We study the relationship between informal employment and informal housing in Latin America. First we present stylized facts drawn from the São Paulo Metropolitan Region (Spmr) and Bogotá. Then we build a search model of a linear city with a unique Central Business District (Cbd) where all formal firms locate. Unlike formal workers, informal workers do not contribute to the healthcare system, can undertake part of their productive activities at home and commute less frequently to the Cbd. In the housing market formal and informal developers produce interior space. We use the model to study the mechanisms relating informal housing and informal employment, and draw predictions on the effect of public infrastructure provision and commuting costs on the incidence of informal employment.
