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A discrete choice model for labor informality in Mexico using restricted sets

Author

Listed:
  • Héctor Juan Villarreal Páez

    (School of Government and Public Transformation, Tecnológico de Monterrey)

  • Diego Vázquez-Pimentel

    (School of Government and Public Transformation, Tecnológico de Monterrey)

Abstract

This paper explores the dynamics of labor informality in Mexico by developing a discrete choice mixed logit model to explain the transitions between labor states—namely, not employed, formal employment, and informal employment—among individuals aged 18 to 65. The study offers critical insights into the informal sector’s heterogeneity, with particular focus on voluntary versus involuntary informality, while also contributing a novel estimation strategy that combines supply- and demand-side constraints within the informal labor market. The results highlight the persistent barriers to formal employment for a significant segment of the labor force, despite policy efforts aimed at reducing informality in Mexico.

Suggested Citation

  • Héctor Juan Villarreal Páez & Diego Vázquez-Pimentel, 2025. "A discrete choice model for labor informality in Mexico using restricted sets," Working Paper Series of the School of Government and Public Transformation 5, School of Government and Public Transformation, Tecnológico de Monterrey.
    • Handle: RePEc:gnt:wpaper:5
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    File URL: https://egobiernoytp.tec.mx/sites/default/files/2025-07/wp5_discrete_choice_model_labor_informality_mexico.pdf
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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