Employment and Unemployment in Mexico's Labor Force

Fleck, Susan, Sorrentino, Constance, Monthly Labor Review

With the negotiation and passage of the North American Free Trade Agreement, interest in the Mexican economy has increased. Mexico is the world's 13th largest economy and a major participant in world trade. The country is America's third largest trading partner, after Japan and Canada, and bilateral trade has grown rapidly since Mexico joined the General Agreement on Tariffs and Trade in 1986. Furthermore, part of Mexico's rapid labor force growth has been absorbed by the United States through migration. From the twin perspectives of trade and immigration policies, it is important to analyze the extent to which Mexico has been able to provide adequate employment for its growing labor force.

Mexico became a member of the Organization for Economic Cooperation and Development (OECD) in May 1994.(1) The country's per capita income is in the range of that seen in the lower income OECD countries such as Greece and Portugal. Mexico's labor market, however, differs from that of other OECD member countries. The variations reflect different demographic and economic developments, as well as different labor market institutions (or the lack thereof). One of the most striking differences is in unemployment rates. Over the 1980's, when most OECD countries experienced persistently high unemployment despite a prolonged economic upswing, Mexico managed to reduce its unemployment rates to very low levels during a period of economic restructuring and little growth.

The official urban unemployment rate for Mexico fell continuously from 1983 to 1991, reaching a low of 2.6 percent in 1991. In 1993 and early 1994, the rate rose somewhat, but remained under 4 percent. Rural unemployment rates are even lower. In highly developed countries, such low rates would be interpreted as a sign of full employment, but the same cannot be said for Mexico.

Basically, two factors help to explain the low measured unemployment rates in Mexico. First, the Mexican concept of unemployment excludes some persons who would be counted as unemployed under the U.S. concept. Adjustment to the U.S. concept would raise the reported rate, but would still leave it relatively low. Second, and more important, Mexico's low unemployment rates mask a large number of persons in unstable, marginal jobs. Thus, the rates reflect the need for persons to subsist through any work at all, rather than a situation of full employment.

In a country without unemployment compensation,(2) persons without work are forced into marginal activities--street vending, for example--which results in their classification as employed rather than unemployed, even if they work as little as 1 hour a week. Part-time work, marginal self-employment, and nonremunerated work in family businesses are frequently the only options for many workers in Mexico. The actual unemployed are just those who have the resources to be able to afford to search for work as their only labor force activity. They tend to be younger and better educated than the rest of the population. Often, they belong to families that can afford to support them while they search for work.

Mexico's term for its official urban unemployment rate is desempleo abierto, or open unemployment, implying that there are other, more hidden aspects of unemployment which are not captured by the figures. In recognition of the incomplete nature of the official unemployment rate, Mexico's Instituto Nacional de Estadistica, Geografia e Informatica (National Institute of Statistics, Geography, and Informatics--hereinafter, Mexican Statistical Institute) has developed a framework of complementary rates. This array of rates expands upon the conventional urban unemployment rate to measure 10 broader concepts of unemployment and underemployment, subsuming such groups as the so-called hidden unemployed--those who are available for work, but are not seeking it--and persons working part time for economic reasons, looking for a second job, or working long hours for low pay. Whereas the official urban unemployment rate averaged 3.4 percent in 1993, the highest measure in the array was 23 percent.

To provide a context for a discussion of employment and unemployment statistics in Mexico, part I of this article sets forth information about economic conditions during the 1980's and 1990's, and about the source and quality of the data used in the subsequent analysis. It then offers a profile that contrasts the labor forces of Mexico and the United States, followed by a general examination of Mexico's population and labor force. Next, part II, on employment, focuses on Mexico's dual labor market, comprising a formal and an informal sector, and on sectoral employment shifts and maquiladoras--that unique Mexican institution begun in 1965 to promote foreign investment and jobs in the country. Finally, part III proceeds to an analysis of open unemployment, including adjustment of the Mexican unemployment rate to U.S. concepts, and concludes with a presentation of the aforementioned complementary unemployment rates, pointing out both the usefulness and the limitations of the framework. An appendix describes in detail the National Urban Employment Survey questionnaire.

I. Background

From the 1950's through early 1982, Mexico achieved substantial economic growth, significant increases in job creation, increases in the share of industrial output in the national product, and higher shares of wage and salary workers among the employed. This long period of economic progress ended abruptly in 1982. Most of the world was entering a recession in the early 1980's, and an enormous external debt became the trigger for one of the biggest economic crises in Latin America since 1929. In the 12 years prior to the recession, Mexico had embarked on a policy of aggressive deficit spending and monetary expansion, willingly financed by foreign banks offering credit at low interest rates. When prices for Mexico's oil exports began to fall in 1981, external financing of rising deficits continued. But as oil prices weakened further, foreign banks reassessed Mexico's ability to repay its debt and were no longer willing to finance it. In mid-1982, Mexico's loans came due with no money to pay back international creditors, triggering the "debt crisis."(3)

The crisis marked a turning point for the Mexican economy and brought about a thorough reorientation in the Government's approach to economic development. The new Government, which took office in December 1982, immediately instituted a series of fiscal austerity measures to redress deficits in the balance of payments and current accounts of the country. Renegotiation of Mexico's large foreign debt continued throughout the adjustment period of the 1980's.

The hallmark of the new development strategy was the transformation of a highly regulated and protected economy toward an open and market-oriented one. Many markets were deregulated, and the private sector was subjected to increased competition, both domestic and foreign. Price controls were progressively lifted. State enterprises were privatized throughout the 1980's, beginning with small public concerns and culminating with the sale of larger enterprises and the nationalized commercial banks in 1990 and 1991. From 1982 to May 1992, the number of state-owned enterprises in Mexico plummeted from 1,555 to 223.(4)

Mexico's economic liberalization included the reversal of a protectionist trade policy, leading toward the country's entry into the General Agreement on Tariffs and Trade in 1986 and culminating in the final approval of the North American Free Trade Agreement by all parties in 1993. A significant restructuring of previously protected manufacturing industries has occurred in Mexico in the face of increasing international competition. Reforms were designed to improve efficiency and promote productivity growth through modernization and the enlargement of capacity.

The in-bond manufacturing system (maquiladoras) had already been in place since 1965; it allowed foreign (predominantly U.S.) firms to import duty-free components and machinery and to process or assemble these imported goods and components for reexport. Merchandise exported to the United States under this program could enter the United States with import duty paid only on the value added in Mexico. During the 1980's, the Mexican government successively liberalized the maquiladora system, which employed around 10 percent of the manufacturing work force by 1991.(5)

The roots of the crisis were so deep that it took more than 6 years of painful adjustments and reforms for the new approach to start producing visible results. Even in 1987, real gross domestic product was lower than in 1981; between 1981 and 1987, real gross domestic product per capita declined by an average of nearly 2 percent per year. Consumer price inflation averaged nearly 100 percent annually during the same period. A devastating earthquake that hit Mexico City in 1985 interrupted progress by requiring major emergency expenditures and making budget plans obsolete. Shortly thereafter, another severe shock hit the economy when international oil prices dropped precipitously in late 1985, reducing the average price received by Mexico for oil by more than 50 percent. Only toward the end of the 1980's did real output return to the level attained in 1981 and inflation fall below precrisis levels.

By 1989, the Mexican economy showed marked improvement. Average real gross domestic product growth accelerated from 1.5 percent a year in 1987--88 to 3.5 percent a year in 1989--92, outstripping population growth and resulting in an increase in real gross domestic product per capita of about 1.5 percent a year. Real gross domestic product growth slowed to about one-half of one percent in 1993 and early 1994. However, in the second quarter of 1994, the economy picked up strongly, growing at an annual rate of 3.8 percent.

Sources and quality of data

This article draws upon data from both household surveys and establishment surveys conducted in Mexico, but the focus is on the household surveys. Varying geographic coverage and changing questionnaires and definitions in the household surveys hamper historical analysis. The article uses population censuses sparingly (mainly to capture some long-term trends), because they are available only every 10 years and because labor force status is not probed very deeply in the censuses. Also, definitions have changed from census to census, and data collection and enumeration problems related to the 1980 census rendered it unreliable as a labor force measure. The various sources describe characteristics of different employment universes, or they describe similar universes using different methods. The differences discussed below must be kept in mind when analyzing labor force data for Mexico.

Since the mid-1980's, Mexican labor force surveys have probed extensively into the labor force status of their respondents. Earlier surveys did not probe as deeply because they were based upon a model more applicable to measuring the status of the labor force of developed countries. The improvement has resulted in better enumeration of marginal activities that may have gone unreported in the earlier surveys, but it also results in breaks in historical continuity. Because the labor force is better enumerated in the surveys from 1985 onward, some caution must be exercised in analyzing trends over time--not only overall trends, but also trends by class of worker and by sector of employment.

Establishment surveys. Three establishment surveys are used as employment indicators, but to a lesser extent than the household surveys, as they are more limited in scope. The Monthly Industrial Survey covers about 3,200 establishments engaged in manufacturing. Each industrial sector within manufacturing is represented by establishments that combine to produce at least 65 percent of gross domestic product in the sector. Thus, some sectors are represented by 20 units and others by hundreds. For each establishment listed, the Monthly Industrial Survey enumerates all employees and production workers who worked in the establishment during the reference month.(6)

To supplement the data from the Monthly Industrial Survey, two other establishment surveys are cited. The Maquiladora Survey covers those establishments which assemble imported components for reexport as finished goods; these plants are not included in the Monthly Industrial Survey. The 1992 National Survey of Microenterprises provides detailed data on the characteristics of small enterprises, many of which operate in the informal sector.

Data from these three sources are used in this article as an adjunct to employment data derived from national household surveys. They help to fill out the picture of the employment side of the Mexican labor force.

Household surveys. Mexico has a lengthy history of household surveys. The first effort took place in 1972 with the National Survey of Households, which covered the metropolitan areas of Mexico City, Guadalajara, and Monterrey. This survey was based on the U.S. Bureau of the Census Atlantida format, a system adopted by most of Latin America.(7) Over the years that followed, the survey operated under various names and changing geographic coverage. From 1973 to 1976, the survey was called the Continuous Employment Survey; from 1977 through the end of 1984, it became the Continuous Occupational Survey. Despite the different names, the survey always operated under the same concepts and methods and with the same questionnaire.

The focus of the survey was initially on the largest metropolitan areas, and in the first few years of its operation, only the three major cities listed above were covered. One quarter of the Mexican population resides in these cities; they include about half of the population in all localities of 100,000 or more residents, and one-third of the population in all areas with 2,500 or more residents. In 1979, the Continuous Occupational Survey was expanded to national coverage, but in 1980 through 1982, it covered only the three major cities and some smaller cities. In 1983--84, coverage reverted to the three original cities.

In 1983, the newly formed Mexican Statistical Institute(8) began a quarterly survey called the National Urban Employment Survey (hereinafter, Urban Employment Survey), initially covering 12 metropolitan areas.(9) During 1983 and the first three quarters of 1984, the Continuous Occupational Survey and the new Urban Employment Survey were both conducted. The Continuous Occupational Survey was terminated at the end of 1984, and since that time, the Urban Employment Survey has been the only quarterly labor force survey conducted in Mexico.

In 1985, the Urban Employment Survey questionnaire was revised and expanded; questions were changed to enhance the quality and reliability of the results, and new topics of interest, such as location of work (in the home, vending on the street, and so on), size of employer's establishment, hours of work, fringe benefits, and income, were added. These changes made it possible to form a more complete picture of the Mexican labor market. The number of cities covered increased to 16, including 4 bordering the United States and affected by the maquiladora industries.(10) Further extensions of urban coverage occurred in 1992, 1993, and 1994, and the survey presently covers 37 cities with about 90 percent of the population in large urban areas (100,000 or more residents) and about 60 percent of the population in all urban areas (2,500 or more residents).(11)

The survey data are therefore not completely representative of the nation as a whole, although coverage has improved in recent years. The failure of the survey to cover certain (mostly less urbanized) geographic areas cannot explain the fact that it yields an extremely low unemployment rate: less urbanized areas tend to have even lower unemployment rates than large metropolitan areas, as indicated by the population censuses and periodic national surveys.

The survey questionnaire has remained without important modifications from 1985 onward. However, only for the period from 1987 through December 1991 did the survey have a consistent geographic coverage. Furthermore, the questionnaire initiated in 1985 uses narrower concepts of unemployment and broader concepts of employment than the earlier surveys did. Therefore, historical comparability is a concern.

Mexico incorporated a change in its treatment of unpaid family workers(12) with the beginning of the Urban Employment Survey in 1983, following the recommendation of the International Labor Organization's Thirteenth Conference of Labor Statisticians. In accordance with this recommendation, unpaid family members who worked less than 15 hours a week were classified as employed. (In addition, the Mexican surveys include as employed some unpaid family members who did not work at all in the reference period.) In the Continuous Occupational Survey and the earlier surveys, unpaid family members who worked less than 15 hours a week were classified as not in the labor force (unless they were seeking work or waiting to start a new job, in which case they were counted as unemployed). The change caused an increase of a little over 1 percentage point in the Mexican participation rate overall, with about the same magnitude of increase for men as for women. The change to include all unpaid family workers as employed without regard to the number of hours they worked was never made in the Continuous Occupational Survey, which ended in late 1984.

Since 1985, the Urban Employment Survey has treated as employed two groups that were counted as unemployed in the previous household surveys: persons waiting to start a new job in 30 days and persons who have a job to which they expect to return in 30 days. The latter group includes persons on temporary layoff and others not currently working because of illness, strike, seasonal factors, scarcity of materials, or lack of customers. Also, unpaid family members working less than 15 hours a week, who are now counted as employed, were potentially unemployed in the previous surveys; that is, they were counted as unemployed if they were seeking work or waiting to begin a new job. Thus, in comparison with the earlier surveys, the current series of urban surveys, by definition, undercounts unemployment.

Censuses of population. Decennial population censuses are conducted in Mexico. Considerable care must be taken in interpreting these data, given different definitions and classifications of individuals over time within different censuses. No direct comparability exists between the censuses and the labor force surveys.

Some data from the 1950, 1960, 1970, and 1990 censuses are used in this article. The population census of 1980 experienced a major setback. The 1980 census questionnaire was designed to yield rather detailed information, and it was, consequently, much more complex than in previous censuses. Difficulties arose in collecting the information, as well as in coding and processing it. A large number of inconsistencies were found. For many of the labor force characteristics at the national level, the proportion in the "unspecified" category was almost a third of the total labor force.

A U.S. Census Bureau study of Mexican labor force data recommends use of the 1979 Continuous Occupational Survey in place of the 1980 population census.(13) In their detailed analysis of the 1980 census, Teresa Rendon and Carlos Salas(14) point out the reasons for the overcount of the economically active. Their critique explains the problems with the questionnaire that produced many of the data irregularities.

The 1980 census results had been used initially as a baseline for the household surveys of the 1980's. Because of the problems with that census, all data from household surveys conducted during the 1980's have been published as percentages, rather than absolute levels. A project by the Mexican Statistical Institute to recalculate the levels is under way.(15)

Problems also exist with the earlier Mexican population censuses. All of them generally define the employed as persons 12 years of age and older who, during the reference week, worked 1 or more hours in exchange for income or were doing unpaid work of 15 or more hours in a family firm or business. Those temporarily absent from work were included as employed in the 1970 and later censuses, but were not counted as employed in the earlier ones, unless they had a paid job. Thus, there is some degree of undercount in the 1950 and 1960 census-based labor force figures, in comparison with those of later censuses.

The population censuses define …

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Publication information: Article title: Employment and Unemployment in Mexico's Labor Force. Contributors: Fleck, Susan - Author, Sorrentino, Constance - Author. Journal title: Monthly Labor Review. Volume: 117. Issue: 11 Publication date: November 1994. Page number: 3+. © 1999 U.S. Bureau of Labor Statistics. COPYRIGHT 1994 Gale Group.

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