Increasing the Cost of Informal Employment: Evidence from Mexico

Brenda Samaniego de la Parra and Leon Fernandez Bujanda

American Economic Journal: Applied Economics, 2024, vol. 16, issue 1, 377-411

Abstract: We estimate the effect of increasing the cost of informal jobs on formal firms' and workers' outcomes. We combine administrative records and household surveys and exploit exogenous variation in the cost of informality generated by over 480,000 random worksite inspections in Mexico. For informal workers, inspections temporarily increase the probability of being formalized at the inspected firm, but separations also rise. For formal workers, we find temporary increases in the probability of remaining formally employed at the inspected firm and in monthly wages. At the firm level, increasing the cost of informal jobs leads to persistently lower formal employment.

JEL-codes: D22 E26 J22 J31 J46 O15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/app.20200763

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