Education, informality and the pandemic: explaining the unequal impacts of Covid-19 in the Mexican labour market

The impact of the Covid-19 in Mexico was especially severe for non-graduates and for workers in informal employment. We argue that this occurred despite the adverse shocks from the pandemic being similar for all workers, because non-graduates and informal workers are in a weaker position in the labour market. We support this argument by presenting novel evidence of shorter job tenures and higher rates of transition from employment to non-employment for these workers and by showing that simulation of a DSGE model with the same shocks for all workers matches the experience of Mexico during the pandemic well. To do this, we develop an innovative model that differentiates between graduates and non-graduates as well as between formal and informal workers; the key feature of our model is that the job surplus for non-graduates and informal workers is smaller, making these workers more vulnerable to adverse shocks. Our results are likely to be applicable to other emerging economies with large numbers of informal workers.