Three essays on social policy and the labor market: learning from Mexico

This dissertation studies the Mexican labor market and investigates the effects of exogenous changes in income, caused by recent policy interventions in Mexico, on economic outcomes. In the first chapter, I estimate the wage differential between the formal and informal sectors in Mexico with a sample of salaried workers. Using a first-differences model to control for individual heterogeneity, I find that the transition from a formal to an informal job leads to a decrease in the average real wage while the opposite movement leads to an increase. In the second chapter, I use data from Progresa, a Mexican transfer program, to investigate the effect of an increase in wives’ incomes on household expenditures and on each spouse’s access to credit. I find that the wife’s income share has a positive and significant effect on food and children’s clothing, and a negative effect on adult’s clothing. I also find that the program increases women’s borrowing without significantly affecting total household borrowing. My findings suggest that increasing women’s income increases the household resources devoted to children and improves women’s individual access to credit. This evidence also supports models in which the distribution of income within the household affects outcomes. In the third chapter, I use the exogenous variation caused by a transfer program for the elderly that began in Mexico City in 2001 to estimate the effect of income on the private transfers received by households and individuals. In contrast with previous studies that do not have such exogenous income variation, I find large, negative and statistically significant income effects for both households and individuals. My results suggest a substantial crowding out effect of public programs, particularly those targeted towards the poor.