Essays on beliefs, democracy and local labor markets: an empirical examination for Peru

This thesis presents three empirical chapters on local labour markets, mineral booms, beliefs, conflict and uncertainty. All the analysis was conducted using Peruvian data and context. The first chapter finds that Peruvian individuals exposed to violent events during their impressionable years trust less government institutions, and feel less identified with their neighbours, while more identified with religious groups. The estimated effect is small and heterogeneous depending on the identity of the perpetrator. The effect on identification with groups of population is also heterogeneous by the indigenous origin of the individuals. Owners of an agricultural plot embedded in a cooperative setting at the local level exhibit even smaller levels of identification with their locals while higher levels of identification with their ethnic group. In line with recent literature, these findings suggest that conflict has a small but persistent effect on the formation of trust and identity, which is a central feature to understand the interaction between culture and institutions, and ultimately to understand the persistent consequences of wars. The second chapter studies the relationship between democratic beliefs and economic uncertainty. I explored whether uncertainty experienced during the impressionable years of the individuals is a key factor behind the formation of the democratic beliefs. Results showed that this type of uncertainty had no effect on the determination of democratic beliefs. Combining uncertainty with the exposure to authoritarian regimes did not change the result. This result is robust to different definition of rural individuals, the interaction of uncertainty and degree of experienced authoritarianism, and different formative periods. Current uncertainty, on the other hand, was unable to fully explain the formation of democratic beliefs. The final chapter investigated the local labour effects of mining booms. Using two rounds of population census for 1043 districts in Peru I documented that large-scale mining activity had a positive effect on local employment over 14 years. The effect was differentiated by industry, skill and migration status. Employment grew by 4% faster by one standard deviation increase in the mineral prices. Both high and low skilled workers enjoyed similar employment increase, however only low skilled workers experienced a decline in unemployment. Using data from 10 annual household surveys I found that, consistent with a model of heterogeneous firms and labour, wages for low skilled workers in districts close to the mining activity was 5% higher by every standard deviation increase in the index of mineral prices. Additional evidence with the census data suggested that to a large extent locals working in the mining or the agricultural sector filled the new employment opportunities. Together these findings suggest that large-scale mining activity increases the demand for mining and agricultural local employment, and the wages in the local economy.