In rural Mexico the employment rate increased during 1999-2003, more specifically, after the sharp increase in unemployment followed by the peso crisis in 1994/95. The sharpest decline in employment occurred between 1995-1996 and it declined until 1999. All five regions experienced a reduction in the number of employed in the 1990s. A large part of the unemployed was absorbed in the informal sector therefore the unemployment rate is relatively small in rural Mexico (0.7 percent). However, it is clear that the underemployment rate is very high and according to some estimates reaches more than 20 percent of the active population.<sup>4</sup> The entire economic active population in rural areas with less than 2,500 inhabitants is broken down by sector of principal activity (occupation) in Table 2.1. In rural Mexico, 56 percent of the working population was engaged in agricultural activities in 2003 and the vast majority in cultivation. Moreover, the greater part consists of males, 66.9 and 25.0 percent of the rural males and females were employed in agricultural activities, respectively in 2003 (Table 2.2). Agricultural employment fell from 63 percent in 1995 primarily due to increased urbanization absorbing labor. Agriculture still employs a large share of the population in the southern states, which have a relatively high level of poverty and a large indigenous population. Even in urban areas 5.4 percent of the working population were engaged in agricultural activities as a principal occupation in 2003. Labor markets are highly seasonal in Mexican agriculture. Many rural workers are employed part-time in agriculture and work the rest of the time in nonagricultural sectors such as construction, manufacturing, and services, particularly in the Southern states where there is only one crop-growing season due to limited infrastructure for irrigation.

Turning to rural nonfarm activities, it can be observed that 18.5 percent of the working age population were primarily engaged in manufacturing, 10 percent in sales, and 16 percent in various service sector activities in 2003 (Table 2.1). In total, about 44 percent of the rural working population was engaged in nonagricultural activities as a primary activity. These estimates are likely to be conservative estimates of the importance of nonagricultural activities because they do not include nonfarm activities that are secondary. Moreover, when changing the definition of rural to localities with less than 15,000 inhabitants then 55 percent of the rural workers were employed in the nonfarm sector.

Focusing on the nonagricultural working population in the rural areas with less than 2,500 inhabitants the information in Table 2.1 reveals that the most important activities manufacturing subsectors comprise construction, food processing, and clothing. Personal services, education, and hotel and restaurant are the most important service subsectors. Employment rates in the government sector accounts for only a small fraction of total nonfarm employment in rural areas (2 percent). Government employment in urban areas accounts for nearly triple that of rural areas (5.8 percent). Nonagricultural incomes accrue to rural households through nonagricultural wage labor, home enterprises, conditional-cash transfers, and remittances.

> 4 Source: Oxford Analytica, April 2004.

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