Job Quality and Labour Market Transitions: Evidence from Mexican Informal and Formal Workers

We document job characteristics for young, male, urban workers in Mexico, a country with high informal employment and increasing education levels. The informal sector is composed of two distinct parts: salaried informal employment and self-employment. On almost every measure, including wages, informal salaried jobs are of lower quality than formal salaried or self-employed ones. We characterize short-term job type transitions among these workers and show that education plays a key role when transitioning into the formal sector, whereas age is more strongly associated with transitions into self-employment. Persistence in and transitions into formal jobs are more likely for more educated workers. These workers also benefit from higher wage gains when this transition is from informal salaried jobs. On average, wages are higher for workers transitioning into self-employment, but less-educated workers benefit more. For these workers, self-employment can represent an outlet for entrepreneurial talent for some, but like informal salaried work, for others, it can be the sector of last resort.