Working Papers

  • "Formal Firms, Informal Workers and Household Labor Supply" (Job Market Paper)
  • I analyze the consequences of informal employment at formal firms in Mexico using a new employer-employee-household matched panel dataset. I find that 25% of all employees at formal firms are informal workers. Using data from the Ministry of Labor’s randomly applied inspections between 2005 and 2016, I analyze the effects of enforcement on formalization, turn-over, and wages. I find that inspections increase the quarterly probability that a worker will transition 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. This suggests the cost of registration is not levied on the newly formalized workers. Instead, after an inspection, the average after-tax wage for other, previously formal workers at inspected firms is lower, indicating that coworkers of informal employees bear part of the increase in firms’ labor costs. I then use the exogenous shock to workers’ informality status to analyze how households respond to changes in access to a formal job. I find that after an inspection spouses of informal workers who became formal decrease labor market participation in formal jobs and increase after-tax reservation wages, consistent with assigning a high value to the shared benefits of a formal job.

  • "Application Flows", with Steven J. Davis
  • We build a new U.S. database that links 60 million applications to seven million online job postings since January 2012. The raw data come from DHI Group, Inc., which owns and operates several online platforms for posting vacancies and attracting applications. Employer-side clients of these platforms comprise organizations that hire their own workers, recruitment firms that solicit applicants for third parties, and staffing firms that hire workers for lease. Postings are concentrated in computer-related occupations, technology sectors, financial services, and other occupations that require technical skills. Job seekers display a striking propensity to target new postings, directing two-fifths of all applications to openings posted in the last 48 hours. They are also much more active early in the work week. The mean posting duration for single-position openings is nine days, about one-fifth as long as the mean vacancy duration for comparable jobs in JOLTS data. After documenting these and other findings, we deploy the database to construct an array of novel tightness and mismatch indicators, which we use to revisit U.S. labor market conditions in recent years. We also investigate how enhancements to the search and matching functionality of DHI platforms affected the volume and distribution of application flows.

  • "The Effects of Mexico's Labor Market Reforms on Formal Employment" (draft) (slides)
  • In 2012, Mexico's Congress approved a set of reforms aimed at increasing labor market flexibility and improving employment conditions for women and young workers. The reforms increased enforcement by adding to the resources available to verify employers' abidance with the regulation, and increasing the penalties for non-compliance. In this paper, I analyze how inflows and outflows to formal jobs have changed since the reforms were implemented. I show that almost half of the growth in formal jobs is due to higher within-firm informal to formal jobs transitions. I find that firms adjusted their criteria for formalizing workers: firms now place more weight on on-the-job experience than on education when determining who to ``promote'' to a formal job. I show that these empirical findings are consistent with a model where firms decide which workers to hire and under what type of contract based on the expected costs of getting caught with informal workers. Finally, I explore the implications of this change in the composition of the formal workforce for resource allocation and productivity.

  • "Cyclical Behavior of Informal Employment and Self-Employment in Mexico"
  • In this paper, I document the cyclical behavior of gross worker flows in Mexico focusing on “off-the-books” or informal workers employed at formal firms. I show that transitions across formal and informal employment differ significantly between self-employed workers and employees. I find that the share of informal workers employed at formal firms is countercyclical due to the decrease in the job-finding rate for formal jobs during recessions as well as the procyclical behavior of within-firm informal to formal transitions. Flows from formality into informal self-employment are also procyclical. This evidence suggests the distinction between informal employees at formal firms, formal employees and informal self-employment is critical when attempting to model an economy with a large informal sector. Differences in the dynamics of informal employment and self-employment have important implications for unemployment fluctuations.

Work in Progress

  • "The Hazards from Informality: Measuring the Consequences of Entering the Job Market in an Informal Job"
  • In this paper, I analyze the effects of entering the labor force in an informal job in Mexico. Since job finding rates in the informal sector are higher than in formal employment, informal jobs can offer young individuals entering the labor force the necessary work experience to transition to better quality jobs. However, if informal employment sends a negative signal about a worker's quality, entering the work force in an informal job can lead to worse labor market outcomes in the future. In this paper, I use random inspections by the Ministry of Labor to analyze the labor market trajectories of informal and formal workers. I first show that establishments are more likely to hire formal workers after an inspection. Using the Labor Markets Trajectories Survey (MOTRAL), a survey that collects data on labor market outcomes between 2007 to 2012 for workers in Mexico, I compare the labor market outcomes of observationally equivalent workers hired before and after an inspection at inspected and non-inspected establishments to analyze the hazards from informality.

  • "Worker Reallocation, Skill Transferability and Inequality in Mexico", with Claudia Macaluso
  • We document the heterogeneity in occupational and geographical mobility across workers in Mexico and use this insight to study the effects of policies that incentivize firms to relocate in economically disadvantaged areas (Special Economic Zones ‘SEZ’). We argue that SEZ policies may achieve only modest results in decreasing geographical inequality. Due to high training costs, high worker mobility across regions and low skill transferability, it is cheaper for firms to attract high-skill migrant workers than to hire the low-skill local workers, thus perpetrating rather than alleviating inequality.