(In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico
By Matias Busso, Mary Fazio, S. Algazi. 2012
137 citations recorded by the source corpus.
The laws that regulate relations between firms and workers in Mexico distinguish sharply between salaried and non-salaried workers, and they are at the root of the existence of informality. This paper provides a clear definition of informality, distinguishing it from illegality. Using Mexico's Economic Census, the paper shows that the majority of firms are informal but legal, that there are more small formal firms than large ones, and that some large firms are informal. It also shows that informality and illegality increased in the period 1998-2008. Using a simple model of monopolistic competition to measure the productivity losses due to distortions that misallocate resources, the paper finds that one peso of capital and labor allocated to formal and legal firms is worth 28 percent more than if allocated to illegal and informal firms, and 50 percent more than if allocated to legal and informal firms. The paper concludes arguing that the distortions in the labor market created by informality reduce total factor productivity.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/282ea5a629263d7cfa1764b788a1748f787ecf88
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In Economics and Econometrics
Citations in the corpus
- Informal Employment and Business Cycles in Emerging Economies: The Case of Mexico (2015, background): “The static problem of the firm is to maximize (8) subject”
- The Causes and Costs of Misallocation (2017, unknown): “Bustos (2011) specifically finds that producers in Argentina invest more in technology upgrading in response to trade liberalizations.12 Selection effects are featured prominently in the theoretical analysis of Melitz (2003).”