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Can Temporary Wage Incentives Increase Formal Employment ? Experimental Evidence from Mexico

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  • Abel,Martin
  • Carranza,Eliana
  • Geronimo,Kimberly Jean
  • Ortega Hesles,Maria Elena

Abstract

Formal sector entry-level jobs in Mexico offer low starting salaries but substantial wagegrowth. This paper experimentally tests whether a six-months wage incentive can increase formal employment amongsecondary school graduates. Combining survey and high-frequency social security data, the paper shows thatthe incentive increases formal employment among vocational school graduates by 4.2 percentage points (14.5 percent)over the first two years driven by a 5 percentage point (25 percent) increase in permanent formal jobs. These employmentgains are due to both extensive and intensive margin effects. Treatment effects are concentrated among youthswith binding reservation wages who also tend to underestimate formal wage growth.

Suggested Citation

  • Abel,Martin & Carranza,Eliana & Geronimo,Kimberly Jean & Ortega Hesles,Maria Elena, 2022. "Can Temporary Wage Incentives Increase Formal Employment ? Experimental Evidence from Mexico," Policy Research Working Paper Series 10234, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10234
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    More about this item

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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