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Informal and Formal Labour Flexibility in Mexico

Alcaraz Carlo ()
Authors registered in the RePEc Author Service: Carlo Alcaraz ()

Revista Desarrollo y Sociedad, 2009

Abstract: We address a vital topic about labour markets in developing countries: The flexibility of the formal and informal labour sectors. For the Mexican economy, we use a panel from the National Survey of Urban Employment (ENEU) from 1995 to 2001. We control for workers´ observable characteristics, sample selection and non observable regional heterogeneity. We also take into account the possible endogeneity of the unemployment rate. The results show evidence that in the formal sector, unemployment does not affect wages. On the contrary, we found a clear negative effect of unemployment on wages in the informal sector. We also found evidence of a positive relation between formal informal wage differential and unemployment. These results suggest that the informal sector is more flexible than the formal sector.

Keywords: Informal sector; labor flexibility; sample selection; endogeneity (search for similar items in EconPapers)
JEL-codes: J60 O17 (search for similar items in EconPapers)
Date: 2009
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