Product Market Competition and Informality in Mexico

Mexico has engaged in many trade agreements that have left unaffected internal competition, being one of the most trade-opened countries in the world is also one of the most restrictive regarding product market competition. For developing countries, this is a field to study that still need to be undertaken. This paper relates informality in the Mexican labor markets outcomes with market competition. Using microdata from labor surveys and industrial data, we proceeded with a two stage strategy, where in the first stage separate the industry informality differentials for workers, and in a second stage we pooled the data and estimate the effect from market competition and labor reforms. Results show that competition increases informality, but given the labor institutional set a wide reform of the labor market should be undertaken in order to benefit workers. Product Market Competition and Informality in Mexico