Labor flexibility and regional unemployment in Mexico: a panel cointegration analysis

Abstract

In order to corroborate the long-term effect of increasing temporary labor contract onthe unemployment rate of the Mexican formal workers, a cointegration panel modelwas estimated. The results indicated the existence of panel cointegration of the seriesconsidered. They showed that causality goes from the unemployment rate and wagesto the labor flexibility index. The estimations exhibited positive coefficients for thelabor flexibility variable. It can be concluded that the evidence provided by the esti-mation of the model suggests that increasing labor flexibility increases the unemploy-ment rate but temporary labor contracts have had negative effects on that rate.

Keywords

• labor market
• unemployment
• wages
• labor flexibility
• cointegrationpanel