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The NAIRU and Informality in the Mexican Labor Market

Ana María Aguilar-Argaez, Carlo Alcaraz Pribaz (), Claudia Ramirez Bulos and Cid Alonso Rodríguez-Pérez

No 2020-09, Working Papers from Banco de México

Abstract: The non-accelerating inflation rate of unemployment (NAIRU) is not directly observable and the presence of informal workers imposes an additional challenge in its estimation. Countries with large informal sectors, traditional measures might not depict labor slack properly, as it has the wage flexibility needed to incorporate formal workers that cannot find a formal job. In this paper, we present an estimation of the traditional NAIRU for Mexico and an alternative measure that includes informality as an indicator of labor underutilization. We find that both measures of NAIRU and the associated labor market slack indicators follow similar patterns over time. However, the slack estimated with the indicator that includes informality seems to predict inflationary pressures more accurately when the unemployment gap is close to zero.

Keywords: Unemployment; Informality; NAIRU; Business cycle (search for similar items in EconPapers)
JEL-codes: E26 E32 E52 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-iue and nep-mac
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