Is Local Social Development Associated with Workforce Composition? A Municipal Analysis of Mexico, 1990-2015

A critical development goal involves reducing subsistence farming and encouraging entrepreneurship and formal sector employment. A growing number of studies examine cross-national variation in the rates of subsistence farming, marginal self-employment, formal employment, and prosperous entrepreneurship by level of development. However, despite significant regional disparities in development within most low-to-middle-income countries, little is known about how development at the local level is associated with labor market patterns. Using a pooled cross section containing four waves of data from the Mexican Census (1990-2015), this study investigates the relationship between social development and municipal workforce composition. In the 1980s, Mexico initiated an ambitious and multipronged development agenda intended to reduce extreme regional disparities in educational attainment, housing quality, access to utilities, and poverty. This study measures social development using a multi-dimensional measure that captures educational attainment, housing quality, access to utilities, and poverty. Laborers are separated into employed, own-account workers, and employers, with each category divided into agricultural and non-agricultural. In a second set of analyses, non-agricultural own-account workers are categorized as high and low growth potential and non-agricultural wage workers are separated into informal and formal sector. Results from fixed effects regression models indicate that local development significantly reduces the rate of own-account agricultural work and increases non-agricultural wage labor and employer self-employment. As less developed areas advance, the largest initial increase in non-agricultural work is in the informal sector. But, in more developed communities, social development increasingly predicts growth in formal sector employment and more selective entry into non-agricultural own-account work. The findings suggest that investment in community-level social development has the potential to reduce subsistence self-employment, encourage formal sector work, and promote entrepreneurship. Yet, the greatest gains occur in communities that already have mid to high levels of social development.