Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/21186
Authors: 
Gong, Xiaodong
van Soest, Arthur
Year of Publication: 
2001
Series/Report no.: 
IZA Discussion paper series 329
Abstract: 
We analyze wage differentials mobility between the formal and informal sector in urban Mexico, using panel data on five quarters drawn from Mexico?s Urban Employment Survey. We develop a dynamic random effects panel data model. It consists of two separate wage equations for the two sectors and a multinomial logit part explaining the labor market state, in which wages are included as explanatory variables. The model is estimated using simulated maximum likelihood. The estimates show that wage differentials increase with education level. The probability of formal sector employment strongly increases with the wage differential. Simulated transition probabilities show that for male workers, the choice between formal and informal sector is driven by wage differentials and unobserved heterogeneity, while true state dependence is much less important. For women, nonparticipation is the most common labour market state, and true state dependence plays a much larger role.
Subjects: 
Wage differentials
informal sector
mobility
panel data
Mexico
JEL: 
J31
R23
C33
J23
Document Type: 
Working Paper

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