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Gross Worker Flows in the Presence of Informal Labor Markets: Evidence from Mexico, 1987-2002

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Author Info

  • Bosch, Mariano

    ()
    (Inter-American Development Bank)

  • Maloney, William F.

    ()
    (World Bank)

Abstract

This paper applies recent advances in the study of labor market dynamics to a representative developing country with a large unregulated of “informal” sector. It confirms the relevance of the recent mainstream models and debates surrounding gross worker flows to the developing country context, and offers a new view of the role of the informal sector and its role in labor market adjustments. It finds, first, that the formal salaried sector shows the same procyclical job finding rate and mildly countercyclical separation behavior identified in the recent US literature by Shimer (2005a) and Hall (2005). The unregulated informal sector, however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). The differential behavior of regulated and unregulated sectors, and the finding of relative wage rigidity in the former, sheds suggestive light on the debate surrounding countercyclical job finding behavior in the US. Second, the patterns of worker transitions between all sectors, formal and informal correspond to the job-to-job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. That said, the counter cyclical job finding in the formal sector combined with the acyclical job finding in informality does lead to the latter absorbing relatively more labor during downturns, even as its increased separation rates drive movements in unemployment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2864.

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Length: 55 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2864

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Keywords: gross worker flows; labor market dynamics; informality;

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References

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  1. Yashiv, Eran, 2006. "Evaluating the performance of the search and matching model," European Economic Review, Elsevier, vol. 50(4), pages 909-936, May.
  2. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  3. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508.
  4. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers.
  5. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  6. Davis, Steven J. & Faberman, R. Jason & Haltiwanger, John C., 2005. "The Flow Approach to Labor Markets: New Data Sources, Micro-Macro Links and the Recent Downturn," IZA Discussion Papers 1639, Institute for the Study of Labor (IZA).
  7. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  9. John Kennan, 2010. "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 633-664.
  10. Eran Yashiv, 2005. "Evaluating the performance of the search and matching model," LSE Research Online Documents on Economics 19906, London School of Economics and Political Science, LSE Library.
  11. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  12. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 397-407, August.
  13. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  14. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
  15. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  16. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
  17. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  18. Christopher J. Flinn & James J. Heckman, 1982. "Models for the Analysis of Labor Force Dynamics," NBER Working Papers 0857, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ruy Lama & Carlos Urrutia, 2011. "Employment Protection and Business Cycles in Emerging Economies," IMF Working Papers 11/293, International Monetary Fund.
  2. Carmen Pagés-Serra & Marco Stampini, 2007. "No Education, No Good Jobs?: Evidence on the Relationship Between Education and Labor Market Segmentation," IDB Publications 4121, Inter-American Development Bank.
  3. Cosar, A. Kerem & Guner, Nezih & Tybout, James, 2013. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," IZA Discussion Papers 7718, Institute for the Study of Labor (IZA).
  4. Azuara, Oliver & Marinescu, Ioana, 2011. "Informality and the expansion of social protection programs," MPRA Paper 35073, University Library of Munich, Germany.
  5. Aysit Tansel & Elif Oznur Kan, 2012. "Labor Mobility across the Formal/Informal Divide in Turkey: Evidence from Individual Level Data," Koç University-TUSIAD Economic Research Forum Working Papers 1201, Koc University-TUSIAD Economic Research Forum.
  6. Carmen Pagés-Serra & Marco Stampini, 2007. "¿Sin formación no hay buenos empleos? Elementos de juicio sobre la relación entre la formación y la segmentación del mercado laboral," Research Department Publications 4562, Inter-American Development Bank, Research Department.
  7. Carmen Pages & Lucia Madrigal, 2008. "Is Informality a Good Measure of Job Quality? Evidence from Job Satisfaction Data," Research Department Publications 4603, Inter-American Development Bank, Research Department.
  8. Joanna Tyrowicz & Stanisław Cichocki, 2011. "Employed unemployed? On shadow employment in transition," Empirica, Springer, vol. 38(2), pages 259-281, May.
  9. Azuara, Oliver, 2011. "Effect of universal health coverage on marriage, cohabitation and labor force participation," MPRA Paper 35074, University Library of Munich, Germany.
  10. John P. Haisken-DeNew & Maren M. Michaelsen, 2011. "Migration Magnet: The Role of Work Experience in Rural-Urban Wage Diff erentials in Mexico," Ruhr Economic Papers 0263, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  11. Azuara, Oliver & Marinescu, Ioana, 2013. "Informality and the expansion of social protection programs: Evidence from Mexico," Journal of Health Economics, Elsevier, vol. 32(5), pages 938-950.

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