Half of Mexico’s Workforce Is Informally Employed

In Mexico, it is estimated that some 25.8 million people were working informally by the end of 3Q22, tolerating precarious salaries and lacking social security benefits, according to Katia Guzmán, Data Coordinator, ¿Cómo Vamos? nonprofit. This has been a persistent pain point for the country, oscillating only minimally between 55% and 50.5% and indicating an ingrained public burden. 

“The fact that half of Mexico’s employed population is immersed in labor informality is a public problem,” said Guzmán. Moreover, she considered it an unnecessary burden that could be easily resolved through public policy intervention. She called for incentives that would pressure employers to formalize employment positions, otherwise “very little will change this indicator.” 

Data from the National Occupation and Employment Survey (ENOE) indicate that in January 2022, the country’s labor informality rate stood at 54.9% and would continue to grow until it hit its peak of 55.8% in July. Coinciding with greater economic activity during the second half of the year, Mexico’s informality rate would progressively decline to 54.9% in December. Most vulnerable to labor informality are people working in domestic, construction and restaurant sectors.

The discrepancy of earned income between formal and informal laborers is acute, dropping from an average monthly income of MX$10,630 (US$566) to MX$5,692 (US$303). This represents a gap of 53.6% in earned income alone, a pronounced deprivation of purchasing power that has been further depleted by inflation. Moreover, if job creation slows as expected, low-skilled laborers face a highly competitive market that is likely to contribute to informal employment in the country. 

Altogether, informal labor represents a multilateral problem for Mexico’s economy starting with workers missing purchasing power, which will have a direct impact on the country’s economic recovery in 2023. In the long-term, their absent representation before the Social Security Institute (IMSS) corresponds to significant loss of public funding, debilitated pension programs and poverty. Overall, as observed through the discrepancy in earned income, without explicit legal incentives people in the informal labor market will continue to be vulnerable to exploitation.