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Increasing the Cost of Informal Employment: Evidence from Mexico

Author

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  • Brenda Samaniego de la Parra
  • León Fernández Bujanda

Abstract

We estimate the effect of increasing the cost of informal jobs on formal firms' and workers' outcomes. We combine administrative records and household surveys and exploit exogenous variation in the cost of informality generated by over 480,000 random worksite inspections in Mexico. For informal workers, inspections temporarily increase the probability of being formalized at the inspected firm, but separations also rise. For formal workers, we find temporary increases in the probability of remaining formally employed at the inspected firm and in monthly wages. At the firm level, increasing the cost of informal jobs leads to persistently lower formal employment.

Suggested Citation

  • Brenda Samaniego de la Parra & León Fernández Bujanda, 2024. "Increasing the Cost of Informal Employment: Evidence from Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 16(1), pages 377-411, January.
    • Handle: RePEc:aea:aejapp:v:16:y:2024:i:1:p:377-411
    DOI: 10.1257/app.20200763
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    Cited by:

    1. Ronconi, Lucas & Raphael, Steven, 2024. "Measuring Effective Labor Regulation in the Less Developed World: Recent Advances and Challenges Ahead," IZA Policy Papers 210, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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