Why do Mexicans prefer informal jobs? Eliud Diaz Romo, Durham University 8 of July, 2015

2 ›Understanding informal labour in Mexico ›Methodology ›Data ›Estimations Why do Mexicans prefer informal jobs? Título de la sección

3 ›Understanding informal labour in Mexico ›Methodology ›Data ›Estimations Why do Mexicans prefer informal jobs? Título de la sección

Notes: 1. The Economically Active Population refers to individuals that are working or looking for a job: It was estimated to be 52.2 million people in According to the ILO (International Labour Organization), decent work refers to that productive work that generates appropriate income, offers adequate social protection and in which human rights are safeguarded. Numbers are rounded In Mexico almost 60% of the working population choose to work informally Working force in 2012 Percentage of individuals Decent work conditions 2 Productivity Wage differentials Tax Collection Why does informality bother?

Half of the informal workers are employed in the “formal sector” Working Force in 2012 Percentage of individuals Informal businesses 27.7% Formal businesses 29.3% Informal workers 57.0% Appears not to be an appropriate regulation The percentages seem not to change across time. In 2005 the percentages were similar: – 3.8% for unemployed – 38.4% for formal workers – 30.9% for informal workers in formal businesses – 27.0% for informal workers in informal businesses It looks like there are not clear incentives to become formal

Why do Mexicans prefer informal jobs?

7 Identify the determinant variables or conditions that make individuals more likely to work in the informal market instead of the formal in Mexico Main research objective Título de la sección

8 What are the determinant variables or conditions that make individuals more alike to work in the informal market instead of formal? Hypothesis:  It is possible to statistically identify the impact, significance and size of the constraints that individuals’ face when selecting a job.  Individuals, males and females, face different constraints Relevance:  This estimation would be a beneficial instrument for policy making, recognizing those variables that people consider significant when choosing the type of job that they desire. It would also be beneficial in adjusting labour policies in the formal market to make it more attractive for them.

9 Formal work 38% Informal work in a formal firm 29% Unemployed 5% Informal work in an informal firm 28% Título de la sección Are the individuals free to choose where they want to work? Notes: The percentages are calculated with information from the Mexican National Survey of Employment 2012, 3 rd trimester Determinant factors: Demographic variables: – Years old – Marital status – Characteristics of the family members Education degrees Geographic patterns Male-female differentiation Sector of employment Interactions between variables

10 ›Understanding informal labour in Mexico ›Methodology ›Data ›Estimations Why do Mexicans prefer informal jobs? Título de la sección

11 Multinomial models appear to be the best option

12 ›Understanding informal labour in Mexico ›Methodology ›Data ›Estimations Why do Mexicans prefer informal jobs? Título de la sección

13 Notes: 1. ENOE refers to the acronym in Spanish: Encuesta Nacional de Ocupaci’on y Empleo The Mexican National Survey of Employment (ENOE 1 ) offers valuable and trustable information Quarterly basis survey with information since 2005 until today. 120,000 families are surveyed each term. This is more than 400,000 individuals Provides detailed information of the surveyed individuals, allowing the analysis of demographic characteristics and working conditions ENOE includes a clear defined methodology to identify informal jobs and informal business using the standards of the ILO (International Labour Organization) The information is statistically representative for the whole country, all the 32 federal states and 43 cities ENOE is a semi-panel. The survey uses a rotatory scheme, in which one- fifth of the sample is replaced each quarter

14 ›Understanding informal labour in Mexico ›Estimated models ›Data ›Estimations Why do Mexicans prefer informal jobs? Título de la sección

15 Independent variables Variable description

16 Independent variables description

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Why do Mexicans prefer informal jobs?

20 Conclusions The Mexican labour force does not show to prefer to work informally. Rather, the type of employment of an individual is better explained by the options available for them according to relevant demographic and economic variables. There are some key results to highlight from the baseline regressions: ‒ Higher education levels have a strong impact on being part of the formal market; ‒ Young individuals are more alike to work in the informal market; ‒ The principal differences by gender are found when analysing the sectors of employment; ‒ There are clear differences on the jobs available by the place of residence and; ‒ There are no relevant differences across time. The analysis of the impact of the interactions between the variables is very helpful for identifying mistreated or disadvantaged group of individuals. Regressions

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