Employment and Unemployment in Mexico's Labor Force

Article excerpt

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. …