Informality and Mobility in the Labor Market: A pseudopanel's approach

Abstract

One of the main limitations of labor market analysis in developing countries is the lack of appropriate panel data information. This paper extends the methodology of Dang et al. (2014) to examine labor market mobility between the formal and informal sectors in Bolivia and Colombia building consistent pseudo panels from repeated cross-sectional survey data. After testing the robustness of the methodology, we identified confidence intervals for mobility’s group in Bolivia and Colombia (formal to formal, informal to informal, formal to informal and informal to formal). The results provide evidence that in Bolivia and Colombia mobility between labor sectors is relatively low, which can explain the low variability of the informality rate in those countries. Results suggest that the number of people who move to the informal sector tends to be larger than those who scape from the informal market to the formal, or at least there is more variability across years for the first ones. This implies that public policies focused on labor market in Latin America would not lead to significant improvements if mobility patterns do not change.