Wage differentials and mobility in the urban labor market: a panel data analysis for Mexico
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.
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C. M. Schmidt ceteris paribus choice and wage choice equations differentials between formal dynamic random effect earn error terms errors in parentheses ex-formal worker explain family members females formal and informal Formal Informal formal sector employment formal sector job G. A. Pfann Gong Guada Guadalajara Heckman high educated benchmark High education Formal higher educated Immigrant income increase with education increases the probability informal sector jobs IZA Discussion Papers JuaTij labor economics lagged labor market lagged state dummies log wages Low education lower educated Maloney Maquiladoras marginal probabilities maximum likelihood measurement error Mexico City Monterrey multinomial logit Noem non-employment non-workers Nonparametric regressions observed characteristics Othinc panel data model Pradhan previous quarter real wages role sample Sample probabilities sample statistics sector choice Simulated Transition Probabilities small firms Soest staging hypothesis standard deviations Standard errors Std.err.of Tijuana unobserved heterogeneity Urban Employment Survey urban Mexico wage differentials wage equations wage rates women