Fiscal Incentives Needed to Curb Labor Informality: Experts

Lawmakers, business leaders, and labor experts gathered this week at the La Informalidad Laboral y el Empleo (Labor Informality and Employment) to address Mexico’s high levels of labor informality, calling for fiscal incentives, regulatory simplification, and investment strategies to expand formal employment.

During the forum, Senator Verónica Rodríguez, President, Citizen Participation Commission, said tackling informality requires action, not only diagnosis. She proposed measures such as productive investments, balanced regional development, fiscal stimuli, and streamlined procedures to remove barriers that prevent formal job creation.

“It is not enough to diagnose; we must act,” Rodríguez said, noting that informality affects more than 30 million people, or 54% of the country’s working-age population. She added that social protection must be expanded so that no worker is excluded from health services, pensions, or workplace security, while training and educational linkages should connect youth, women, and marginalized communities with formal employment.

Rodríguez warned that informality is a “structural and multifactorial” problem, driven by low levels of schooling, bureaucratic complexity, and persistent gender, age, and regional gaps. The economic implications, she said, include reduced tax collection that limits the state’s capacity to invest in infrastructure, health, and education. An estimated 50 million people in Mexico lack health or pension coverage, she added.

Mexican governments have recognized the importance of reducing informality but have failed to address it with sufficient seriousness, said Rubén López, President, Labor Policy Institute. “They have been kicking the can down the road,” he added.

However, informality “is not fought, it is resolved,” said Francisco López, General Director, Confederation of Employers of the Mexican Republic (COPARMEX). He added that inclusive development is not possible while millions remain outside the benefits of economic growth. He proposed simplifying legal procedures to encourage SMEs, expanding digital financial inclusion and training, offering fiscal incentives for regularization, and linking education with labor market needs. He also suggested reforms to improve conditions for non-standard workers.

Many employers evade obligations by hiring informally, with only one in four workers registered with the Mexican Social Security Institute (IMSS), said Héctor Márquez, Director General, AMITAI. He called for competitive fiscal plans to attract investment and regulatory frameworks that enable flexible hiring while guaranteeing social security.

Mexico City has reduced informality rates since 2020 by identifying sectors that can transition into formal employment, such as digital platform services, said Omar Escamilla, Representative, STPS. This has allowed some workers to gain access to social security.

To keep reducing informality, it is necessary to map informal vendors by location, products, and schedules, as well as to determine whether their activity stems from necessity or is influenced by criminal groups that occupy public spaces, said José Botello, Adviser, Government of Queretaro.

The forum underscored broad consensus that addressing labor informality requires coordinated action between government, businesses, and workers, with emphasis on investment, regulatory reform, and expanded social protection.