| Summary: | I analyze the behavior and consequences of informal employment at formal firms in Mexico using a new employer-employee-household matched dataset. The first chapter identifies different types of informal workers, describes the demographic characteristics of each group, and estimates their different job finding and separation rates. This chapter highlights the importance of distinguishing between informal employment that occurs at informal establishments and informality within formal firms. I find that 25% of all employees at formal firms are informal workers. Moreover, the vast majority of quarterly informal-to-formal transitions occur at the same establishment of employment and within a year of the start of the employment relationship.
The second chapter focuses on the effects of labor market regulation on firms' decisions. Using data from the Ministry of Labor's inspections on randomly selected establishments between 2005 and 2016, I analyze the effects of enforcement on formalization, turn-over, and wages. I find that inspections increase the quarterly probability of transitioning from an informal to a formal job within the same establishment from 14% to 20%, but the quarterly probability of job separation also increases. There is no evidence of a change in after-tax wages for informal workers that remain employed after an inspection, suggesting the cost of registration is not levied on the newly formalized workers. Instead, after an inspection, the average after-tax wage for already formal workers at inspected firms is lower relative to non-inspected formal workers, indicating that coworkers of informal employees bear part of the increase in firms' labor costs.
The last chapter analyzes the effects of access to formal jobs' benefits on after-tax reservation wages and household labor supply. I find that after an inspection spouses of informal workers who became formal decrease labor market participation in formal jobs and, conditional on starting a new job, receive higher after-tax wages. These results are consistent with households in Mexico placing a high value in the shared benefits of a formal job.
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