Unemployment and employment dynamics in the Mexican segmented labour market

This paper analyses unemployment and employment dynamics in the urban Mexican labour market. We use amethod to distinguish between the effects of duration dependence and unobserved heterogeneity. Cohort effects are added and identified within the dependent concurrent risks model. We consider the exit from unemployment to the formal and informal sector; the transitions between sectors; and the transitions from the two types of employment to unemployment. The model is estimated on quarterly urban Mexican aggregated data over the period 1987-2001 stratified by sex, age, and education level. It turns out that for all groups of unemployed there is nonmonotonous duration dependence. Unobserved heterogeneity is not found in all groups of unemployed individuals. The first results, obtained from the analysis of the unemployment dynamics do not enable us to conclude that both formal and informal sectors play a specific role, but neither do they show a dynamic or specific behaviour; with similar cohort effects and different duration dependences, the sectors appear symmetrical. The transitions between sectors show shapes of dependence, where we find a primacy of the formal sector over the informal one for some categories of workers, especially males and the more educated. An asymmetrical mechanism within the formal sector thus seems to take place with the employment length in this sector, keeping those workers within the same type of employment. Between the two following quarters, the probabilities of returning to unemployment differ greatly according to the categories of workers and the origin sectors. It is difficult to draw conclusions from those mechanisms of nonmonotonous dependence in the analysis of transitions from employment to unemployment. The transition risks from formal employment, that is to saymobility between sectors or a return to unemployment are overall homogeneous within the different categories of workers. The exit rates from informal employment are very different. Regarding the mobility between sectors from informal to formal, the presence of heterogeneity is systematically significant (except for the less educated workers). Rather than pure cyclical effects, it seems nevertheless that cohort effects make account of the labour market mutations and of the transformations and particularly of the role of employment sectors.