Structural Modelling of Female Labour Participation and Occupation Decisions

The objective of this paper is to estimate the parameters defining female labour participation and occupation decisions. Departing from a theoretical framework, we use micro data to estimate the wage-participation elasticity in Mexico. Consistency between the selectivity-adjusted wages and the multinomial participation equations is achieved via a two-step estimation procedure following Lee (1984). We use the results of our model to test and quantify three hypotheses explaining recent increases in female labour participation in Mexico. Our results show that the observed 12 per cent increase in female labour participation in Mexico between 1994 and 2000 is explained by the combination of a negative income shock caused by the 1994-95 Peso crisis, the increase in expected wages taking place in the manufacturing sector during the post-NAFTA period and a reduction in the female reservation wage.