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" This paper applies recent advances in the study of labor market dynamics to a representative developing Country with a large informal or unregulated sector, Mexico. It studies quarterly gross flows for workers over a 15-year period that includes two recoveries and recessions, including the celebrated 1995 Tequila crisis. It finds, first, that the formal or modern salaried sector shows the same procyclical job finding rate and mildly countercyclinical separation behavior identified in the recent U. S. literature, and relative wage rigidity, both consistent with Shimer (2005a) and Hall (2005). The unregulated informal sector,however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). This interaction of regulatory covera

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