Intersectoral Wage Differentials and the Change of the Composition of Urban Employment in Mexico during 2001-2004.

We estimate wage differentials across different sectors of the Mexican economy. The results suggest that the wage differential between the formal and informal sectors is significant and larger than the differential between industry and services. The findings suggest that significant differences in productivity levels between the formal and informal sectors could exist. This, in turn, might imply that the economy's aggregate productivity could be affected by the increase of the share of informal employment. The results also suggest that the main distortions in the Mexican labor market seem to be related more with labor regulations that affect the allocation of resources between formal and informal activities, than a result of intrinsic characteristics of the production processes in the industrial and service sectors.