Incentives to informality: Evidence from Mexican job flows
MetadataShow full item record
This paper inquires whether informal workers (self-employed and salaried employed) have incentives for informality as modern approaches have suggested. We analyse the job flows of Mexico, as observed through four waves of a comprehensive survey conducted at household level between years 2001 and 2004. For each macro-region of the country, we build a set of Markov transition matrices for testing the disposition or propensity of workers to move across sectors. Individual panel data are then estimated in order to assess the wage differentials between formal and informal workers. We find evidence of stronger incentives to become informal worker in the less developed regions of the country rather than in the more industrialized and innovative ones. However, some degree of segmentation often prevents workers from reacting to the incentives. Our results suggest that different regions of Mexico have different patterns of employment and that such patterns are related to the regional level of development.