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Wage Differentials and Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico

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Author Info
Gong, Xiaodong () (IZA, Bonn)
van Soest, Arthur (Tilburg University)

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Abstract

We analyze wage differentials mobility between the formal and informal sector in urban Mexico, using panel data on five quarters drawn from Mexico’s Urban Employment Survey. We develop a dynamic random effects panel data model. It consists of two separate wage equations for the two sectors and a multinomial logit part explaining the labor market state, in which wages are included as explanatory variables. The model is estimated using simulated maximum likelihood. The estimates show that wage differentials increase with education level. The probability of formal sector employment strongly increases with the wage differential. Simulated transition probabilities show that for male workers, the choice between formal and informal sector is driven by wage differentials and unobserved heterogeneity, while true state dependence is much less important. For women, nonparticipation is the most common labour market state, and true state dependence plays a much larger role.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 329.

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Length: 38 pages
Date of creation: Jul 2001
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Handle: RePEc:iza:izadps:dp329

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Related research
Keywords: Wage differentials; informal sector; mobility; panel data; Mexico;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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  1. Eliane Badaoui & Eric Strobl & Frank Walsh, 2007. "Is There An Informal Employment Wage Penalty? Evidence from South Africa," IZA Discussion Papers 3151, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Bigsten, Arne & Mengistae, Taye & Shimeles, Abebe, 2007. "Mobility and earnings in Ethiopia's urban labor markets, 1994-2004," Policy Research Working Paper Series 4168, The World Bank. [Downloadable!]
  3. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," IZA Discussion Papers 2141, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," Bristol Economics Discussion Papers 06/581, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  5. Eliane Badaoui & Eric Strobl & Frank Walsh, 2007. "The Formal Sector Wage Premium and Firm Size," IZA Discussion Papers 3145, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Sageeta Pratap & Erwan Quintin, 2002. "Are Labor Markets Segmented in Argentina? A Semiparametric Approach," Working Papers 0202, Centro de Investigacion Economica, ITAM. [Downloadable!]
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  7. Carmen Pages & Lucia Madrigal, 2008. "Is Informality a Good Measure of Job Quality? Evidence from Job Satisfaction Data," RES Working Papers 4603, Inter-American Development Bank, Research Department. [Downloadable!]
  8. Baliamoune-Lutz, Mina, 2009. "Entrepreneurship and Reforms in Developing Countries," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. Laura Juarez, 2008. "Are Informal Workers Compensated for the Lack of Fringe Benefits? Free Health Care as an Instrument for Formality," Working Papers 0804, Centro de Investigacion Economica, ITAM. [Downloadable!]
  10. Pratap, Sangeeta & Quintin, Erwan, 2006. "The Informal Sector in Developing Countries: Output, Assets and Employment," Working Papers RP2006/130, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  11. Dekker, Ronald, 2007. "Non-standard employment and mobility in the Netherlands," MPRA Paper 7385, University Library of Munich, Germany. [Downloadable!]
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