality has changed over time.