1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

The Determinants of Informality in Mexico's States

Informality has important implications for productivity, economic growth, and the inequality of income. In recent years, the extent of informal employment has increased in many of Mexico's states, though highly heterogeneously. The substantial differences across states in terms of informal employment can be helpful in explaining differences in economic growth outcomes. This paper studies the determinants of informal employment using states' diverging outcomes to identify causal factors, taking into account potential endogeneity. The results suggest that multiple factors explain differences in informal employment across states, including per capita income, the quality of labour skills, differences in the prevalence of microenterprises, the cost to start a business, restrictions on foreign investment, the rule of law and incidence of corruption.

English

Keywords: sub-national policy analysis, microenterprises, informal employment, regulatory policy
JEL: J21: Labor and Demographic Economics / Demand and Supply of Labor / Labor Force and Employment, Size, and Structure; O17: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Formal and Informal Sectors; Shadow Economy; Institutional Arrangements; O54: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Economywide Country Studies: Latin America; Caribbean
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