Remote work and high-proximity employment in Mexico

This paper was produced as part of the BIS Consultative Council for the Americas (CCA) research conference on "Structural changes in inflation and output dynamics after Covid and other shocks", held in Mexico City on 17–18 November 2022.

Summary

Focus

As overall employment in Mexico recovered from the Covid-19 pandemic, some high-proximity consumer service sectors, such as food and beverage services, had still not returned to their pre-2020 levels by early 2023. The existing literature suggests that remote working may help to explain this fact in the United States, and we test this hypothesis in Mexico. We compare employment in consumer service sectors and other sectors in Mexican municipalities with higher and lower shares of potentially remote employment, before and after the start of the pandemic, to measure the effects of remote work on consumer service employment in this setting.

Contribution

We show that remote work helps to explain the pandemic-induced reallocation of labour across sectors. By focusing on consumer service employment, we also highlight that the pandemic meaningfully affected a sector that is both large (comprising around 4.5% of formal employment in Mexico) and one that tends to employ lower-income workers. Our work uses a novel triple-differences empirical methodology to show that remote work matters for post-pandemic labour market dynamics in emerging market economies.

Findings

We show that a larger share of potentially remote occupations in a municipality has a significant negative effect on high-proximity employment with respect to other sectors after the pandemic. We do not find evidence that our results are driven by internet access, suggesting that the effects operate through changing patterns of trips to work, as opposed to changes in internet use. Consumer service workers affected by remote work tend to exit the formal labour market completely, which suggests that they may face costs in adjusting to the sectoral reallocation of labour. 

Abstract

We show that in Mexico, larger shares of potential remote work at the municipality level are related to lower post-pandemic employment in high proximity consumer services, a large sector that mainly employs low-income workers. We use a triple difference event study design where we compare employment in high and low proximity sectors across municipalities with different levels of remote work potential, before and after the pandemic. Our results are not driven by changing patterns of consumption associated to Internet access during the pandemic. Since high proximity employment tends to locate in places where the propensity to remote work occupations is larger, such as cities, our estimates imply that remote work may have slowed the employment recovery from the pandemic in certain regions. A counterfactual where we reassign remote work potential equally across municipalities results in a more robust recovery in Mexico's service-intensive central region, which faced the steepest, most persistent drop in service employment. Our results suggest that if remote work remains an important feature of labor markets, consumer service sectors in cities in the developing world may face challenges stemming from these new work arrangements in the post-COVID era.

JEL classification: O33, R11, J2

Keywords : remote work, consumer services, middle-income countries, regional labour markets