Formal firms with informal workers

In my last post, I claimed that “it is common for formal firms to have many informal workers.” How do I know that?

Joyce Sadka and I have been doing some work using data from a labor court in Cuautitlán, which is located just outside of Mexico City. Each data point represents an individual who claimed to have been fired from a formal-sector firm without cause.

As of now we have data on about 2,000 such cases filed in 2002. Most cases settle or are dropped, but 245 cases went all the way to a judge’s ruling. A judge’s ruling hopefully gives us an unbiased look at the facts of the case.

In 30 of the cases (12% of all cases), the judge ruled that the firm had not been making the required payments for social security and pensions. As I argued in the last post, a worker without social security or a pension is informal, no matter what firm he or she works for.

I think we will have a lot more to say once we analyze the data more carefully. I’ll post again when we have something written up.