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

Hector Villarreal and Diego Vázquez-Pimentel ()
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Diego Vázquez-Pimentel: School of Government and Public Transformation, Tecnológico de Monterrey

No 5, Working Paper Series of the School of Government and Public Transformation from 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.

Keywords: informality; restricted choices; microsimulations; labor policies (search for similar items in EconPapers)
JEL-codes: C54 J24 J31 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-07
New Economics Papers: this item is included in nep-dcm, nep-dev, nep-iue and nep-lma
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https://egobiernoytp.tec.mx/sites/default/files/20 ... formality_mexico.pdf First version, 2025 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:gnt:wpaper:5

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