Local Multipliers and the Informal Sector in Mexico 2000-2010

Isidro Soloaga and Mariana Pereira-López

Working Papers from Universidad Iberoamericana, Department of Economics

Abstract: This paper analyzes local multipliers and the relation between tradable job creation and informality in Mexico. Building upon local multipliers analysis, and taking into consideration agglomeration economies as well as general equilibrium effects, if finds that a new job in the tradable sector traduces into three new jobs in the nontradable sector. Half of these jobs occur in the informal sector, which is not a desirable outcome considering the low tax collection and vulnerability to labor market shocks associated to informality. Considering the skill composition of the tradable sector, individuals with some college or more have a much higher multiplier over nontradable jobs compared to other skill levels. There are asymmetric effects in terms of the multiplier as negative shocks (job losses) have higher effects.

Date: 2013
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