Short-run effects of COVID-19 pandemic on the labor market dynamics in Mexico

Abstract

Purpose: In this thesis, we estimate the short-term effects of the national lockdown implemented in Mexico from late March to May amid the COVID-19 pandemic on labor market dynamics. Specifically on the insertion and exit rates of formal and informal workers. Methods: We used data from five quarterly waves of the National Occupation and Employment Survey (ENOE) and three-monthly waves of the Telephone Occupation and Employment Survey (ETOE). We defined four labor market states: formal employment (FE), informal employment (IE), unemployment (UN), and out of labor force (OLF). We used multistate models to estimate transition rates between labor market states before the national lockdown using data from 03/2019 to 03/2020 and data from 4/2020 to 6/2020 for the lockdown period. We estimated the COVID-19 national lockdown effect as a hazard ratio (HR) on the transition rates among the different labor market states. We also estimated sex-, age- and education-specific transition rates and lockdown effects. We fitted the multistate models using maximum likelihood estimation, assuming time to transition follows an exponential distribution with a constant hazard. Results: In the absence of the lockdown, the transition rates from FE, IE, and UN to OLF are 0.09 (95% confidence interval [CI], 0.08, 0.12), 0.26 (95% CI, 0.23-0.29), and 0.54 (95% CI0.38-0.77), respectively. Transition rates from IE and UN to OLF are 2.11 (95% CI, 1.83-2.43) and 2.33 (95% CI, 1.39-4.04) higher in lockdown compared to the one-year pre-pandemic period, respectively (see Figure). The estimated HRs from FE to UN and OLF are 0.60 (95% CI, 0.33-1.10) and 1.08(95% CI, 0.86-1.34. Transition rates from OLF to FE and IE during the lockdown are 0.21 (95% CI, 0.17-0.27) and 0.56 (95% CI, 0.49-0.65) times lower, respectively, than in the pre-pandemic period (see Figure). Women, individuals with only basic education, 15–29-year-olds, and individuals older than 65 are more likely to transit to OLF state than men, individuals with a college education, and 30-59-year-olds. Conclusions: The COVID-19 pandemic-induced lockdown altered the dynamics of individuals within the labor market. Informal workers were the most affected by an increased rate of leaving the labor market compared to formal workers.