Informal Economy Remains Mexico’s Key Labor Problem to Solve
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Informal Economy Remains Mexico’s Key Labor Problem to Solve

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Conal Quinn By Conal Quinn | Journalist & Industry Analyst - Thu, 05/19/2022 - 11:53

Off the back of the Federal Labor Law (LFT) reform, Mexico can forecast emerging trends that will influence Mexico’s wider economy, said Héctor Márquez Pitol, President, Human Capital Commission of the Mexican Employers' Association (COPARMEX) as well as President, the Mexican Association of Human Capital Companies (AMECH). One of the biggest issues to address, however, remains Mexico’s disproportionately powerful informal economy.

Márquez offered an analysis on the progress made since the LFT reform. “As we all know, the reform had one main objective: to generate more decent and formal jobs,” he said. With over two years now having passed and despite the pandemic and the challenges it posed to the labor market, enough data has emerged to offer a fair assessment of where the labor market is moving. “The reality is, the reform has had positive results for some but not for many others,” outlined Márquez. Indeed, the data shows that 900,000 people have lost job security in the past two years, often in the form of reduced salaries and shorter-term contracts. Meanwhile, 3.1 million workers moved from one company that provides personnel services to another for an array of reasons.

The number of workers registered in the Mexican Social Security Institute (IMSS) grew from 20,613,536 to 21,011,342 between Feb. 2020 and April 2022, an increase of around 400,000.  However, this does not account for the fact that Mexico’s labor force grows yearly, with hundreds and thousands of young people entering the workforce. Furthermore, in the same period, the number of people working in the informal economy remained around 10 million more than those in the formal economy, with figures rising by around 240,000 in the same period. In some states, especially the southeast, 80 percent of all workers continue to earn a living in the informal economy. The National Occupation and Employment Survey (ENOE) meanwhile indicates that the rate of informal employment has increased 0.4 percent, from 55.4 percent in 1Q21 to the current 55.8 percent.

Salary is a major indicator of job security, and in the period between Feb. 2020 and April 2022, the average monthly salary has increased from MX$12,061 (US$605.37) to MX$14,375 (US$721.51). However, as Marquez highlighted, the main driving factor pushing workers toward the informal economy is that they can simply earn more income than in formal work. Currently 21,011,342 workers are registered for Social Security, but informal jobs continue to outnumber formal ones. “Informality is a cancer to Mexico,” bemoaned Márquez. “As much as we discuss other valid issues such as the duration of holiday leave, this remains the main problem we have to address.” Notably, the only industry to see the number of registered workers decrease post-pandemic is professional and technical services, with 342,843 having lost job security since Feb. 2020, representing a drop of almost 15 percent. On a positive note, the number of registered workers in financial services increased 25 percent in this same period, while the registration of agricultural and construction workers is showing signs of improvement this year. Furthermore, the situation in northern states has improved greatly, with informal work falling to around 30 percent.

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