Labor Market Structure in Ldcs: Time Series Evidence on Competing Views
International Bank for Reconstruction and Development Working Paper No. 1940
25 Pages Posted: 3 May 1998
Date Written: May 29, 1997
This paper reexamines the dualistic view of LDC labor markets by studying the dynamics between "formal" and "informal" labor markets across a business cycle and a period of trade liberalization in Mexico, 1987-1993. Conventional earnings comparisons, even across time, are shown to be unreliable tests for segmentation. The paper test for, and finds, evidence of queuing to enter formal employment. However, transitions into informality, the size of the informal sector, and levels of mobility in all directions are shown to be pro-cyclical. Overall, the informal sector behaves as an unregulated entrepreneurial sector, rather than the disadvantaged sector of a dualistic labor market. There is evidence for increased subcontracting over time with trade liberalization although it is not clear that workers are worse off.
JEL Classification: J31, J21, J62, 017
Suggested Citation: Suggested Citation