Outsourcing, Employment and Wages: Evidence from a Policy Reform in Mexico

This paper investigates the impact of Mexico's labor outsourcing partial ban on formal workers' labor market outcomes. Using longitudinal administrative data and an event-study framework, we analyze the evolution of employment and wages before and after the reform. The findings show that post-reform, regularized workers were more likely to retain their positions in the private formal job sector compared to a counterfactual scenario without the reform. Moreover, due to the reform, wages for workers directly affected increased by 3-4%, with significant variation across gender, age, industry, firm size, and region, indicating a heterogeneous response to the reform. These findings underscore the varied impacts of outsourcing restrictions on different segments of the labor market, providing valuable insights into the implications of labor market regulations on employment stability and wage growth.