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© 1999 International Bank for Reconstruction and Development / The World Bank

research-article

Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico

William F. Maloney

William F. Maloney with the Poverty Reduction and Economic Management Unit of the Latin America and Caribbean Region at the World Bank. The author is grateful to Enríque Dávila Capalleja, Asian Cohen, René Cortázar, Bill Dickens, Hadi Esfahani, Ariel Fiszbein, Alec Levenson, Frank Lysy, Doug Marcouiler, Gustavo Márquez, David Nielson, Ana Revenga, Eric Rice, Bill Savadoff, and Guilherme Sedlacek for helpful discussions. The author thanks Roberto Flores Lima and Agustín Ibarra Almada of the Mexican Secretariat of Labor and Social Welfare for their advice and help with the project, and the Mexican National Institute of Statistics, Geography, and Information (INEGI) for use of the data.

This article offers an alternative to the traditional dualistic view of the relationship between formal and informal labor markets. For many workers inefficiencies in formal sector protections and low levels of labor productivity may make informal sector employment a desirable alternative to formal sector employment. The analysis offers the first study of worker transitions between sectors using detailed panel data from Mexico and finds little evidence in favor of the dualistic view. Traditional earnings differentials cannot prove or disprove segmentation in the developing-country context. The patterns of worker mobility do not suggest a rigid labor market or one segmented along the formal/informal division.


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