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Informal and Formal Labour Flexibility in Mexico

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Abstract

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.

Suggested Citation

  • Alcaraz Carlo, 2009. "Informal and Formal Labour Flexibility in Mexico," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE.
    • Handle: RePEc:col:000090:005862
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    Cited by:

    1. Jorge O. Moreno & Cecilia Y. Cuellar, 2021. "Informality, Gender Employment Gap, and COVID-19 in Mexico: Identifying Persistence and Dynamic Structural Effects," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(3), pages 1-25, Julio - S.
    2. Alcaraz Carlo & Chiquiar Daniel & Salcedo Alejandrina, 2015. "Informality and Segmentation in the Mexican Labor Market," Working Papers 2015-25, Banco de México.
    3. Islas-Camargo, Alejandro & Cortez, Willy W., 2011. "How relevant is monetary policy to explain Mexican unemployment fluctuations?," MPRA Paper 30027, University Library of Munich, Germany.
    4. Aguilar-Argaez Ana María & Alcaraz Carlo & Ramírez Claudia & Rodríguez-Pérez Cid Alonso, 2020. "The NAIRU and Informality in the Mexican Labor Market," Working Papers 2020-09, Banco de México.
    5. International Monetary Fund, 2012. "Mexico: Selected Issues," IMF Staff Country Reports 2012/317, International Monetary Fund.
    6. M. Ali Choudhary & Saima Mahmood & Gylfi Zoega, 2015. "Informal Labour Markets in Pakistan," BCAM Working Papers 1504, Birkbeck Centre for Applied Macroeconomics.
    7. Bazdresch Santiago, 2018. "Finance and Employment Formalization: Evidence from Mexico's ENIGH, 2000-2016," Working Papers 2018-14, Banco de México.
    8. Islas-Camargo, Alejandro & Cortez, Willy W., 2011. "Revisiting Okun's law for Mexico: an analysis of the permanent and transitory components of unemployment and output," MPRA Paper 30026, University Library of Munich, Germany.
    9. Cortez, Willy Walter & Islas C., Alejandro, 2013. "An assessment of the dynamics between the permanent and transitory components of Mexico's output and unemployment," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

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    Keywords

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    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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