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Increasing the Cost of Informal Employment: Evidence from Mexico

  • Brenda Samaniego de la Parra
  • León Fernández Bujanda
American Economic Journal: Applied Economics
vol. 16, no. 1, January 2024
(pp. 377-411)
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Abstract

We estimate the effect of increasing the cost of informal jobs on formal firms' and workers' outcomes. We combine administrative records and household surveys and exploit exogenous variation in the cost of informality generated by over 480,000 random worksite inspections in Mexico. For informal workers, inspections temporarily increase the probability of being formalized at the inspected firm, but separations also rise. For formal workers, we find temporary increases in the probability of remaining formally employed at the inspected firm and in monthly wages. At the firm level, increasing the cost of informal jobs leads to persistently lower formal employment.

Citation

Samaniego de la Parra, Brenda, and León Fernández Bujanda. 2024. "Increasing the Cost of Informal Employment: Evidence from Mexico." American Economic Journal: Applied Economics, 16 (1): 377-411. DOI: 10.1257/app.20200763

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • E26 Informal Economy; Underground Economy
  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials
  • J46 Informal Labor Markets
  • O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
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