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

Author

Listed:
  • Héctor J. Villarreal

    (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 J. Villarreal & 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 Governement and Public Transformation.
    • Handle: RePEc:gnt:wpaper:5
    as

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    References listed on IDEAS

    as
    1. Robert Duval-Hernández, 2022. "Choices and Constraints: The Nature of Informal Employment in Urban Mexico," Journal of Development Studies, Taylor & Francis Journals, vol. 58(7), pages 1349-1362, July.
    2. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2003. "Fifty Years of Mincer Earnings Regressions," NBER Working Papers 9732, National Bureau of Economic Research, Inc.
    3. Gong, Xiaodong & van Soest, Arthur, 2002. "Wage differentials and mobility in the urban labour market: a panel data analysis for Mexico," Labour Economics, Elsevier, vol. 9(4), pages 513-529, September.
    4. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    5. Matias Busso & Maria Victoria Fazio & Santiago Levy Algazi, 2012. "(In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico," Research Department Publications 4789, Inter-American Development Bank, Research Department.
    6. Thoresen, Thor O. & Vattø, Trine E., 2015. "Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature," Labour Economics, Elsevier, vol. 37(C), pages 38-53.
    7. Matías Busso & Maria Victoria Fazio & Santiago Levy Algazi, 2012. "(In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico," IDB Publications (Working Papers) 75698, Inter-American Development Bank.
    8. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    Full references (including those not matched with items on IDEAS)

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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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