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Comparative Analysis of Labor Market Dynamics Using Markov Processes: An Application to Informality

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Author Info
Mariano Bosch () (London School of Economics)
William Maloney () (World Bank and IZA)

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Abstract

This paper discusses a set of statistics for examining and comparing labor market dynamics based on the estimation of continuous time Markov transition processes. It then uses these to establish stylized facts about dynamic patterns of movement using panel data from Argentina, Brazil and Mexico. The estimates suggest broad commonalities among the three countries, and establish numerous common patterns of worker mobility among sectors of work and inactivity. As such, we offer some of the first comparative work on labor dynamics. The paper then particularly focuses on the role of the informal sector, both for its intrinsic interest, and as a case study illustrating the strengths and limits of the tools. The results suggest that a substantial part of the informal sector, particularly the self-employed, corresponds to voluntary entry although informal salaried work may correspond more closely to the standard queuing view, especially for younger workers.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3038.

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Length: 50 pages
Date of creation: Sep 2007
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Handle: RePEc:iza:izadps:dp3038

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Related research
Keywords: labor market dynamics Markov processes Informality

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!] (restricted)
  3. Geweke, John, 1986. "Exact Inference in the Inequality Constrained Normal Linear Regression Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(2), pages 127-41, April. [Downloadable!] (restricted)
  4. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August. [Downloadable!] (restricted)
    Other versions:
  5. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December. [Downloadable!] (restricted)
  6. Akerlof, George A & Main, Brian G M, 1981. "An Experience-Weighted Measure of Employment and Unemployment Durations," American Economic Review, American Economic Association, vol. 71(5), pages 1003-11, December. [Downloadable!] (restricted)
  7. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployment: A Reconsideration," NBER Reprints 0019, National Bureau of Economic Research, Inc.
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  8. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, Oxford University Press, vol. 13(2), pages 275-302, May.
  9. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January. [Downloadable!] (restricted)
    Other versions:
  10. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December. [Downloadable!] (restricted)
  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  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, October. [Downloadable!] (restricted)
  13. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January. [Downloadable!] (restricted)
  14. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector," PIER Working Paper Archive 07-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
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  15. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  16. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July. [Downloadable!] (restricted)
    Other versions:
  17. Geweke, John & Marshall, Robert C & Zarkin, Gary A, 1986. "Mobility Indices in Continuous Time Markov Chains," Econometrica, Econometric Society, vol. 54(6), pages 1407-23, November. [Downloadable!] (restricted)
  18. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carmen Pagés & Marco Stampini, 2007. "No Education, No Good Jobs? Evidence on the Relationship between Education and Labor Market Segmentation," IZA Discussion Papers 3187, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Bosch, Mariano & Maloney, William F., 2008. "Cyclical Movements in Unemployment and Informality in Developing Countries," IZA Discussion Papers 3514, Institute for the Study of Labor (IZA). [Downloadable!]
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