Indirect Job Creation and the Informal Sector in Mexico

This paper analyzes the effects of localized labor demand shocks in the tradable sector, such as the establishment of a large tradable firm in a municipality, over nontradable formal and informal jobs in the case of Mexico. Results indicate that locations that experienced this shock have between 8 and 13 thousand more jobs than other municipalities over a ten--year period. Indirect job creation is similar in both the formal and the informal sectors, but informality appears to be more vulnerable to negative shocks. Furthermore, the effects of shocks are symmetric in the formal sector but not in the informal, where negative shocks have greater effects over nontradable employment.