Stable Totals, Different Routes

The most revealing Mexican result is not a change in the number of jobs but a change in where workers go. This chapter follows the destinations of workers laid off from formal employment and the origins of people newly hired into formal jobs. The reader's key judgment is that a policy can leave a broad layoff or hiring rate largely unchanged while redirecting the composition of the people who move—and that such a short-run redirection is evidence about labor-market mechanisms, not a prediction of anyone's long-run career.

A formal layoff can lead somewhere different without becoming more common

Start with the denominator. The study first identifies workers who were laid off from formal jobs. It then asks how the people in that already-defined group are distributed across four destinations: formal employment, informal employment, unemployment, and inactivity. The resulting percentages are conditional destination probabilities. They do not say what share of the entire workforce entered informality. They say how the destination mix changed among workers who experienced the specified formal layoff.

That distinction allows two findings to coexist. The Mexican reform did not significantly increase the rate of layoffs from formal employment. Yet among the workers who were laid off from formal jobs, exposure to the reform raised the probability of transitioning into informal employment by 6.6 percentage points. The probability of moving into formal employment fell by a reported 6.5 points, although that estimate is imprecise in the overall group. The reform therefore changes the route taken after a formal separation without showing that formal separations became more frequent overall.

A simple numerical illustration makes the logic clear without inventing a labor-force total. Imagine that a defined group of formal layoffs has several possible destinations. If the number of layoffs stays the same but more of those workers choose or are compelled to enter informal work, the informal share of destinations rises even though the layoff rate does not. Other destination shares must adjust because the probabilities describe the same conditional pool. The important movement is inside the group of laid-off workers, not an additional set of layoffs added to the economy-wide count.

The destination change is not evenly distributed. For women who were laid off from formal employment, the probability of entering informal employment rises by 14.8 percentage points. For prime-age workers, it rises by 8.9 points. These subgroup differences do not establish that gender or age mechanically causes the transition. They show that the same reform-associated change in the formal labor market is experienced through different routes by different populations. Access to alternative formal jobs, household responsibilities, accumulated experience, and local opportunity may all matter, but the study does not separately identify those channels.

The result is consequential even if one cares primarily about formal employment. A formal layoff followed by another formal job is not equivalent to a formal layoff followed by informality. The latter may involve a different wage, coverage, stability, or path back into formal work. The study's destination categories do not measure every dimension of job quality, so they cannot tell us that every formal-to-informal move is worse or that every formal-to-formal move is better.