Wage Differentials and Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico

32 Pages Posted: 30 Jul 2001

See all articles by Xiaodong Gong

Xiaodong Gong

Australian National University (ANU) - School of Economics; IZA Institute of Labor Economics

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Date Written: July 2001

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 labor market state, and true state dependence plays a much larger role.

Keywords: Wage Differentials, Informal Sector, Mobility, Panel Data, Mexico

JEL Classification: C33, J23, J31, R23

Suggested Citation

Gong, Xiaodong and van Soest, Arthur H. O. and van Soest, Arthur H. O., Wage Differentials and Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico (July 2001). Available at SSRN: https://ssrn.com/abstract=276519 or http://dx.doi.org/10.2139/ssrn.276519

Xiaodong Gong (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Coombs Building 9
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Australia
61 2 6125 4235 (Phone)
61 2 6125 0182 (Fax)

HOME PAGE: http://econrsss.anu.edu.au/Staff/gong/contact_xg.htm

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany
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049 228/ 3894 510 (Fax)

Arthur H. O. van Soest

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

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

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