Monthly Labor Review November 2000 3

Employment and Unemployment in Mexico

Employment and unemployment

in Mexico in the 1990s

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

Gary Martin

Gary Martin is an

economist in the

Division of Foreign

Labor Statistics,

Bureau of Labor

Statistics.

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 lowpaying 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 precrisis 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.

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
4 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

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.6 It presents more recent calculations of Mexico’s unemployment

rates under U.S. concepts, and updates Mexico’s complementary unemployment indicators that cover aspects of the

country’s employment situation missed by the unemployment rate. It also examines the importance of the informal

sector in Mexico over a longer time period and under a

wider range of economic conditions than does the previous

article. Improvements in Mexico’s labor data since 1994,

including greater geographic coverage, more consistency

in methodology, and more frequent availability of results,

enrich the new analysis. (See appendix.)

Low general unemployment

For many years, unemployment has been strikingly low in

Mexico, as reported both by the National Employment Survey, done annually only since 1995, and by the monthly

Urban Employment Survey. (See appendix.) According to

the urban survey, the average annual official rate of unemployment during the 1991–99 period was 3.7 percent.7

That rate may be contrasted

with an average annual unemployment rate of 5.8 percent for the

United States and 9.7 percent for

Canada.8 The figure for Mexico

is deceptive. The job situation was

not substantially better there compared with its two North American Free Trade Agreement partners. Fleck and Sorrentino have

noted two principal reasons for the

difference in the unemployment

rate in Mexico and the United

States: the measurement concepts

themselves are different, and

many people who are counted as

employed in Mexico find only unproductive and marginal

employment in Mexico’s large informal sector.9

Adjustment to U.S. concepts

Adjustments of Mexico’s unemployment rates to U.S. concepts are shown in table 2. The National Employment Survey was used for consistent geographic coverage through

time, and only its more urban areas were considered to correspond as closely as possible to the Urban Employment

Survey from which the official unemployment rates are generated. The National Employment Survey identifies cities

with a population of 100,000 and more, plus all state capitals, as “more urban areas.” This is contrasted with the remainder of the country, called “less urban areas.” (See appendix for more details on the two surveys.) Three adjustments were made, two to unemployment and one to the labor force. Mexico counts as employed two groups of people

that the United States generally includes among the unemployed and one group that the United States omits from the

labor force altogether. The first two groups are those on

temporary layoff and those who anticipate starting a job

within 30 days. Concerning the latter group, since January

1994, the U.S. Current Population Survey designates as unemployed only those persons waiting to start a new job who

have engaged in a job search within the past month. If they

have not searched for a job in that period, they are not in

the labor force.10 Mexicans who are already counted as employed are not asked about their job search history, so there

is no way of knowing how many among those expecting to

start work within the next month actually looked for work.

In counting all those individuals in Mexico waiting to start

work as “unemployed” using U.S. definitions in this article,

it is assumed that all those who think they have a job in

hand but have not yet begun to work, sought that job or

some other job in the previous month. The third adjustment

involves a subtraction from the labor force of unpaid fam1990 ............... 4.2 3.9 3.3 3.6 1.5 2.1 2.8 3.0 3.1

1991 ............... ... 3.6 2.8 3.3 .9 1.7 2.5 2.9 3.0

1992 ............... ... ... 2.0 3.2 .0 1.2 2.3 2.7 2.9

1993 ............... ... ... ... 4.5 –1.0 1.0 2.4 2.9 3.0

1994 ............... ... ... ... ... –6.2 –.7 1.7 2.5 2.7

1995 ............... ... ... ... ... ... 5.1 5.9 5.6 5.1

1996 ............... ... ... ... ... ... ... 6.8 5.8 5.1

1997 ............... ... ... ... ... ... ... ... 4.8 4.2

1998 ............... ... ... ... ... ... ... ... ... 3.7

Annual percentage change in real gross domestic product

in Mexico, 1990–99 (1993 prices)

Table 1.

SOURCE: OECD Economic Surveys, Mexico, 1997–1998, p. 135 for 1990–96 data; INEGI, Cuaderno de Información

Oportuna, September 1999, tables 1.1 and 1.4 for 1997 data, and June 2000 for 1998 and 1999 data.

1991 1992 1993 1994 1995 1996 1997 1998 1999

Beginning year

Ending year
Monthly Labor Review November 2000 5

1991 1993 1995

Reported unemployment .......... 352,114 209,144 142,970 490,941 306,703 184,238 1,107,667 700,748 406,919

Plus:

Persons on temporary

layoff ................................... 142,141 93,359 48,782 190,966 126,286 64,680 104,111 63,434 40,677

Persons waiting to start

a new job in 30 days ........... 92,311 58,347 33,964 94,197 61,238 32,959 104,255 68,026 36,229

Adjusted unemployed ............... 586,566 360,850 225,716 776,104 494,227 281,877 1,316,033 832,208 483,825

Reported labor force ................. 14,706,007 9,617,006 5,089,001 15,705,194 10,220,312 5,484,882 16,554,068 10,597,341 5,956,727

Minus unpaid family workers

working less than 15 hours

per week1 ............................ 140,798 57,898 82,900 180,419 77,940 102,479 175,337 58,320 117,017

Adjusted labor force .................. 14,565,209 9,559,108 5,006,101 15,524,775 10,142,372 5,382,403 16,378,731 10,539,021 5,839,710

Unemployment rates:

Reported .............................. 2.4 2.2 2.8 3.1 3.0 3.4 6.7 6.6 6.8

Adjusted ............................... 4.0 3.8 4.5 5.0 4.9 5.2 8.0 7.9 8.3

Reported unemployment .......... 953,690 601,453 352,237 615,530 342,101 273,429 590,610 337,892 252,718

Plus:

Persons on temporary

layoff ................................... 158,082 111,054 47,028 124,975 90,084 34,891 189,713 127,122 62,591

Persons waiting to start

a new job in 30 days ........... 94,516 57,351 37,165 121,767 66,685 55,082 105,457 61,071 44,386

Adjusted unemployed ............... 1,206,288 769,858 436,430 862,272 498,870 363,402 885,780 526,085 359,695

Reported labor force ................. 17,052,788 10,936,842 6,115,946 17,906,946 11,298,267 6,608,679 18,793,502 11,858,117 6,935,385

Minus unpaid family workers

working less than 15 hours

per week1 ............................ 193,662 80,790 112,872 219,962 77,025 142,937 213,261 94,570 118,691

Adjusted labor force .................. 16,859,126 10,856,052 6,003,074 17,686,984 11,221,242 6,465,742 18,580,241 11,763,547 6,816,694

Unemployment rates:

Reported .............................. 5.6 5.5 5.8 3.4 3.0 4.1 3.1 2.8 3.6

Adjusted ............................... 7.2 7.1 7.3 4.9 4.4 5.6 4.8 4.5 5.3

Adjustment of Mexico’s unemployment rates to U.S. concepts, more urban areas,

second-quarter 1991, 1993, 1995–98

Table 2.

1 Predominantly unpaid family workers; however, a few nonfamily

workers are included.

NOTE: The “more urban areas” are those with 100,000 or more

Category

Total Men Women Total Men Women Total Men Women

1996 1997 1998

ily—and some nonfamily—workers working less than 15

hours per week.11 Such persons are excluded from the U.S.

labor force.

The rate of unemployment is the ratio of total unemployed

to the total civilian labor force expressed as a percentage.

All three adjustments raised the rate of Mexico’s unemployment, the first two by increasing the size of the numerator, the third by reducing the size of the denominator.

The adjustments added an average of 1.6 percentage points

to the unemployment rate over the period.12

This is actually an overadjustment on several counts.

First, some unknown portion of those waiting to start a new

job would not have sought work in the 4 weeks prior to

their interview and would be dropped both from the ranks

of the unemployed and the labor force under U.S. concepts.

Second, in the United States, one must have actively

sought work to be in the labor force. An active job search

method is defined as any effort that could have resulted in a

job offer without any further action on the part of the

jobseeker. In Mexico, the respondent need only say that he

or she sought work in the past 4 weeks to be counted.

Third, in the United States a respondent must have been

available for work in the reference week (the last full workweek before the interview) to be counted as part of the labor

force. In Mexico the assumption is made that if they sought

work they were available. No test of availability is applied.

Fourth, in some cases when there is no sign of a discouraged attitude, the respondent in Mexico is counted as in

the labor force even though he or she may not have sought

work in the past 4 weeks.13

inhabitants and state capitals.

SOURCE: INEGI, National Employment Survey 1991, 1993, 1995, 1996,

1997 and 1998, including unpublished data.
6 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

Of the 10 rates, R-1 through R-10, all but R-2 and R10 are calculated as a proportion of the labor force. R-2

counts “discouraged workers” among the unemployed in

the numerator, so they are added to the labor force in the

denominator as well. R-10 is not an unemployment rate

at all but a measure of the working poor, so it is given as

a proportion of total employment.

R-1 Open unemployment rate: Persons in the labor

force who did not work for at least one hour in the reference week (the previous full work week) or do any

unpaid family work, as a percent of the labor force. This

is the official unemployment rate.

R-2 Alternative unemployment rate: Open unemployed, plus persons who expect to begin work within

the next 4 weeks, plus persons not in the labor force,

but who are available for work and who looked for work

at some time in the past (the hidden unemployed), as a

percent of the labor force and the hidden unemployed.

R-3 Real economic pressure rate: Open unemployed

and employed seeking a second job, as a percent of the

labor force.

R-4 Real preference pressure rate: Open unemployed

and employed seeking a new job, as a percent of the

labor force.

R-5 General pressure rate: Open unemployed and

employed seeking either a new job or a second job, as a

percent of the labor force.

R-6 Part time less than 15 hours and unemployment

rate: Open unemployed and employed working less than

15 hours a week, as a percent of the labor force.

R-7 Part time for economic reasons and unemployment rate: Open unemployed and employed working

less than 35 hours a week for economic reasons, as a

percent of the labor force.

R-8 Part time less than 35 hours and unemployment

rate: Open unemployed and employed working less than

35 hours a week, as a percent of the labor force.

R-9 Insufficient income and unemployment rate:

Open unemployed and employed who earn less than the

minimum wage, as a percent of the labor force.

R-10 Critical conditions of the employed rate: Employed working less than 35 hours a week for economic

reasons, working more than 35 hours a week while earning less than the minimum wage, or working more than

48 hours a week while earning less than 2 times the

minimum wage, as a percent of total employment.

Though these various rates may give a more complete

picture of hardship experienced by Mexico’s workforce,

none quite captures the phenomenon of the informal sector and its marginal, insecure, and relatively unproductive labor. R-2 bears a resemblance to the U.S. unemployment measure in that it incorporates among the unemployed those who are waiting to start work in the next

month (although, as noted earlier, since 1994, such individuals must have actively sought work in the past month

to be included in the labor force, and, thus, among the

unemployed). It goes further by including, as well, those

who had become discouraged and suspended their job

search. It does not, however, add to the unemployed those

who are temporarily laid off, nor does it add to the labor

Rates of unemployment and labor underutilization

If sufficient information existed to account for these individuals who are included in the labor force in Mexico and

excluded in the United States, then it would lower the adjusted unemployment rate by reducing both the total number of unemployed and the total labor force. For the category of those waiting to start a new job, the reduction would

only be calculated since 1994. For the others, it would be

calculated for the entire period.

No adjustments have been made for the fact that the working age population in Mexico is 12 years and older and in

the United States it is 16 years and older. Indications are

that such an adjustment would have little effect. The average unemployment rate in the more urban areas for the years

the National Employment Survey was taken, 1991–98, was

4.06 percent for those 12 years and older and 4.07 percent

for those 15 years and older. The 12 through 14 age group

averaged only 1.4 percent of the labor force throughout the

period.14

 Overstated though it may be, the adjusted 1995 unemployment rate of just 8 percent (3 percentage points more

than the 1993 adjusted rate) is still quite low in light of the

steep decline in Mexico’s economy. The United States has

had nothing like a 1-year drop of 6 percent in gross domestic product in recent memory, and much smaller declines

have been associated with greater relative unemployment

and employment changes.15 Mexico’s adjusted unemployment rate, even restricted to urban areas where, as shown

later in the article, unemployment is consistently higher than

for the country as a whole, appears to reflect economic distress

to a lesser extent than does the U.S. unemployment rate.16

Examining the data for the entire period, however, a different picture emerges. The average rate of unemployment

for the 6 discontinuous years considered, after the adjustment, is 5.64 percent contrasted with 5.68 percent for the

United States for the same 6 years. Disregarding the slight

overadjustment, differences in the definitions themselves
Monthly Labor Review November 2000 7

force unpaid family workers working less than 15 hours a

week. There are enough similarities, on balance, between

R-2 and the U.S. method of unemployment measurement

to explain, to a degree, the fact that R-2 and the rate adjusted to U.S. concepts both average 1.6 percentage points

higher than R-1 in the years reported. There are enough

differences, however, that R-2 should not be seen as a

surrogate for unemployment as it would be measured in

the United States.

R-3 through R-5 are measures of job dissatisfaction or

inadequacy added onto R-1, and provide no indication of

why the new job might be sought. The marginal nature of

the existing job is only one of a number of possible explanations. The remarkable thing here is how low these

rates remained throughout the period, with R-5—which

simply combines R-3 and R-4—not reaching double digits even during the crisis conditions of 1995. The same

low expectations, relative to the alternative, that keep so

many people out of the formal job market could well be

responsible for the low level of job search generally,

whether the potential searchers are currently employed

or not. (The connection between high levels of informal

employment and low levels of search for formal jobs was

noted in a letter from INEGI, July 6, 2000. To support the

observation, the Institute further notes that the 1996 survey of microscale operations found that less than 5 percent of own-account workers would have been willing to

shift to salary work. The relatively greater opportunities

for those with little formal education in the informal sector, they note, would also explain why many potential employers in the manufacturing sector in the last couple of

years complain of labor shortages at the same time that

the size of the informal sector remains great.)

In the case of R-6, adding on those working 15 hours

or less a week might capture a few who have no other

choice, but it probably includes more who do. Workers

in the informal sector can no more afford to work so few

hours than they can afford to be unemployed. R-7, which

adds to the category of unemployed those persons working less than 35 hours a week for economic reasons, does

not capture the informal sector because the economic reasons are defined quite narrowly, suggesting that the condition is only temporary. The economic reasons are a cutback in production, owing to a failure of sales, of financing, of raw materials, or of equipment. It does not include all those who are working so few hours simply because they have no other choice. R-8, on the other hand,

is probably too broad a definition because, like R-6, it

would include a number of people who choose to work

limited hours.

That leaves R-9 and R-10, which would seem to capture best the marginal workers of the informal sector of

the economy. Each attempts to bring into the measure

the working poor. Unfortunately, each relates income to

the minimum wage, not allowing sufficiently for the decline in the value of the minimum wage resulting from

inflation. The minimum wage has periodically been increased, but the increases have not kept pace with inflation. (In 1994, for instance, the real minimum wage was

60 percent below its 1981 level. See OECD Economic

Surveys, Mexico, 1996–1997 [Paris, Organization for

Economic Cooperation and Development, 1996], p. 94.)

may explain why Mexico’s urban unemployment rate remains

lower than the overall rate in the United States. Despite

that, these adjustments fail to account for the large number

of people in Mexico who are counted as employed, but who

still live around the economy’s margins. These people have

only a small counterpart in the United States.

Complementary rates

Because the conventional unemployment rate does not adequately reflect the ability of the economy to provide suitable jobs, Mexico’s Instituto Nacional de Estadística,

Geografía, e Informática (National Institute of Statistics,

Geography and Informatics, or INEGI) has developed a number of alternatives. The official or open rate suggests by its

name that there are a number of people in the country whose

de facto unemployment or underutilization is hidden. This

official rate is accompanied in the monthly statistics by nine

additional measures. (See box for a description and evaluation of each of the alternative measures.) These complementary rates of unemployment, underemployment, and

employment with very low remuneration are intended to

give a more complete picture of the state of the labor

market. They are derived from the Urban Employment

Survey and published monthly. Yearly averages from 1991

to 1998 are in table 3.17

All the alternatives except the last (R-10) simply incorporate other measures of presumed hardship into the open unemployment rate. One way of evaluating their effectiveness

as measures of hardship is to examine how they performed

in the crisis year of 1995. Were they generally more sensitive to the downturn than was the open unemployment rate?

In fact, they were not. For R-2 through R-8, the increases

in the rates in 1995 are all substantially explained by the

increases in the rates of their R-1, or open unemployed, components. The increase in R-9 goes considerably beyond the
8 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

16 urban areas

1991 ................... 2.6 4.2 3.5 4.0 4.8 6.1 4.8 20.8 11.7 14.3

34-37 urban areas

19921 ................. 2.8 4.8 4.0 4.4 5.5 6.5 5.3 21.6 10.9 14.1

19932 ................. 3.4 5.6 4.8 5.3 6.6 7.7 6.3 23.0 12.4 14.2

37-45 urban areas

19943 ................. 3.7 5.9 4.6 5.4 6.4 7.8 6.2 22.3 11.3 13.7

19954 ................. 6.3 8.6 7.7 8.3 9.8 10.7 8.5 25.7 16.2 15.7

19965 ................. 5.4 6.4 6.8 7.3 8.7 10.0 7.3 25.3 17.2 16.6

19976 ................. 3.7 4.6 4.8 5.4 6.6 8.3 5.4 23.4 16.4 16.6

19987 ................. 3.1 4.1 4.0 4.6 5.4 7.3 4.6 21.4 14.5 14.5

19997 ................. 2.5 3.4 3.1 3.5 4.0 6.1 3.8 19.1 12.8 13.2

unemployment increase, but it and R-10 are flawed measures. Each measure attempts to incorporate poverty into

the rate by including those persons whose wages are either

below the minimum wage or are only slightly above, but

who work long hours. The legal minimum wage that is used

for this measure, however, has not kept pace with inflation;

consequently, there is a downward bias in each of these rates.

Had R-9 been fully adjusted for inflation, it would have

captured, primarily in 1995, the rise in open unemployment

and the effect on the lowest paid wage earners of the fall in

the real wage. To the extent that anyone working for less

than the legal minimum wage is not formally employed in

an establishment that obeys the labor laws, this rate also

would have captured some of the growth in informal sector

employment in 1995, although informal sector workers are

not necessarily so poorly paid.

In sum, the one measure of worker hardship among the

overabundance of alternatives that might have been clearly

superior to the unemployment rate cannot be relied upon

because of its downward bias. The conventional unemployment rate remains, then, the natural fallback position, even

with its weaknesses.

The informal sector ‘buffer’

Compared with the United States, Mexico still exhibits many

of the characteristics of a developing country. Table 4 shows

that roughly 20 percent of Mexico’s employed workers are

in agriculture, compared with only 3 percent in the United

States.18 The birth rate in Mexico, as of 1997, was 25 per

1,000, compared with 15 per 1,000 in the United States, and

the overall level of per capita output and income is much

lower.19 Hourly compensation of manufacturing production

workers in 1999 in Mexico was only 12 percent of compensation for such workers in the United States (down from 22

percent in 1980 and 17 percent in 1994).20 In 1996, Mexico’s

per capita gross domestic product was 28 percent of the U.S.

level when measured at purchasing power parities.21 Indeed,

the existence of a large, relatively unproductive informal

sector is both a major cause and a consequence of Mexico’s

lower gross domestic product per capita. Income is also substantially less equally distributed in Mexico than it is in the

United States.22

Mexico has no program of unemployment compensation,

which is another obvious reason for its low unemployment

rate.23 Few people can afford the time it might take to look

for the most desirable job. In some cases, mandated severance pay provides some cushion, scaled up in accordance

with the number of years the dismissed worker has been

employed. Rather than facilitating an extended period of job

search, thus pushing up the rate of unemployment, as unemployment compensation does, severance pay, on balance,

likely reduces the rate of unemployment. The dismissed

worker might feel less financial pressure to look for work

R-1 R-2 R-3 R-4 R-5 R-6 R-7 R-8 R-9 R-10

Open

unemployment rate

Alternative

unemployment rate

Real

economic

pressure

rate

Real

preference

pressure

rate

General

pressure

rate

Part-time

less than 15

hours and

unemployment

rate

Part-time

for

economic

reasons

and

unemployment rate

Part-time

less than 35

hours

and

unemployment

rate

Insufficient

income

and

unemployment rate

Critical

conditions

of the

employed

rate

Geographic

coverage,

year and quarter

Table 3. Unemployment rates and underutilization rates in Mexico, more urban areas, 1991–99

[In percent]

1 Average calculated from first two quarters covering 32 cities and last

two quarters covering 34 cities. 2 Covers 34 cities in first quarter, 35 in second, 36 in third, and 37 in

fourth. 3 Covers 37 cities in first two quarters, 38 in third, and 39 in fourth.

4 Covers 39 cities.

5 Covers 41 cities January and February; 43 cities the rest of the year.

6 Covers 44 cities.

7 Covers 45 cities.

NOTE: See box for full defintion of the rates. Rates are yearly averages

from the monthly Urban Employment Survey.

SOURCE: 1993, Fleck and Sorrentino, p. 23; 1994–96, INEGI, Cuaderno

de Información Oportuna, table 2.16, various issues; 1997–99, INEGI,

Indicadores de Empleo y Desempleo, various issues.
Monthly Labor Review November 2000 9

immediately, but when the employer is unable to save anything near the full cost of a worker’s salary by laying him

off, he may be discouraged from doing so in the first place.24

Such legally-mandated, employer-borne employment protection of a type that is more stringent in Mexico than in

most industrialized countries also contributes to the size of

the informal sector.25 Employers are driven, or tempted, to

work outside the purview of labor regulators. Mexico is said

to suffer from an “informality trap” because of the narrow

base of employers upon whom social security contributions

(IMSS), a housing fund (INFONAVIT), and the new individual

accounts for retirement (SAR) must fall.26

Mexico’s large urban informal sector and migration, both

back to the countryside and to the United States, are particularly important in hard economic times, acting as a buffer

to inhibit the growth of open unemployment.27 Evidence presented below indicates that the urban informal sector performed its task quite well in 1995. A closer examination

reveals some of the reasons for the sector’s resilience through

good times and bad.

Low capital expense and great ease of entry are basic characteristics of informal businesses.28 Informal workers in

Mexico are usually self-employed or one of just a few workers, including the owner-employer, in a small enterprise.

Most are in retail trade or services. Those who are classified

as manufacturers are usually making food and beverages or

garments, activities requiring skills possessed by many

household workers.29 Often they are in family operations

with members of the family working for no wage or salary,

and family and business finances are intermingled.

Surveys in Mexico have found that 60 percent of informal

businesses have no fixed address outside the home, and more

than 80 percent borrowed no money to finance their operations. The life of the business tends to be quite short, particularly for the smallest firms, and business incomes are

low.30 Wages also are low and fringe benefits are minimal or

nonexistent. To the extent that they evade required labor laws,

registration requirements, and often taxes as well, informal

enterprises can be considered illegal.31 The main safety net

against failure in an informal enterprise is that low legal,

technical, and financial barriers make it relatively easy for a

new one to be started.

Definitions. For the purpose of measurement, the urban informal sector has been variously defined as the self-employed

and workers in firms with five or fewer employees; selfemployed, unpaid workers, and domestics; unpaid workers

and those making less than the minimum wage; workers not

insured with social security; and workers in businesses not

registered with Mexico’s Tax Bureau, to name just a few.

Of recent estimates of relative size of the urban informal

sector, the lowest is 20.3 percent of urban employment

(1993). The definition of the sector in this case is simply

“employed in businesses not registered with the Tax Bureau.”32 The highest is 54.0 percent of urban employment

(1995), where the definition includes all own-account workers (excluding administrative workers, professionals, and

technicians), unpaid family workers, and employers and

employees working in establishments with fewer than 5 or

10 persons engaged, depending on available information.

Paid domestic workers were excluded.33

The 1993 System of National Accounts recommended by

the United Nations adopted a standardized definition of the

informal sector put forth by the Fifteenth International Conference of Labour Statisticians in that same year. There, “informality” is defined in terms of characteristics of the enterprise in which a person works rather than in terms of the

characteristics of the person or the job. Informal enterprises

are defined as household operations, with household finances

and business finances virtually indistinguishable from one

another. To rule out certain household enterprises that clearly

don’t belong in the informal sector, a requirement also was

established that there be some type of nonregistration with

proper governing bodies, of either the enterprise or its employees, and that there be a maximum size. The actual maximum

size was not specified, leaving some flexibility for national

institutional differences.34 Using those criteria, the 1998

Survey of Micro-enterprises in Mexico determined that 29.5

percent of total nonfarm employment was in the informal

sector.35

Indications are that productivity in the informal sector is

quite low. A 1980 study estimated that the urban informal

sector accounted for only 10.4 percent of Mexican gross

domestic product.36

In the United States in 1996, the self-employed (including the incorporated self-employed) constituted 10.5 percent of civilian employment; in Mexico the comparable proportion was 28.7 percent.37 In Mexico, in 1996, 50.4 percent of the nonfarm employed labor force worked in establishments with five or fewer employees.38 No direct comparison with the United States is possible. However, in 1996,

in the United States only 14.9 percent of nonfarm employment covered by unemployment insurance was in establishments with nine or fewer employees. For those in establishments with four or fewer, the number was 6.5

percent.39Virtually all U.S. workers are covered by the unemployment insurance program except for the self-employed

and railroad workers. Assuming that all the self-employed—

who were 9.6 percent of the total employed outside agriculture in 1996—were working in establishments with very few,

if any, employees, the percentage of workers in such small

establishments remains far lower in the United States than

in Mexico.40

The employment buffer. Table 4 reveals some of the working components of the informal sector buffer. Total employ-
10 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

Total employment

Annual percentage change

Total ........................................................ 30,534,083 32,832,680 33,881,068 35,226,036 37,359,758 38,617,511

Less urban areas ................................ 16,180,190 17,618,427 18,434,667 19,126,938 20,068,342 20,414,619

More urban areas1 ............................... 14,353,893 15,214,253 15,446,401 16,099,098 17,291,416 18,202,892

In establishments

with five or fewer employees .............. 16,317,694 18,453,522 19,890,223 20,253,492 21,152,983 21,717,240

In establishments

with six or more employees ................ 14,216,389 14,379,158 13,990,845 14,972,544 16,206,775 16,900,271

Without any employment benefits ........ 18,530,101 20,908,139 22,042,368 22,673,196 24,686,705 24,399,054

With some employment benefits.......... 11,739,761 11,676,699 11,536,046 12,332,697 12,356,412 13,963,520

Covered by social security2 ................ 11,015,583 11,318,250 10,963,583 11,365,917 12,277,333 13,264,083

Covered by social security3 ................ 10,545,898 10,657,482 10,567,948 11,035,109 11,184,431 12,558,402

Self-employed ..................................... 9,612,380 10,129,526 10,045,405 10,115,284 10,879,739 10,961,622

In agriculture, forestry,

hunting, or fishing .............................. 8,189,759 8,842,774 8,378,344 7,921,686 9,020,277 7,817,369

Percentage of total employment:

Less urban areas ................................ 53.0 53.7 54.4 54.3 53.7 52.9

More urban areas1 ............................... 47.0 46.3 45.6 45.7 46.3 47.1

In establishments

with five or fewer employees .............. 53.4 56.2 58.7 57.5 56.6 56.2

In establishments

with six or more employees ................ 46.6 43.8 41.3 42.5 43.4 43.8

Without any employment benefits ........ 61.2 64.2 65.6 64.8 66.6 63.6

With some employment benefits.......... 38.8 35.8 34.4 35.2 33.4 36.4

Covered by social security3 ................. 34.8 32.7 31.5 31.5 30.2 32.7

Self-employed ..................................... 31.5 30.9 29.6 28.7 29.1 28.4

In agriculture, forestry, hunting,

or fishing ............................................ 26.8 26.9 24.7 22.5 24.1 20.2

Total ........................................................ 3.4 3.7 2.6 4.5

Less urban areas ................................ 3.4 4.3 2.3 3.5

More urban areas1 ............................... 3.5 3.0 .8 5.6

In establishments

with five or fewer employees .............. 4.2 6.3 3.8 3.0

In establishments

with six or more employees ................ 2.5 .6 –1.4 6.5

Without any employment benefits ........ 4.0 6.2 2.7 3.4

With some employment benefits.......... 2.5 –.3 –.6 6.6

Covered by social security2 ................. 2.7 1.4 –1.6 6.6

Covered by social security3 ................. 2.5 .5 –.4 5.9

Self-employed ..................................... 1.9 2.7 –.4 3.0

In agriculture, forestry,

hunting, or fishing .............................. –.7 3.9 –2.7 –2.3

Characteristic 1991 1993 1995 1996 1997 1998

1991–98 1991–93 1993–95 1995–98

-

Table 4. Employment in Mexico, 1991, 1993, and 1995–98

1

 Areas with 100,000 or more inhabitants.

2

 From the Social Security Institute statistics on covered employees.

3

 From the National Employment Survey.

Note: Absolute and relative data for employees with social secrity and employment benefits excludes “employed” persons waiting to start a new job.

Source: INEGI, National Employment Survey, various years, Cuaderno de

Información Oportuna, various years, (Social Security Institute statistics).
Monthly Labor Review November 2000 11

ment actually rose from 1993 to 1995, while gross domestic

product and consumption fell. The rise was greater in the

less urban areas than in those more urbanized. It was greater

still among employees with no employee benefits, and greatest of all among workers in establishments with five or fewer

employees.41 Employment fell among those with some employment benefits, particularly those covered by social security as recorded by the Social Security Institute. Except

for the fact that self-employment declined slightly, the image that emerges is that of the informal sector shoring up the

employment situation during an economic downturn. The

indicators of informal employment generally rose faster than

did employment overall, while indicators of formal employment were all falling. Employment in establishments with

six or more employees, among those with some employment

benefits, and among those covered by social security all declined at an annual rate of between 1 percent and 2 percent.

Migration. Migration to the United States may have played

some role in keeping the unemployment rate from rising any

higher than it did.42 The U.S. economy was in the middle of

an expansion and the fall in the peso made U.S. wages all

that much more attractive. Even so, if emigration had been

the entire explanation, overall employment in Mexico would

not have continued to rise.

Agricultural employment. That the employment situation

was so much better in 1995 in the less urban areas than in

the more urban areas cannot be attributed to agriculture.

Employment rose in spite of, rather than because of, what

was going on with agricultural employment. The fluctuations in agricultural employment in the time period under

observation appear to be so capricious that one must look to

other explanations such as flaws with the data collection—

in this more difficult data-collection area—or changes in agricultural policy designed to replace subsistence farming with

more competitive market farming. One explainable anomaly

is the large increase in agricultural employment in 1997,

which occurred because the survey that year for rural areas

was late, extending into the third quarter, and it captured a

large number of seasonal agricultural workers who had not

been counted in other years.

Nonagricultural employment. In table 5, agriculture is removed from the picture, which greatly clarifies the situation. The growth of employment during the 1993–95 period

is much more pronounced in the less urban areas, in small

establishments, and among workers without employment

benefits. Furthermore, the apparent anomaly of declining

self-employment in the period is eliminated. Nonagricultural

self-employment rose even more than did nonagricultural employment in establishments with five or fewer

employees.

Informal sector ups and downs. The disproportionate growth

in the indicators of informality, except for self-employment,

can also be seen from 1991 to 1993, a period when real

gross domestic product grew at an annual rate of 2.8 percent. (See table 5.) After the across-the-board relative growth

of informal sector indicators from 1993 to 1995, the trend

reversed during the 1995–98 period when real gross domestic product grew at a robust 5.6-percent annual rate. Employment in small establishments, employment without any

benefits, and self-employment all grew more slowly than

did employment overall. The small exception is that the formal indicator of “covered by social security” grew slightly

more slowly than did overall employment.

The change in the trend since 1995 was not enough to

prevent informal indicators from growing faster in general

than overall employment during the 1991–98 period. The

one exception here is “self-employment,” which grew

slightly less.

Legislated reform. Social security participation might have

been influenced by a reform in social security that was enacted in December 1995 and went into effect in July 1997.

The reform, among other things, increased the length of participation (working in a job with mandatory social security

contributions) from 500 weeks to 25 years to qualify for

eventual retirement benefits. It also slightly increased the

guaranteed minimum benefit at retirement while strengthening the link between workers’ contributions and benefits.

In Mexico, the social security system also includes health

benefits, and reforms in that aspect of the system might be

most significant. The contributions required of employers

were substantially reduced and it became easier for those in

the informal sector to participate voluntarily in the social

security program.

The continued fall in the proportion of the workers participating in social security in 1996 and 1997 (which can be

seen in the percentage of the total column in table 5) might

reflect anticipation of the changes. In particular, the common practice of leaving the system after the required 500

weeks of participation may have accelerated briefly. The

small surge in 1998, then, might reflect an end of that practice as workers became locked into the new 25-year participation requirement. It might also reflect new participants

taking advantage of what is, overall, a more attractive program, a program that is also specifically aimed at reducing

the size of the informal sector.43

Two Mexicos

Measured unemployment is lower and the indicators of informality are greater in Mexico’s less urban than in its more

urban areas. In 1991, the rate of unemployment, at 2.4 percent, was only slightly lower in the former than in the latter.
12 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

1991–98 1991–93 1993–95 1995–98

Annual percentage change

Total employment

(See table 6.) By 1993, however, a considerable gap had

opened up between them as the number of unemployed actually fell in the less urban areas, while it was rising substantially in the more urban areas. The gap widened in 1995,

as the more urban areas were harder hit by the economic

downturn. The gap narrowed somewhat through 1997, but

then expanded slightly again in 1998. Throughout the period from 1991 to 1998, the number of unemployed grew at

an annual rate of 7.7 percent in the more urban areas, while

it declined in the less urban areas.

If the official unemployment rate were to be based upon

a survey of the entire country and not just the more urban

areas, it would be even lower than the one reported. In the

6 years during which both the National Employment Survey and the Urban Employment Survey were taken, the nationwide unemployment rate averaged 1.1 percentage points

Table 5. Nonagricultural employment in Mexico, 1991, 1993, and 1995–98

Total ........................................................ 22,344,324 23,989,906 25,502,724 27,304,350 28,339,481 30,800,142

Less urban areas ................................ 8,281,632 8,972,820 10,237,264 11,425,846 11,309,325 12,758,557

More urban areas1 ............................... 14,062,692 15,017,086 15,265,460 15,878,504 17,030,156 18,041,585

In establishments

with five or fewer employees .............. 10,418,191 11,656,595 12,974,490 13,755,124 14,090,457 15,244,503

In establishments

with six or more employees ................ 11,926,133 12,333,311 12,528,234 13,549,226 14,249,024 15,555,639

Without any employment benefits ........ 10,966,533 12,626,352 14,216,823 15,268,060 16,223,115 17,130,326

With some employment benefits .......... 11,192,962 11,205,017 11,064,812 11,849,497 11,891,316 13,478,928

Covered by social security ................... 10,089,206 10,234,845 10,165,702 10,615,378 10,788,994 12,148,125

Self-employed ..................................... 5,669,406 5,917,838 6,644,053 6,913,796 7,307,990 7,766,943

Percentage of total nonagricultural

employment:

Less urban areas ................................ 37.1 37.4 40.1 41.8 39.9 41.4

More urban areas1 ............................... 62.9 62.6 59.9 58.2 60.1 58.6

In establishments

with five or fewer employees .............. 46.6 48.6 50.9 50.4 49.7 49.5

In establishments

with six or more employees ................ 53.4 51.4 49.1 49.6 50.3 50.5

Without any employment benefits ........ 49.5 53.0 56.2 56.3 57.7 56.0

With some employment benefits .......... 50.5 47.0 43.8 43.7 42.3 44.0

Covered by social security ................... 45.5 42.9 40.2 39.1 38.4 39.7

Self-employed ..................................... 25.4 24.7 26.1 25.3 25.8 25.2

Total ........................................................ 4.7 3.6 3.1 6.5

Less urban areas ................................ 6.4 4.1 6.8 7.6

More urban areas1 ............................... 3.6 3.3 .8 5.7

In establishments

with five or fewer employees .............. 5.6 5.8 5.5 5.5

In establishments

with six or more employees ................ 3.9 1.7 .8 7.5

Without any employmnet benefits ........ 6.6 7.3 6.1 6.4

With some employment benefits .......... 2.7 .1 –.6 6.8

Covered by social security ................... 2.7 .7 –.3 6.1

Self-employed ..................................... 4.6 2.2 6.0 5.3

Characteristic 1991 1993 1995 1996 1997 1998

1

 Areas with 100,000 or more inhabitants and state capitals.

NOTE: Absolute and relative data for employees with social security and employment benefits excludes “employed” persons waiting to start a new job.

SOURCE: INEGI, National Employment Survey, various years.
Monthly Labor Review November 2000 13

Mexico’s unemployment in more urban areas versus less urban areas, 1991, 1993,

and 1995–98

Table 6.

1991–98 1991–93 1993–95 1995–98

Labor force ........................................... 31,229,048 33,651,812 35,558,484 36,580,746 38,344,658 39,507,063

More urban areas .............................. 14,706,007 15,705,194 16,554,068 17,052,788 17,906,946 18,793,502

Less urban areas .............................. 16,523,041 17,946,618 19,004,416 19,527,958 20,437,712 20,713,561

Open unemployed ................................ 694,965 819,132 1,677,416 1,354,710 984,900 889,552

More urban areas .............................. 352,114 490,941 1,107,667 953,690 615,530 590,610

Less urban areas .............................. 342,851 328,191 569,749 401,020 369,370 298,942

Open unemployment rate (percent) ...... 2.2 2.4 4.7 3.7 2.6 2.3

More urban areas .............................. 2.4 3.1 6.7 5.6 3.4 3.1

Less urban areas .............................. 2.1 1.8 3.0 2.1 1.8 1.4

Labor force ........................................... 3.4 3.8 2.8 3.6

More urban areas .............................. 3.6 3.3 2.7 4.3

Less urban areas .............................. 3.3 4.2 2.9 2.9

Open unemployed ................................ 3.6 8.6 43.1 –19.1

More urban areas .............................. 7.7 18.1 50.2 –18.9

Less urban areas .............................. –1.9 –2.2 31.8 –19.3

NOTE: The “more urban areas” are those with 100,000 or more inhabitants and state capitals.

SOURCE: INEGI, National Employment Survey, various years.

Annual percentage change

Characteristic 1991 1993 1995 1996 1997 1998

lower than this urban rate.44 Applying that difference to the

entire period yields a national average unemployment rate

of 2.6 percent from 1991 to 1999 (unadjusted to U.S. concepts). Employment in general is more likely to be informal in the less urban areas. The following tabulation shows

informal employment indicators, by percent of total area

employment, in 1998.45

More Less

 urban urban

areas* areas

Not covered by social security ......... 53.2 87.1

Without any employee benefits........ 48.1 77.4

In establishments with five

or fewer employees......................... 42.7 68.3

Self-employed .................................. 22.9 33.2

Unpaid workers ................................ 4.9 4.5

Domestic workers ............................. 4.8 4.5

*100,00 or more inhabitants and state capitals.

Two types of work often counted as informal—unpaid

and domestic labor—have been added to the indicators.

Except for domestic workers (a very small category) the

measures of informality for the less urban areas are far higher

than those for the more urban areas.

In some of the poorer and more rural states, the percent

of the population covered by social security is less than a

third as great as the percent covered in richer states. Following is the percent of population covered by social security in 1995.46

Percent

Northern states

 Coahuila ........................................... 75.4

 Nuevo Leon ..................................... 72.1

 Sinaola ............................................. 58.1

Pacific region

 Jalisco............................................... 49.2

Poorer states in South and interior

 Puebla .............................................. 33.3

 Guerrero ........................................... 34.1

 Oaxaca .............................................. 24.4

 Chiapas............................................. 23.5

 As noted previously, unemployment in Mexico appears

to be something that only those with some economic comfort can afford. The unemployed are also better educated

than average. (See table 7.) In 1995, chosen because it was

the year of highest unemployment in the period, the phenomenon can be observed in both the more urban and the

less urban areas. Unemployment is not only lower for the

generally less educated, but it is also lower in every education category in the less urban than in the more urban areas.

The highest unemployment rate observed for any education category was 8.3 percent, the rate of those with incom-
14 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

plete or complete high school education in the more urban

areas. The next highest was 6.3 percent, the rate for those

with more than a high school education in the more urban

areas. The lowest two rates, 1.2 and 2.5 percent, were for

those with no education and incomplete primary education,

respectively, in the less urban areas.

Demonstrating further the contrast between the regions,

the labor force was more concentrated among the better

educated in the more urban areas, where 64.9 percent had

at least some high school education, and among the less

educated in the less urban areas. In the less urban areas,

only 31.1 percent of the labor force had at least some high

school education, while 16.7 percent had no education at

all, more than four times as great a percentage as the 4.1

percent in the more urban areas. The greater concentration

of workers among the better educated tended to raise the

average unemployment rate in the more urban areas, while

the concentration of workers among the lesser educated,

who are also predominant in the informal sector, lowered

the average unemployment rate in the less urban areas.

Segmented market versus flexible wages

An alternative explanation has been extended for the relative rigidity of employment and unemployment in Latin

America in the face of an economic decline. Instead of unemployment going up as it does in the United States, the

main adjustment is a fall in real wages. Real wages can be

reduced more easily in Latin America partly because of high

rates of inflation. To reduce real wages, employers need

only to hold the line on nominal wages or raise them at

lower rates than the rate of inflation. 47

Indeed, the consumer price index (CPI) in Mexico went

up by almost a third in the first 6 months of 1995, and, as

noted previously, real wages plunged after having gone up

steadily since 1988.48 The real wage aspect of the alternative theory of rigid employment holds true, then, for the

country’s most recent economic shock, as it did previously for a protracted period after the financial crisis

touched off by falling oil prices in 1981. On the employment side, however, the alternative explanation holds true

mainly just for the informal sector. Table 4 shows that all

the indicators for formal employment declined from 1993

to 1995. Had a National Employment Survey been taken

in 1994, a steeper decline would no doubt have been revealed. Declining real wages, which permit employers to

lower costs when revenues are falling without laying off

employees, probably somewhat mitigated the reduction in

formal employment.

The existence of a large informal sector in other large

Latin American countries might explain the downward rigidity of employment in those countries almost as well as it

does in Mexico. In 13 Latin American countries, urban informal sector employment averaged 47 percent of total urban employment, according to estimates by the International

Labor Office in the mid-1990s. These countries include

Argentina at 46 percent and Brazil at 48 percent.49

Maquiladoras and export-led growth

The relative expansion of the informal sector in Mexico

would have been even greater in the 1990s than it was had

it not been for the growth of Mexico’s in-bond manufacturing system. Begun in 1965, the maquiladora program, as it

is called, takes advantage of a provision in U.S. trade law

that provides for import duties to be paid only upon the

value added to U.S. components. Most maquiladoras are

subsidiaries of large multinational corporations assembling

finished products from components received primarily from

the United States. Maquiladora employment has increased

every year since 1982.50

Even with the steady increase, maquiladora employment

Education

Labor force and unemployment in Mexico, by education, more urban areas versus

less urban areas, 1995

Table 7.

Total ......................... 100.0 100.0 4.7 100.0 100.0 6.7 100.0 100.0 3.0

No education ...................... 10.8 4.4 1.9 4.1 3.3 5.5 16.7 6.5 1.2

Incomplete primary ............ 20.9 14.2 3.2 11.3 8.9 5.3 29.2 24.4 2.5

Complete primary .............. 21.4 18.2 4.0 19.6 16.5 5.6 22.9 21.6 2.8

Complete and

incomplete high school ... 27.9 39.6 6.7 35.1 43.3 8.3 21.6 32.5 4.5

More than high school ....... 19.0 23.6 5.9 29.8 28.0 6.3 9.5 15.1 4.8

NOTE: The “more urban areas” are those with 100,000 or more inhabitants and state capitals.

SOURCE: INEGI, National Employment Survey, 1995, table 9.

All More urban areas Less urban areas

Labor

force

Percent of total

Unemployment

Unemploy- Percent of total Percent of total

ment

percentage

rate

Labor

force

Unemployment

Unemployment

percentage

rate

Unemployment

percentage

rate

Labor

force

Unemployment
Monthly Labor Review November 2000 15

still constitutes only 2.6 percent of total employment and

14.6 percent of manufacturing employment. Including indirect employment generated by maquiladoras would, of

course, raise both proportions. But because most of these

firms’ backward and forward product linkages, as well as

their financial linkages, are with the exterior, the rise would

have been very small.51

Regarded not as an anomalous enclave in Mexico’s

economy, but as representative of a larger phenomenon, the

growth of maquiladora employment takes on added importance. Since the beginning of the North American Free

Trade Agreement and the fall of the peso in 1994, exports

in general from Mexico have soared. In 1998, $64.4 billion

in merchandise was exported from non-maquiladora plants

versus $53.1 billion from maquiladora plants. From 1994

through 1998, non-maquiladora exports grew annually by

$14.1 billion while maquiladora exports grew by $7.4 billion annually. From 1991 through 1994, non-maquiladora

exports grew only by $2.5 billion annually versus

maquiladora export growth of $3.5 billion annually. Altogether,

in current U.S. dollar terms, exports grew at the extraordinary

annual rate of 17.9 percent from 1994 through 1998.52

The direct jobs created by these exports are not in the

informal sector. Workers in manufacturing for export are

typically wage and salary workers, they work in establishments with more than five employees, and most receive

fringe benefits of some kind. A continuation of this rate of

export-led growth would, in due time, effect large changes

in Mexico’s labor structure.

Virtuous circle

Commentators on Mexico at the OECD wrote hopefully

in 1996:

The way forward is to introduce a range of measures

that would favour formal activity. With the shift from

informality to formal activity, the tax base would increase; this in turn would allow a reduction in tax rates

without weakening the position of public finances, and/

or improved delivery of services to workers and firms

in the formal sector, thereby strengthening incentives

to switch to formal activity.53

They refer to it as a “virtuous circle.”

Mexico did move forward in the 8 years under consideration in terms of job creation. Employment grew at an annual percentage rate of 3.4 percent from 1991 to 1998. By

this measure, Mexico compares very favorably with the

United States and Canada, which had annual growth rates

in employment of 1.6 percent and 1.5 percent, respectively,

during the period. Mexico’s compares even more favorably

with those of such countries as the United Kingdom (0.8 percent) and Japan (0.3 percent).54 It would also appear that

Mexico is more than meeting its growing requirement for

jobs, because the annual rate of growth of the working age

population was 2.5 percent.55 Even the number of employed

persons covered by social security and employees in establishments with six or more employees grew at least that fast.

Alhough overall employment may have grown, the “virtuous circle” remained elusive. Two of the three main indicators of informal employment, “in establishments with five

or fewer employees,” and “without any employment benefits,” grew at a much greater annual rate than did employment generally.If agriculture is excluded, the trends

are even more pronounced for these indicators, and selfemployment grew at a faster rate than overall employment

as well. Informal employment was apparently a more

dominant factor in Mexico in 1998 than in 1991. The

economic downturn in 1995 played a large part in these

developments, but it only accelerated a trend that was recognizable from 1991 to 1993.

Since 1995, however, most indicators of formal employment relative to total employment have grown. Three factors help explain these changes: recovery from the disproportionate effect of the economic downturn on the formal

sector, a substantial rise in exports, and reforms in the social security system. It remains to be seen whether this is

the beginning of a long-term trend in Mexico away from

informal sector employment or only a brief interruption of

a trend in the opposite direction.

Notes

ACKNOWLEDGEMENTS: The author thanks Ricardo Rodarte and

Rodrigo Negrete of INEGI (Instituto Nacional de Estadística, Geografía,

e Informática) for providing unpublished statistics and furnishing additional information. Carlos Salas, professor at the Colegio de México

(Mexico City) reviewed an early draft and provided insightful comments.

Special gratitude is due Constance Sorrentino and Susan Fleck of the

Division of Foreign Labor Statistics.

1

 A great deal has been written about the informal sector in developing countries since British anthropologist, Keith Hart, coined the term

in 1970. See his “Small-Scale Entrepreneurs in Ghana and Development Planning,” The Journal of Development Studies, April 1970, pp.

104–20, and “Informal Income Opportunities and Urban Employment

in Ghana,” Journal of Modern African Studies, January 1973, pp. 61–

89 (reprinted in several readers). Revealing the widespread current acceptance of the concept, the International Labour Office included “urban informal sector employment” among the 18 indicators in its new

reference work, Key Indicators of the Labour Market, 1999 (Geneva,

International Labour Office, 1999). For important contributions to what

they describe as the “immense” literature on the informal sector see note

2 in Donald C. Mead and Christian Morrison, “The Informal Sector Elephant,” World Development, October 1996, pp. 1611–19.

2

 Real wages in manufacturing were still 20 percent below their 1994

level as of September 1998. The 1998 average of real wages in retail

trade was 15 percent below, and of wholesale trade was 21 percent below, the 1994 average. Manufacturing real wages are from OECD Economic Surveys, Mexico, 1998–1999 (Paris, Organization for Economic

Cooperation and Development, 1999), p. 32. The yearly averages for

real wages in trade are calculated from INEGI, Cuaderno de Información
16 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

Oportuna, September 1999, table 2.27.

3

 To receive no employee benefits at all means that the worker gets no

end-of-year bonus, paid vacation, profit sharing, social security (IMSS),

civil servants’ social security (ISSSTE), saving system for retirement (SAR),

housing allowance, medical or health benefits, or any other fringe benefit

that he or she might volunteer to the interviewer.

4

 A small establishment might be a retail outlet of a chain of stores or

the local office of a larger organization. It could be a well-capitalized

small operation that pays its workers well and scrupulously abides by all

the labor and the tax laws. A self-employed person could be a doctor,

lawyer, engineer, or some other type of highly skilled and well-paid contractor. Even someone with no employment benefits could be a member

of the professional class and quite far from what is generally understood

as the informal sector.

5

 This assumption may not be entirely valid with respect to employment benefits because of changes in the social security program in 1997,

discussed later in the article.

6

 Susan Fleck and Constance Sorrentino, “Employment and Unemployment in Mexico’s Labor Force,” Monthly Labor Review, November

1994, pp. 3–31.

7

 Calculated from the open unemployment rate in table 3.

8

 Bureau of Labor Statistics, “Comparative Civilian Labor Force Statistics, Ten Countries, 1959–1999,” April 17, 2000, table 2, http://

stats.bls.gov/special.requests/ForeignLabor/flsflorc.pdf (visited Nov.

13, 2000).

9

 Fleck and Sorrentino, pp. 12–16.

10 Unlike Mexico’s survey, the U.S. survey has no question that directly asks if the respondent is waiting to start a new job. Rather, those

answering that they have a job but also respond that they did not work in

the past week are asked why they did not work. If they reply they were

waiting to start a new job, they are potentially counted as unemployed.

They are dropped from the labor force and not counted as unemployed

unless they respond positively to an additional question concerning

whether or not they actively sought work in the past 4 weeks.

11 Employed persons in Mexico are defined as those who are 12 years

old or older and, in the reference week (the week prior to their interview),

(1) worked at least one hour for barter or money or were self-employed;

or (2) did any work at all as an unpaid family or nonfamily worker; or (3)

were temporarily absent from work because of illness, vacation, travel,

personal reason, or studies and were paid while on leave (no time limit is

placed on the absence as long as the person is paid); or (4) did not work

or receive pay, but expected either to begin a new job or to return to work

within the next 4 weeks. The unemployed are defined as persons 12 years

old and older who, in the reference week, did not work for 1 or more

hours or do any unpaid family work and (1) were available for work and

actively sought work in the previous 4 weeks or (3) had sought work in

the past 1-2 months and were waiting (a) for the next season to begin or

(b) for a reply to a job application; or have intentions to call upon potential employers within the next few days. The sum of the employed and

the unemployed, in Mexico as elsewhere, is the labor force, though in

Mexico it is called the economically active population, consistent with

the terminology of the International Labour Organization.

12 The reported unemployment rates from which adjustments are made

differ somewhat from the unemployment rate in table 3 even though only

urban areas are considered in each case. That is because the numbers

come from the two different major household surveys, and the so-called

“more urban areas” of the National Employment Survey include additional cities to those covered by the Urban Employment Survey. (See the

appendix.) Another reason why they differ is that the National Employment Survey, also noted in the appendix, is a snapshot taken in the second quarter of the given year whereas the Urban Employment Survey

annual number is an average of the results of twelve monthly surveys.

13 The Mexican questionnaire asks for the dates when the job search

began and when the respondent last sought work. The interviewer is urged

to make sure that the search has been uninterrupted between the two

dates. This is one of the factors considered to determine if the search is

serious even though the respondent might not have sought work in the

past 4 weeks. Some other factors considered are if they are awaiting a

response to a job solicitation or if they are recuperating from an illness.

14 The published tables of the National Employment Survey break at

12 through 14 years old instead of 12 through 15, so the precise effect of

including all four year-age groups cannot be calculated with readily available data.

15 When gross domestic product fell by 0.5 percent in 1991, the U.S.

rate of unemployment rose to 6.8 percent, from 5.6 percent the previous

year. Total employment fell by 0.9 percent. Before that, in 1982, a drop

in GDP of 2.0 percent had resulted in an unemployment rate of 9.7 percent, up from 7.6 percent the previous year. Total employment fell by 0.9

percent then, as well. GDP numbers are from Bureau of Economic Analysis, National Income and Product Accounts, http://www.bea.doc.gov/

bea/dn/gdplev.htm (visited Nov. 13, 2000); unemployment statistics are

from “Comparative Civilian Labor Force Statistics, Ten Countries, 1959–

1999,” table 2.

16 The relatively low continuing unemployment for 1995 is apparently

not a result of the fact that the National Employment Survey, which produced the statistics referred to here, is taken only in the second quarter of

the year. The average unemployment for the year from the Urban Employment Survey, as observed in table 3, was 6.3 percent. That survey

reported an unemployment rate of 6.5 percent in the second quarter. These

are both lower than the unadjusted “snapshot” rate of 6.7 percent rate of

the more urban areas in the National Employment Survey. See Cuaderno

de Información Oportuna, March 1996, table 2.1, for quarterly unemployment rates in 1995.

17 For a more complete discussion of what each rate measures, see the

Fleck-Sorrentino article. The R-1 definition has changed slightly. Anyone out on strike is now considered employed. Previously, a striking worker

was considered employed only if he or she expected to return to work in

less than 4 weeks. Another alternative rate described in Fleck and

Sorrentino has been discontinued.

18 U.S. data are from “Comparative Civilian Labor Force Statistics,

Ten Countries, 1959–1999,” table 7. “Agriculture,” in each case, is defined as “agriculture, forestry, hunting, and fishing.”

19World Development Indicators, 1999, The World Bank (Washington, DC, 1999), table 2.2.

20 Bureau of Labor Statistics press release, September 7, 2000, “International Comparisons of Hourly Compensation Costs for Production

Workers in Manufacturing, 1999, Supplementary Tables,” table 4.

21 Mexico’s per capita measured at current exchange rates was only 12

percent of U.S. GDP per capita, reflecting, to a degree, the plummet in

the value of the peso beginning in late December 1994. For a full treatment of the peso crisis and its aftermath, see OECD Economic Surveys,

Mexico, 1994–1995 (Paris, Organization for Economic Cooperation and

Development, 1995). The per capita GDP comparisons are from their OECD

Economic Surveys, 1998–1999, basic statistics, international comparisons, unnumbered fold-out page.

22World Development Indicators, 1999, table 2.8. The Gini index, given

in the cited table, is a measure of income inequality. On a scale from 0 to

100, 0 represents perfect income equality and 100 complete income inequality. In 1995, the Gini index in Mexico was 53.7; in 1994, the Gini

index in the United States was 40.1.

23 An alternative to unemployment compensation was initiated in 1992,

however, with the creation of the SAR (individual accounts for retirement), a pension fund program in addition to Mexico’s social security

program administered by private banks. Deposits in the SAR can be drawn

upon during periods of unemployment, but only after one has contributed for 5 years, so it would not have come into play during the period

under study. The sums provided are also very small.
Monthly Labor Review November 2000 17

24 In the case of collective dismissals for routine economic reasons,

employers are required by law to pay a lump-sum equivalent of three

months wages to all dismissed workers plus a seniority premium of 12

days of salary per year of employment with that employer, with a ceiling

of two minimum wages. In the case of individual dismissals without a

very strictly defined “just cause,” an additional 20 days of salary per year

is added to the above if the worker has more than 15 years of service.

Additional severance requirements may be part of collective agreements.

OECD Economic Surveys, 1996–1997, p. 98.

25 OECD Economic Surveys, 1996–1997, p. 96.

26 OECD Economic Surveys, 1996–1997, pp. 100–01.

27 OECD Economic Surveys, 1996–1997, pp. 64–65.

28 Low capital intensity, small size, and illegality to one degree or another, were the three measures for informality used by Mead and Morrison,

op. cit., in their seven-nation study. They found a good deal of variability

among the countries, none of which was Mexico, in the degree to which

these features intersected. They conclude that the term, “informal sector,” may be appropriate for examining an individual country, but definitional problems make multicountry comparisons difficult.

29 A 1996 analysis from the Urban Employment Survey of

microenterprises (6 or fewer employees) found that 33 percent of such

firms defined as “informal” were in commerce, 33 percent in services,

and 23 percent in manufacturing. The remainder was in an “other” category that includes construction and transportation. Informal

microenterprises were 72 percent of all manufacturing firms, 58 percent

of service firms, and 51 percent of commercial firms. See Ricardo Rodarte,

“Experiencias en la medición del sector informal en Mexico,” INEGI,

Notas, Revista de Información y Analysis, no. 5, 1998, p. 22.

30 Fleck and Sorrentino, pp. 13–14. Reports of generally low incomes

must be regarded with some reservation, however. Underreporting of income to survey takers and tax collectors alike is likely to be greater in the

informal sector.

31 See Nestor Elizando,”Illegality in the Urban Informal Sector of

Mexico City,” in Victor E. Tokman, ed., Beyond Regulation, The Informal Economy in Latin America (Boulder and London, Lynne Reinner

Publishers, 1992), pp. 55–83. Although labeled “illegal,” the term does

not include criminal, underworld activities as commonly understood in

the United States.

32 OECD Economic Surveys, 1996–1997, p. 73. See also Fleck and

Sorrentino, p. 12, for a collection of earlier estimates.

33 Key Indicators of the Labor Market, pp. 180 and 186.

34 More details are in Ralf Hussmannns and Farhad Mehran, “Statistical definition of the informal sector: International standards and practices,” 52nd session of the International Statistical Institute, Helsinki,

Finland, August 9–18, 1999. Further information may be found at http:/

/www.stat.fi/isi99/proceedings/arkisto/varasto/huss0772.pdf oceedings/arkisto/varasto/huss0772.pdf (visited

Nov. 7, 2000).

35 INEGI letter, May 11, 2000. The wide discrepancy between this figure and the much higher percentage of employed persons receiving no

fringe benefits of any kind, the Institute points out, bespeaks a flexibility

in labor relationships in Mexico that is not so well captured by the

“formal vs. informal” dichotomy. Workers paid by the job on a contract

basis by formal enterprises could account for a substantial part of this

discrepancy.

36 Clara Jusidman, The Informal Sector in Mexico, Occasional Paper

Number 1, prepared for the U.S. Department of Labor and Secretariat of

Labor and Social Welfare of Mexico, September 1992, p. 19. A Spanish

version of this report was also published as El Sector informal en Mexico

(Mexico City, Secretaria del Trabajo y Previsión Social, Subsecretaria

“B,” 1993). Jusidman refers simply to a study by INEGI for her 10.4

percent figure, but no indication is given as to what definition of the

informal sector was used. By any definition of Mexico’s informal sector

that has been offered, this percentage is much lower than the percentage

of employment in the informal sector.

37 The U.S. percentage is from Marilyn E. Manser and Garnett Picot,

“The role of self-employment in U.S. and Canadian job growth,” Monthly

Labor Review, April 1999, p. 16. Official U.S. statistics for self-employment exclude the incorporated self-employed. Mexican statistics include

them. The U.S. percentage here is in accord with Mexico’s definition.

The Mexico percentage is presented in table 4 of this article. Mexico

tabulates workers on their own account separately from owner-employers. The two are combined here, consistent with the International Labour

Office definition of self-employed. Owner-employers were 4.8 percent

of total employed workers in Mexico in 1996. The United States includes

both those without paid employees (own-account workers in Mexico)

and those with employees in its definition of self-employed. Removing

high-income professionals from the self-employed would probably make

the disparity between the two countries even greater. On the other hand,

when commentators speak of the “informal” sector, they often mean only

the urban informal sector, as opposed to the “traditional” or “subsistence”

agriculture sector. If Mexico’s many small family farms were to be excluded from this measure, the disparity between the countries would be

somewhat reduced. The self-employed were 25.3 percent of total nonagricultural employment in Mexico in 1996 (table 5) and 7.4 percent of

U.S. nonagricultural employment in the same year (Bureau of Labor Statistics, Employment and Earnings, March 1997, Table A-6). Assuming

the incorporated self-employed were the same percentage of nonagricultural self-employed as of the total self-employed, 9.5 percent of nonagricultural workers in the United States would have been self-employed by

Mexican concepts.

38 See table 5. More workers are in establishments of small size than in

firms of small size because an establishment can be a part of a larger

organization. That is why this percentage is greater than previous estimates of informality based upon firm size.

39 Bureau of Labor Statistics, Employment and Wages, Annual Averages, 1996, table 9. Neither the household nor the establishment surveys

for the United States break down employment by establishment size.

40 Manser and Picot, p. 16, for U.S. nonagricultural self-employed.

41 As stated earlier in note 3, to receive no employee benefits at all

means that the worker gets no end-of-year bonus, paid vacation, profit

sharing, social security (IMSS), civil servants’ social security (ISSSTE),

saving system for retirement (SAR), housing allowance, medical or health

benefits, or any other fringe benefit that he or she might volunteer to the

interviewer. One could hardly find a better definition of a member of the

informal sector. As far as the small scale of operations is concerned, it

would have been better to have statistics on those working in firms, as

opposed to establishments, with five or fewer employees, but these numbers are not readily available.

42 Net emigration from Mexico to the United States from 1990 to 1995

is estimated at 1.39 million. The Mexican-born population living in the

United States is estimated to have increased 1.9 million from 1990 to

1996. See Binational Study on Migration between Mexico and the United

States, Commission on Immigration Reform, United States, and Ministry of Foreign Affairs, United Mexican States, 1997, p. iii.

43 See OECD Economic Surveys, 1996–1997, pp. 120 and 151; 1997–

1998, pp. 71–81, and 88–119; 1997–1999, pp. 118–21; Marco A.

Espinosa-Vega and Tapen Sinha, “A Primer and Assessment of Social

Security Reform in Mexico,” Economic Review, First Quarter, 2000 (Federal Reserve Bank of Atlanta), pp. 1–23. Espinosa-Vega and Sinha note

(pp. 3–4) that the retirement benefit increase, on average, was so small

for those contributing past the 10th year of work that the incentive was

quite strong to drop out or evade payments into the old program after the

10-year mark had been reached.

44 Calculated from differences in open unemployment rates in tables 3

and 6.

45 Data are from INEGI, National Employment Survey, 1998, tables

3.28, 3.30, 3.39, 3.53
18 Monthly Labor Review November 2000

Employment and Unemployment in Mexico

Appendix: The surveys

The Instituto Nacional de Estadística, Geografía e

Informática (INEGI), created through a governmental reorganization in 1983, introduced the National Employment

Survey in 1988. This was the first generally reliable household survey of employment representative of the nation as a

whole. The survey and the published results, from the beginning, have been probing and thorough, revealing a wide

range of characteristics of Mexico’s labor market.The primary shortcoming in these beginning years was that the survey was not conducted regularly. The next National Employment Survey wasn’t made until 1991. After that, surveys were taken in 1993 and 1995. Since 1995, the surveys

have been conducted annually.

From the beginning, the National Employment Surveys

have been conducted only in the second quarter of the year.

Because of differences in the questionnaire and sample design in all but the largest urban areas, 1988 lacks comparability with the later years. That leaves only the period from

1991 to 1998 for a relatively clear, consistent picture of overall employment in Mexico.1

For larger urban areas only, labor information has been

more readily available for a longer period. The Urban Employment Survey was initiated in 1983 covering 12 cities on

a quarterly basis. It first overlapped with and then replaced

the Continuous Occupational Survey, which for most of the

years of its existence had covered only the three largest cities, Mexico City, Guadalajara, and Monterrey. In 1985 the

survey questionnaire was revised and enlarged and the coverage was expanded to 16 cities. Since 1987, this survey has

been conducted on a monthly basis. Coverage jumped to 34

cities by the end of 1992, and, with subsequent regular increases, now stands at 45 cities.

The expanding coverage of the Urban Employment Survey makes comparisons over time somewhat problematic,

but the benefits outweigh this disadvantage.2 Observers now

are able to trace on a monthly basis a number of labor market indicators for individual cities, cities that previously were

statistically invisible; the monthly aggregates are more truly

representative of the entire country than before, particularly

the measures of the rate of unemployment; and because the

Urban Employment Survey has never been more than a partial view of labor in the country, the lack of comparability

over time is of lessened consequence. If one wants to know

what is happening, for instance, to overall employment or to

the overall labor force over time, then the National Employment Survey still must be consulted.

Note that the National Employment Survey itself is divided into “more urban” and “less urban” areas. The relatively stable “more urban” portion should not be confused

with the Urban Employment Survey with its steadily expanding coverage. The more urban coverage of the National Employment Survey, throughout the period, consists of the coverage of the Urban Employment Survey plus additional areas of “high population density.” Those additional areas are

cities with a population of 100,000 or more and state capitals, whether or not they meet the 100,000-person minimum.

Employment in the more urban areas, as defined, ranged

from a high of 47.0 percent of total national employment in

1991 to a low of 45.6 in 1995.

Notes to the appendix

1

 A new questionnaire was introduced in 1995, and there is one modification that is most noteworthy. Previously, persons on strike were

counted as employed, but only if they expected to return to work within 4

weeks. Under the revised system, anyone on strike is counted as employed. This also conforms with the practice in the United States. Because virtually no striking worker expects to stay out on strike for more

than 4 weeks, this change should have a minimal effect on the final employment or unemployment figures.

2

 With the expanded coverage, official unemployment has been consistently lower by about one-tenth of a percentage point than would have

been the case had the survey continued to cover only 16 cities. (The

information on the 16-city rate was obtained from an e-mail from INEGI,

May 11, 2000. The official unemployment rate is from table 3 of this

article.)

46 Data are from OECD Economic Surveys, Mexico, 1997–1998,

p. 96.

47 See Jose Antonio González Anaya, “Labor Market Flexibility in

Thirteen Latin American Countries and the United States, Revisiting

and Expanding Okun Coefficients” (Washington, DC, The World Bank,

1999).

48 The 1995 CPI changes are from Cuaderno de Información Oportuna,

May 1997, table 3.1; additional real wage observations are from OECD

Economic Surveys, 1996–1997, pp. 87–91.

49 Key Indicators of the Labour Market, pp. 179–80. These are the

same thirteen countries as were examined in the González Anaya study.

50 INEGI, Industria Maquiladora de Exportación, February 2000,

p. 8.

51 OECD Economic Surveys, 1996–1997, p. 92.

52 Cuaderno de Información Oportuna, December 1996, table 4.6;

March 1997, table 4.8; and December 1999, table 4.8.

53 OECD Economic Surveys, 1996–1997, p. 9.

54 “Comparative Civilian Labor Force Statistics, Ten Countries, 1959–

1999,” table 2.

55 INEGI, National Employment Survey, 1998, table 2.2.