this paper investigates the relationship between economic expansion and the degree of formalization for the brazilian labour market in the recent period. we present a theoretical framework that attempts to explain this relationship through the dynamics of firms hiring strategies. the main predictions are: the share of formal employment rises as the unemployment rate falls, and that the formal-informal wage gap increases, at least at the beginning of the economic expansion. in the empirical part, we use longitudinal microdata from a brazilian household survey to check whether these two predictions are confirmed. to a large extent our results corroborate both predictions.