Indirect and direct effects of the subprime crisis on the real sector: labor market migration.

The bursting of the US housing bubble in the second half of 2008 triggered an almost unprecedented systemic crisis in the world economy. The financial collapse quickly overflowed into the real economy and caused, among other effects, a sharp fall in the flow of world trade. Using export data from Brazilian municipalities, we show that the subprime crisis had a more significant effect on production and employment in exporting cities than municipalities more devoted to the domestic economy. We find that the manufacturing and construction sectors of exporting cities were the most affected during the crisis. However, exporting municipalities with a substantial share of services activities were more resilient to the external crisis. This difference is significant and sheds light on the debate on the effects of the crisis on Brazilian regions and cities. Using a unique business management dataset that contains firm-to-firm controls, we also find spillovers in the labor market from exporting to domestic-oriented cities through job reallocation. Our results suggest that workers migrate from exporting municipalities to other non-exporting municipalities within the same firm economic group.