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Gross worker flows in the presence of informal labor markets : the Mexican experience 1987-2002

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  • Bosch, Mariano
  • Maloney, William

Abstract

This paper applies recent advances in the study of labor market dynamics to a representative developing country with a large informal or unregulated sector, Mexico. It studies quarterly gross flows of workers over a 15-year period that includes two recoveries and recessions, including the celebrated 1995 Tequila crisis. It finds, first, that the formal or modern salaried sector shows the same procyclical job finding rate and mildly countercyclical separation behavior identified in the recent U.S. literature, and relative wage rigidity, both consistent with Shimer (2005a) and Hall (2005). The unregulated informal sector, however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). This interaction of regulatory coverage and firm sizes, and patterns of gross worker flows thus sheds suggestive light on the roots of countercyclical job finding behavior in the U.S. literature. Second, the patterns of worker transitions between formality and informality correspond to the job-to-job dynamics observed in the United States and not to the traditional idea of informality constituting the inferior sector of a segmented market. That said, the countercyclical job finding in the formal sector combined with the acyclical job finding in informality doeslead to the latter absorbing relatively more labor during downturns. Third, aggregate employment dynamics vary across the Tequila crisis and the later 2001 slowdown, suggesting that not only the composition of employment, but the nature of the shocks is important to understanding how the labor market adjusts.

Suggested Citation

  • Bosch, Mariano & Maloney, William, 2006. "Gross worker flows in the presence of informal labor markets : the Mexican experience 1987-2002," Policy Research Working Paper Series 3883, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3883
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    References listed on IDEAS

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    1. John Kennan, 2010. "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 633-664.
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    Citations

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    Cited by:

    1. Nicoletta Batini & Young-Bae Kim & Paul Levine & Emanuela Lotti, 2009. "Informal Labour and Credit Markets: A Survey," School of Economics Discussion Papers 0609, School of Economics, University of Surrey.
    2. repec:eee:deveco:v:133:y:2018:i:c:p:396-414 is not listed on IDEAS
    3. Rodrigo Barros, 2008. "Wealthier But Not Much Healthier: Effects of a Health Insurance Program for the Poor in Mexico," Discussion Papers 09-002, Stanford Institute for Economic Policy Research.
    4. repec:sgh:gosnar:y:2011:i:3:p:1-27 is not listed on IDEAS
    5. Aterido, Reyes & Hallward-Driemeier, Mary & Pagés, Carmen, 2011. "Does Expanding Health Insurance Beyond Formal-Sector Workers Encourage Informality? Measuring the Impact of Mexico's Seguro Popular," IZA Discussion Papers 5996, Institute of Labor Economics (IZA).
    6. Almeida, Rita & Carneiro, Pedro, 2008. "Mandated benefits, employment, and inequality in a dual economy," Social Protection Discussion Papers and Notes 45051, The World Bank.
    7. Bosch, Mariano & Maloney, William F., 2008. "Cyclical Movements in Unemployment and Informality in Developing Countries," IZA Discussion Papers 3514, Institute of Labor Economics (IZA).
    8. Arias, Javier & Artuc, Erhan & Lederman, Daniel & Rojas, Diego, 2018. "Trade, informal employment and labor adjustment costs," Journal of Development Economics, Elsevier, vol. 133(C), pages 396-414.
    9. Hector Elias Gutierrez Rufrancos, 2012. "The Mexican Wage Curve 2000-2003: A Quantile Analysis," Working Paper Series 3412, Department of Economics, University of Sussex Business School.
    10. Norbert Fiess & Marco Fugazza, 2008. "Trade Liberalisation and Informality: New stylized facts," Working Papers 2008_34, Business School - Economics, University of Glasgow.
    11. Bruhn, Miriam, 2013. "A tale of two species: Revisiting the effect of registration reform on informal business owners in Mexico," Journal of Development Economics, Elsevier, vol. 103(C), pages 275-283.
    12. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2010. "Informal self-employment and macroeconomic fluctuations," Journal of Development Economics, Elsevier, vol. 91(2), pages 211-226, March.

    More about this item

    Keywords

    Labor Markets; Labor Standards; Work&Working Conditions; Tertiary Education; Labor Management and Relations;

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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