Academic journal article Monthly Labor Review

Employment and Unemployment in Mexico in the 1990s

Academic journal article Monthly Labor Review

Employment and Unemployment in Mexico in the 1990s

Article excerpt

Focusing only on Mexico's total employment and its unemployment rate obscures an important response to economic downturns, namely, relative growth in the informal sector

Travelers are often cautioned against viewing other countries through the lens of their own cultural bias. Economists must be warned as well about the pitfalls of evaluating the performance of economies that differ greatly from those that they are accustomed to examining. Although Mexico joined with the United States and Canada in the North American Free Trade Agreement in 1994, this alliance should not cause one to lose sight of the fact that Mexico's economy continues to differ considerably from those of its northern neighbors. The application of the usual measures of "employment" and "unemployment" to evaluate Mexico's economic performance in the 1990s reveals many such differences.

For the first 4 years of the 1990s, Mexico's economy grew at an annual rate of 3.6 percent, continuing the long recovery from the 1982 "debt crisis." The economy experienced a sharp decline in 1995, however, as a result of the "peso crisis" of late December 1994. Gross domestic product fell by 6.2 percent, but employment actually rose slightly. Unemployment rose sharply, although the level reached was not particularly high by world standards. The impact of the crisis, both in severity and duration, shows up more clearly in other indicators, such as those for the composition of employment and the trend in real wages. This article focuses on the employment side, but includes some information on the wage trend.

In economies such as Mexico's, the "informal sector," made up primarily of small establishments providing marginal, insecure, and low-paying jobs, looms large in the best of times.(1) Because Mexico lacks a broad social safety net, this sector takes on added significance in hard times, as the data clearly revealed in the immediate wake of the 1994 peso crisis. Overall, employment continued to increase, but the rate of growth slowed. Employment in the smallest establishments and in jobs with no fringe benefits grew at a much faster rate than did employment overall. Employment also rose much more in Mexico's less urban areas, where the data suggest the informal sector is more dominant, than it did in the more urban areas.

Real wages fell substantially in 1995. But while gross domestic product rose sharply in the following years, real wages remained well below pre-crisis levels through 1998.(2) (See table 1.) The lingering effects of the downturn also still could be seen on the employment side of the labor market. By 1997, unemployment had returned to pre-crisis figures, and the rate of employment growth was greater than before; even so, the aggregates conceal a disproportionately high rate of growth over the longer term in a number of key indicators of informality.

[TABULAR DATA 1 NOT REPRODUCIBLE IN ASCII]

The three key indicators of informality found in Mexico's National Employment Survey, the primary source of data for this article, are (1) "employed in establishments with five or fewer workers," (2) "self-employed," and (3) "without any employment benefits."(3) None of these measures is necessarily a measure of informality.(4) However, a relatively small proportion of workers in an advanced, industrial economy falls into any of those categories, while a relatively high proportion of workers in the developing world does. Consequently, this leads to the assumption that intertemporal and interregional differences in these categories in Mexico indicate differences in the importance of the informal sector.(5) Data used as indicators of formality from the National Employment Survey are (1) "employed in establishments with six or more employees," (2) "with some employment benefits," and (3) "covered by social security." Administrative data from Mexico's Social Security Institute supplement the third category.

This article updates a 1994 Monthly Labor Review article on Mexico's employment and unemployment. …

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