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Informal and Formal Labour Flexibility in Mexico

We address a vital topic about labour markets in developing countries: The flexibility of the formal and informal labour sectors. For the Mexican economy, we use a panel from the National Survey of Urban Employment (ENEU) from 1995 to 2001. We control for workers´ observable characteristics, sample selection and non observable regional heterogeneity. We also take into account the possible endogeneity of the unemployment rate. The results show evidence that in the formal sector, unemployment does not affect wages. On the contrary, we found a clear negative effect of unemployment on wages in the informal sector. We also found evidence of a positive relation between formal informal wage differential and unemployment. These results suggest that the informal sector is more flexible than the formal sector.

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Volume (Year): (2009)
Issue (Month): (September)

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Handle: RePEc:col:000090:005862
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  1. Esfahani, Hadi S & Salehi-Isfahani, Djavad, 1989. "Effort Observability and Worker Productivity: Towards an Explanation of Economic Dualism," Economic Journal, Royal Economic Society, vol. 99(397), pages 818-36, September.
  2. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  3. Gong, Xiaodong & van Soest, Arthur, 2001. "Wage Differentials and Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," IZA Discussion Papers 329, Institute for the Study of Labor (IZA).
  4. Neri, Marcelo Cortes, 2002. "Decent Work and the Informal Sector in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 461, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  5. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  6. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  7. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  8. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730.
  9. repec:tpr:qjecon:v:105:y:1990:i:3:p:699-726 is not listed on IDEAS
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