Heterogeneity among Mexico's micro-enterprises - an application of factor and cluster analysis
A long tradition sees the small firm sector as a holding pattern for workers queuing for jobs in the formal sector of a segmented labor market. An alternative"entrepreneurial"view suggests that many workers prefer self-employment to salaried jobs. These competing views can be resolved if the sector is heterogeneous. Using factor and cluster analysis, the authors generate a typology of the sector by taking advantage of a Mexican data set on micro-firms that offers information on a broad range of small firm characteristics. The methodology permits divisions to emerge from the data without the a priori imposition of a theoretical structure. The data break into several distinct groups, broadly characterized as highly profitable and dynamic young firms, older firms that have stabilized at a small size, and young firms that act as an employer of last resort. Those in the last group, comprised of older entrepreneurs with low levels of education, are the most likely to cite that they started their firms because they were unable to find a salaried job. In general most of the firm owners in all groups stated that they chose self-employment over formal sector employment in order to be independent, collect higher earnings, or follow family tradition. These survey responses are supported by the finding that income distribution adjusted for human capital is composed of two sub-distributions, with the"underperforming"distribution comprising only 14 percent of the sample. The factor analysis also implies that firm owner characteristics and firm size or profitability may not be correlated. For example, young workers who we might think are forced into the small firm sector due to inability to enter the formal job market do not necessarily earn less or have less capital than older entrepreneurs. Furthermore, a distribution of the earnings residual factor shows that very few firms, regardless of the firm owner's age, are earning below their expected profits. The data suggest that the small size of informal firms may not necessarily result from limited access to financial institutions or a desire to evade labor or tax laws. Instead, the firms simply may be in the beginning stages of a growth process or owners may prefer to remain small.
|Date of creation:||31 Oct 1998|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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 818-836, September.
- Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 194-227.
- Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996.
"Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts,"
Small Business Economics,
Springer, vol. 8(4), pages 297-315, August.
- Steven J. Davis & John Haltiwanger & Scott Schuh, 1993. "Small Business and Job Creation: Dissecting the Myth and Reassessing theFacts," NBER Working Papers 4492, National Bureau of Economic Research, Inc.
- Marcouiller, Douglas & Ruiz de Castilla, Veronica & Woodruff, Christopher, 1997. "Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru," Economic Development and Cultural Change, University of Chicago Press, vol. 45(2), pages 367-392, January.
- Douglas Marcouiller, S.J. & Veronica Ruiz de Castilla & Christopher Woodruff, 1995. "Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru," Boston College Working Papers in Economics 294., Boston College Department of Economics.
- Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-259, May.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
- Oster, Gerry, 1979. "A Factor Analytic Test of the Theory of the Dual Economy," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 33-39, February.
- Peattie, Lisa, 1987. "An idea in good currency and how it grew: The informal sector," World Development, Elsevier, vol. 15(7), pages 851-860, July.
- David Turnham & Deniz Eröcal, 1990. "Unemployment in Developing Countries: New Light on an Old Problem," OECD Development Centre Working Papers 22, OECD Publishing.
- Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series 1988, The World Bank.
- Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
- Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
- Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
- repec:ucp:bkecon:9780226316529 is not listed on IDEAS
- Loayza, Norman V., 1994. "Labor regulations and the informal economy," Policy Research Working Paper Series 1335, The World Bank. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1999. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.