participating establishments over the period 2004-14,<sup>8</sup> our analysis focuses on GVC participation measures at the state level. We compute two measures that are used in the regressions: the share of GVC establishments in a state’s (i) total number of establishments, and (ii) total establishments’ employment. Correlates with labor market outcomes in that case are to be interpreted as GVC spillovers.

To obtain labor market, informality and migration indicators as well as information on the demographic characteristics of the population at the municipality level, we rely on tabulations from the 2000 and 2010 Census of Population and Housing and the 2015 Population Count.<sup>9</sup> Given that publicly available data from the Mexican Institute of Statistics do not allow for more than two cross-tabulations, we use census microdata samples from the Integrated Public Use Microdata Series to estimate labor market indicators for more detailed groups (Ruggles et al. 2007). Because the 2005 data do not include detailed information on labor market outcomes, 2000 data are used instead as the initial year for these indicators (with the exception of migration variables). The analysis also uses information on remittances received in Mexico from the United States (CONAPO 2014).

The analysis focuses on four types of labor market outcomes, namely (i) employment-related measures (labor force participation rate and employment rate), (ii) labor incomes (total and average), (iii) measures of migration, and (iv) labor informality. First, the employment channel captures both labor force participation rate and employment rates which are based on the IPUMS variable EMPSTAT taking the values of 0 (not in universe<sup>10</sup> ), 1 (Employed), 2 (Unemployed) and 3 (Inactive). The labor force participation rate is defined as the share of employed and unemployed in the universe (sum of employed, unemployed and inactive), whereas the employment rate is the share of employed in the universe. In other words, the difference between labor force participation and employment rates is the share of unemployed in the universe.

Second, the income channel uses two measures, namely total and average labor incomes. Total labor income captures a municipality’s total sum of labor incomes, while averages are obtained by dividing total labor income by the total number of employed workers. Third, the migration channel is captured by the number of residents who lived in another state of Mexico or abroad 5 years before (immigration), the number of residents who lived in another state of Mexico 5 years before (domestic immigration) and the number of residents who lived abroad 5 years before (international immigration). The analysis also includes the total working age population (aged 14-55) as outcome variable. Fourth, labor informality rate is measured as the percentage of wage and salary workers without pension or retirement benefits (SAR or AFORE) at work.

Finally, the analysis uses three policy measures at the regional level, namely (i) the initial number of kilometers of road network in a municipality, (ii) the initial labor market flexibility of the municipality’s state drawing from Mendoza-Cota (2017) who estimate an index of numerical labor flexibility of the formal labor market,<sup>11</sup> and (iii) education spending per student of the municipality’s state.<sup>12</sup> We also include several demographic and employment control variables in the regressions to account for different

> 8 1,619 municipalities out of the 1,980 in the sample.

> 9 Even though the 2015 population count is from a survey, the sample size is sufficiently large to provide statistics representative at the municipality level. See Enamorado et al. (2016).

> 10 The universe is the population aged 12 and older.

> 11 In the absence of state-level measures of legal restrictions and costs of hiring and firing workers for Mexico, we apply a measure of labor flexibility of the formal labor market for the year 2005 (Mendoza-Cota 2017). It is based on information on formal contract workers registered with the Mexican Institute of Social Security (IMSS) which provides health care and pensions. The measure captures the share of temporary urban and rural contract workers in total (i.e., temporary and permanent) contract workers. 12 Education expenditure per student in the state is obtained as the sum of federal, state and municipal education expenditure in the state in 2005 divided by the total number of students enrolled at all levels of education in the state in 2005/2006.

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