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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

    ()
    (NATSEM, University of Canberra)

  • van Soest, Arthur

    ()
    (Tilburg University)

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 mployment 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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Bibliographic Info

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

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Length: 39 pages
Date of creation: Jul 2001
Date of revision:
Publication status: published in: Labour Economics, 2002, 9 (4), 513-529
Handle: RePEc:iza:izadps:dp329

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

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  1. Strassmann, W Paul, 1987. "Home-Based Enterprises in Cities of Developing Countries," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 36(1), pages 121-44, October.
  2. Pradhan, M.P. & Soest, A.H.O. van, 1993. "Formal and informal sector employment in urban areas of Bolivia," Discussion Paper, Tilburg University, Center for Economic Research 1993-11, Tilburg University, Center for Economic Research.
  3. Polachek,Solomon W. & Siebert,W. Stanley, 1993. "The Economics of Earnings," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521367288.
  4. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 2(2), pages 165-187, June.
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