# **L IN1 ODUCTION**

Over the past six years, Mexico has successfully implemented **A** program of sweeping economic reforms and made major strides towards a complete restructuring of its economy. Until 1985, the Mexican economy was highly protected, dominated by state-run industries, and heavily burdened by debt. As a result of the policy changes and reforms that have taken place since then, the economy's prospects today are vastly different. A fast and far-reaching trade reform has turned Mexico into one of the more open economies in the world. Domestically, the reforms have been equally comprehensive. The financial sector has been restructured and liberalized, fiscal expenditures have been cut dramatically, and the tax system has been overhauled. Key sectors, such as transport and telecommunications, have been deregulated. Moreover, in a still ongoing process of privatization, more than two-thirds of state enterprises have 'oeen sold, closed or spun off.

Despite the rapid and far-reaching reforms, which have had a clea: impact on the labor market, unemployment has remained tairly low throughout the adjustment process. Official statistics drawn from the census and from employment surveys report a very low unemployment rate (2.8% in 1991). An analysis of the trends indicates that even in the worst years of the adjustment process, **ave** rage unemployment rates did not increase beyond 6%. These figures, surprisingly low by international standards, raise a number of questions about the nature and relative importance of unemployment in stexico.

A first question is whether the official definition of unemployment adequately reflects tihe importance of the phenomenon. In other words, is unemployment properly meacured? A second issue relates to who bears the burden of unemployment. From a welfare perspective **ic** matters greatly whether the cost of unemployment is widely spread or whether it falls primarily on a few. Even if only a small fraction of the labor fc.rce is unemployed at any point in time, these individuals may have specific characteristics that would make them particularly and repeatedly vulnerable, and therefore deserving of special attention. What are, in fact, the characteristics of the unemployed? Can one identify population groups that are more vulnerable to unemployment? Within each population group, is the risk of unemployment concentrated on a small number of individuals who are repeatedly hit? Another issue revolves around the relative importance of long-term unemployment. Specifically, one would want to know whether most unemployment is associated with normal turnover (movements frcm one job to the next), or rather comprised primarily of individuals who are out of work for a long period of time. All these questions have important implications for the design of policies and programs aimed at the unemployed.

In this report, we attempt to answer these questions using data drawn from two surveys. Our first source of data is the quarterly urban labor fPrce survey (ENEU). The ENEU, a household-based survey of sixteen main urban areas, elicits a wealth of information on sociodemographic characteristics, employment status, type of job, monthly salary and hours of work. For those individuals who are unemployed, it also reports the length of their unemployment spells up to the time of the survey. It is the main source of time-series household-based labor market data, having bee1, carried out continuously since 1983.

A key feature of the ENEU is its panel structure. The survey uses a quarterly rotation system such that each rotation group (of households) remains in the survey for five consecutive quarters, and