Informal employment and business cycles in emerging economies: The case of Mexico

Abstract

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Financial development, unemployment volatility, and sectoral dynamics

“…The majority of formal salaried workers are in large …rms and the majority of informal workers are in small …rms(Busso, Fazio, and Levy, 2012). This explains why, given our mapping between the data and the model, small …rm employment is countercyclical (for empirical evidence, seeBosch and Maloney, 2008;Fernández and Meza, 2015). Within the context of our model with formal …nancing, this mapping is an approximation as many small …rms (which are generally informal) may not have full access to formal …nancing, though this fact is re ‡ected in the collateral constraint (adjusted for the level of capital) for small …rms.…”

Informal Settlements in the Age of Digital Cartography: Insights from Mexico City

“…Informal employment is not necessarily low paid, although much of it is part-time and precarious. It also tends to be 'counter-cyclical' to both business cycles and formal employment, acting as a kind of buffer in times of crisis, such as after 1994 and 2009 (Fernández and Meza, 2015). Independently of income, informal employment is a serious barrier to obtaining a mortgage or other housing credit, which explains why so many relatively well-off families can only make a home in informal settlements, building a house as their economic situation allows.…”

Employment and Firm Heterogeneity, Capital Allocation, and Countercyclical Labor Market Policies

“…In turn, we set L ss to capture the volatility of transitions from formal salaried employment to unemployment relative to the volatility of transitions from informal salaried employment to unemployment from Bosch and Maloney (2008). 13 We calibrate the standard deviation of the aggregate productivity shock to match the standard deviation of Mexican real GDP for the years 1993 through 2007. In addition, we calibrate the steady-state government spending-output ratio to be 10.2 percent of output, which is representative of the Mexican economy.…”

“…To compare the model to the data, we use Mexican time series from 1993:Q1 to 2007:Q4 for output, consumption, and unemployment to compute second moments, as well as the evidence in Bosch and Maloney (2008) and Fernández and Meza (2014) for the labor market.…”

“…Fazio, and Levy (2012) use Mexican Census data to characterize the distribution of employment (as well as capital) based on …rm size and the formality and legality status of the …rm Fernández and Meza (2014). use their evidence to determine the productivity gap between formal and informal …rms focusing on legal …rms alone since they consider that informal …rms in their model are household …rms that do not hire workers, i.e.…”