Mexico: Selected Issues

IMF Staff Country Reports, November 8, 2018

Source details

Publication date: November 8, 2018
Scope: Documents the composition, trends, and labor market implications of informality in Mexico using data from the National Employment Survey (ENOE).
Main theme: Market duality between formal and informal employment and its consequences for pay, wage growth, and worker development.

Over half of the employed population has informal contractual relationships in Mexico both at formal and informal firms.
Informality is associated with lower levels of pay—even when accounting for worker composition differences.
Informality is associated with lower wage growth over the life cycle.
Informality tends to select workers with lower earnings potential and limits their development.
Informality is more prevalent among younger and less educated workers, for whom better paid jobs are harder to come by.
Informality appears to lead workers toward a path of limited earnings and perhaps limited skill growth potential.

Policy drivers of the market duality are discussed, including minimum wage policy.
The paper links institutional and tax structures to formality barriers and distributional outcomes.

Future labor market reforms should take a holistic approach that addresses both distributional concerns and formality barriers.
One alternative proposed is to reduce dependence on payroll taxes that are biased toward formal salaried workers while transitioning toward a social insurance system that provides good-quality services for all, irrespective of their salaried/nonsalaried status.