Mexico and it's informal economy

When people hear the name “Mexico” their brain goes either one of two routes. They would either remember of the positive, lively side of Mexico. The rich and elegant culture full of beautiful beaches, ancient Aztec temples and one of the 115,000 taco vendors in Mexico City itself; or they think deeper, darker, illegal side of Mexico. With 93 murders a day recorded in 2018, a huge wealth gap and drug cartels fuelling its informal economy, you would think that it’s a real-life action movie.

The Mexican economy has recorded relatively low open unemployment rates. It grew by 2.6% on an annual average which wasn’t enough to adapt to the spike in the labour supply. This meant that unemployment rates would increase rapidly, with over 60% of Mexico City’s population having informal jobs and living in informal housing such as slums and squatter settlements. This high rate of informal employment was recorded during a context of a comparatively low open unemployment rate. In 2009, as an example, throughout the monetary crisis, informal employment rose to 5.47% of the labour force from 3.97% in 2008. This implies that for an outsized share of individuals who lose their jobs, employment in informal jobs is that the main alternative for earning financial gain. This happens because of slow productive job creation and the absence of mechanisms to support fired staff who are trying to find new jobs. Too summarise, there is too large of a supply and competition for jobs but not enough demand, which is forcing people towards the informal economy while simultaneously stripping away from the GDP.

An effective strategy for addressing informal employment required taking a minimum of 2 complementary intervention areas under consideration. These are the necessity to make formal jobs and the need to align incentives to market the transition to formality. The promotion of economic process with job creation could be a necessary demand, where the development of exports and worth chains are crucial and as are economic activities for domestic consumption Over half of the informal jobs are targeted in tertiary activities. It’s crucial to deal with this to extend productivity of the economy especially of little and medium-sized enterprises and, consequently, to promote the growth of formal, productive jobs coupled to the foremost dynamic sectors. The 2013 incentive to formalise employment aimed to formalize 200,000 informal workers by 2014. The programme operates through agreements whose objective is to make sure that every workplace complies with the provisions of the Federal Law on Employment and therefore the Social Security law to uphold workers’ right and to receive all Social Security benefits.

In conclusion, Conditions should be created to effectively incorporate small and medium sized enterprises in value chains associated with the most dynamic activities of the export strategy. Furthermore, competitive domestic production should be strengthened to provide the necessary space for the creation of more formal, productive jobs.