Research
Working Papers
Wages, amenities and the value of formal employment: A structural approach for Mexico
Abstract
Workers move frequently between formal and informal jobs, yet the motives behind these transitions remain debated. Using household survey data from Mexico, I document that most informal-to-formal transitions take place within the same firm, consistent with a foot-in-the-door route to formality, and that sustained formalisation raises hourly wages only modestly. The wage gain is concentrated among low-skilled workers, even though skilled workers formalise at higher rates. These limited wage gains suggest that workers accept formal employment for reasons beyond current wage. I estimate a two-sector search model in which informal workers receive formal offers both from outside firms and from their current employer, and decompose the value of formal employment into a sector-specific non-wage amenity, future job opportunities, and employment stability. The estimated formal-sector amenity is worth 29.4% of the median informal wage for skilled men and 15.2% for skilled women, is negative for low-skilled women, and is not statistically significant for low-skilled men. Future formal job opportunities also contribute substantially to acceptance of formality; the within-firm foot-in-the-door channel is worth about 16% of the median informal wage for skilled men and about 4% for low-skilled women, and is quantitatively important for employment. In the absence of this channel, formal employment drops by roughly 8–14 percentage points for men and about 1–2 points for women, while informality and non-employment increase.
Work in Progress
The wage growth penalty of informal employment
Publications (Pre-PhD)
Fiscal Rules and Optimal Currency Composition of Sovereign Debt in Emerging Economies Working paper (IDB)