ineligible industries would have evolved similarly after the 2008/2009 economic crisis in the absence of the wage subsidy program.

# **4.5 Actual employment vs. formal employment**

Since the data on employment comes from the Mexican Social Security Institute (IMSS), I ask the question whether the measured effects reflect changes in actual employment vs. formal employment. For example, it may be the case that firms deregister employees with IMSS after the crisis, without actually laying them off. Then, eligible firms may have re‐registered employees during the recovery whereas ineligible firms may have kept employees being informal, i.e. not registered with IMSS.

A related study by Betcherman, Daysal, and Pagés (2010) that uses data on employment from the Social Security Administration in Turkey concludes that the effect of wage subsidies was to increase registration rather than boosting total employment. In the setting here, where subsidies are linked to keeping existing employees, not to hiring new employees, the distinction between formal employment and actual employment may be less relevant. It is presumably more difficult for firms to deregister employees that were previously registered than to register employees who were not previously registered. IMSS registration comes with benefits for the employee, such as medical care, which employees may be reluctant to give up. However, in a crisis situation employees may prefer relinquishing these benefits over losing their job.

I use data from the Labor Market Survey (ENOE) conducted by the Mexican Statistical Institute (INEGI), for the years 2005 through 2014, to examine whether registration rates with IMSS changed with the economic crisis. The ENOE is a quarterly survey that covers about 120,000 households. Unfortunately, the ENOE variable indicating industry of employment is quite broad. It is based on two digit codes from the North American Industry Classification System (NAICS), plus two more digits specific to the ENOE. There are nine industry codes that correspond to durable goods manufacturing. Appendix Table 2 lists these nine codes along with their names and shows how I classified them into eligible vs. ineligible for the wage subsidy program.

The mapping to IMSS industry codes, on which eligibility for the program was based, is not always straightforward. For example, code 3340 in the ENOE includes manufacture of computers, communication and measurement equipment, as well as other electronic equipment. While most of these activities correspond to eligible industries in IMSS industry groups 36 and 37, IMSS classifies measurement equipment in an industry group that was not eligible for the wage subsidy program (group 39). That is, due to mismatches between the ENOE and IMSS classifications, some workers classified as eligible in the ENOE data may in fact not be eligible.<sup>10</sup> 10 In general, I tried to classify the ENOE industry codes as eligible (or ineligible) as accurately as possible based on whether the majority of industries listed in the name were eligible or not under the IMSS classification. For the example given above, this method seems to work relatively well. Data on employment in NAICS industries is available from the Monthly Manufacturing Industry Survey (EMIM) conducted by INEGI. This data shows seven subindustries in code 334 (which has the same name as ENOE industry 3340), one of which is manufacture of 11