The role of informality in the unequal distribution of labor income in Mexico under the RIF decomposition approach

Abstract

Purpose: To analyze the impact of informality on labor income inequality in Mexico (20052022) and assess the role of education and other factors in reducing the gap between formal and informal workers.
Methodology: RIF decomposition is employed to analyze the distribution of labor income in Mexico over the 2005–2022 period, using data from the National Occupation and Employment Survey. This approach breaks down changes in the Gini coefficient into components attributable to observable worker characteristics.
Results: Although inequality persists in the informal sector, educational improvements and public policies have partially reduced the gap. However, education alone has not significantly translated into equity.
Implications: Formal employment policies and improved working conditions are complementary to educational progress.
Originality: The study highlights the limited impact of education on reducing inequality, emphasizing the need for structural policies to foster employment formalization.