Heterogeneity among Mexico's microenterprises: An application of factor and cluster analysis

Overall, the observed groupings are more suggestive of the normal heterogeneity expected in any small-firm sector than the standard view of a dualistic labor market. The sector does serve as a refuge for those unable to get salaried jobs, and this group does earn somewhat less given its human capital. But it is a small minority of the population that is concentrated in older workers who find it hard to be rehired in salaried jobs if let go. The vast majority of entrepreneurs in all clusters is there voluntarily, with a desire for greater independence and higher earnings that dwarfs layoffs or the inability to find a salaried job as motivation. Those who are leaving the sector are the youngest but are not necessarily those who entered because they could not find salaried work. They correspond more closely to the failed but voluntary entrepreneurs who are found in any small-business sector. There is little evidence that the sector serves primarily as a way of reducing labor costs for large firms through subcontracting since only a very small minority report larger clients. Nor does it appear to be the case that migrants use the sector as a holding pattern for salaried work any more than locals do or that they earn less given their human capital. There is a division along the dimension of capital intensity, size, permanence, and formality, but this seems to result more from an unequal distribution of human and physical capital factors, including perhaps entrepreneurial talent, rather than any dualism found in the labor market. There is little relationship between capital intensity size and returns to human capital. Further, there is little evidence that the distribution of firm size and, in particular, the small size of these firms results from structural problems or market failures. Both the optimistic, prosperous sectors and the pessimistic, lessprosperous sector show relatively similar incidence of business problems, and few cite credit as the primary barrier to expansion. It is possible that most entrepreneurs do not try to access credit because they have learned the lesson that only with collateral and connections is access to formal-sector credit even remotely possible. But it cannot be ruled out that the desired steady state size of over half the entrepreneurs is two or fewer workers and that they have no desire to expand further.