Comparative Analysis of Labor Market Dynamics Using Markov Processes: An Application to Informality

50 Pages Posted: 10 Oct 2007

See all articles by Mariano Bosch

Mariano Bosch

London School of Economics & Political Science (LSE)

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

This paper discusses a set of statistics for examining and comparing labor market dynamics based on the estimation of continuous time Markov transition processes. It then uses these to establish stylized facts about dynamic patterns of movement using panel data from Argentina, Brazil and Mexico. The estimates suggest broad commonalities among the three countries, and establish numerous common patterns of worker mobility among sectors of work and inactivity. As such, we offer some of the first comparative work on labor dynamics. The paper then particularly focuses on the role of the informal sector, both for its intrinsic interest, and as a case study illustrating the strengths and limits of the tools. The results suggest that a substantial part of the informal sector, particularly the self-employed, corresponds to voluntary entry although informal salaried work may correspond more closely to the standard queuing view, especially for younger workers.

Keywords: labor market dynamics, Markov processes, Informality

JEL Classification: C14, J21, J24, J64, O17

Suggested Citation

Bosch, Mariano and Maloney, William F., Comparative Analysis of Labor Market Dynamics Using Markov Processes: An Application to Informality (September 2007). IZA Discussion Paper No. 3038. Available at SSRN: https://ssrn.com/abstract=1020581

Mariano Bosch

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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