COVID-19 Boosts Labor Informality

Labor informality is considered a major systemic problem affecting the Mexican economy. In 2019, 56.7 percent of the Mexican population worked outside the labor system. Although this sector of the population contributes to less than 25 percent of the GDP, its impact on economic growth is significant, reported INEGI. “For every MX$100 (US$4.5) in the country’s GDP, MX$78 (US$3.5) comes from 43 percent of formally employed people, while MX$22 (US$0.98) corresponds to 57 percent of people employed in the informal sector,” said INEGI in a report at the end of 2019. COVID-19 has increased this inequality, boosting informality in the country. This is also pointed out by the Telephone Survey of Occupation and Employment (ETOE) recently powered by INEGI, which reflects the impact that COVID-19 has had on the creation of informal employment. According to ETOE, 62 percent of people who found employment in June did so in the informal sector. Of them, 73 percent did so at the lowest salary level. This, according to various analysts, will have an impact on the country's internal consumption in the coming months.

The INEGI report was published after the Mexican economy entered the so-called new normality at the beginning of June. During that month, 4.8 million workers were reincorporated into the labor system, of which approximately 3 million people entered the informal system. In other words, today 53 percent of the Mexican population works in the informal sector.

The data comes shortly after an 18.9 percent drop in Mexico´s GDP in 2Q20, a figure that according to Alberto Tovar, opinion columnist at El Financiero, means “layoffs, reduced wages and the desperation of young and old alike to find work.” “The concern is that the effects of the pandemic are still far from over and families will surely continue to be added to the economic complications. In other crises in Mexico, the informal sector was an escape valve for pressure, but now it is limited by the transmission of COVID-19 and containment policies,” Tovar continued.

The data provided by INEGI can therefore be interpreted from in two ways. From an optimistic point of view, the Mexican economy, even with slowness and difficulties, is once again returning to cruising speed, although there is still a long way to go before it regains pre-COVID-19 growth. From a pessimistic point of view, historically, economic crises have caused an increase in citizen insecurity and a decrease in the quality of health in Mexico. This is currently aggravated by the speed of contagion among the lower social strata of the Mexican economic pyramid. 

According to Tovar, for Mexico to be able to employ all the people who join the labor system year after year, the economy must maintain a constant growth of 4 percent of GDP. Data shows that the country is still far from achieving that goal.