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November, 2000, Vol. 123, No. 11
Employment and unemployment in Mexico in the 1990sGary Martin
Travelers are often cautioned against viewing other countries through the lens of their own cultural bias. Economists must be warned as well about the pitfalls of evaluating the performance of economies that differ greatly from those that they are accustomed to examining. Although Mexico joined with the United States and Canada in the North American Free Trade Agreement in 1994, this alliance should not cause one to lose sight of the fact that Mexico’s economy continues to differ considerably from those of its northern neighbors. The application of the usual measures of "employment" and "unemployment" to evaluate Mexico’s economic performance in the 1990s reveals many such differences.
For the first 4 years of the 1990s, Mexico’s economy grew at an annual rate of 3.6 percent, continuing the long recovery from the 1982 "debt crisis." The economy experienced a sharp decline in 1995, however, as a result of the "peso crisis" of late December 1994. Gross domestic product fell by 6.2 percent, but employment actually rose slightly. Unemployment rose sharply, although the level reached was not particularly high by world standards. The impact of the crisis, both in severity and duration, shows up more clearly in other indicators, such as those for the composition of employment and the trend in real wages. This article focuses on the employment side, but includes some information on the wage trend.
In economies such as Mexico’s, the "informal sector," made up primarily of small establishments providing marginal, insecure, and low-paying jobs, looms large in the best of times.1 Because Mexico lacks a broad social safety net, this sector takes on added significance in hard times, as the data clearly revealed in the immediate wake of the 1994 peso crisis. Overall, employment continued to increase, but the rate of growth slowed. Employment in the smallest establishments and in jobs with no fringe benefits grew at a much faster rate than did employment overall. Employment also rose much more in Mexico’s less urban areas, where the data suggest the informal sector is more dominant, than it did in the more urban areas.
Real wages fell substantially in 1995. But while gross domestic product rose sharply in the following years, real wages remained well below pre-crisis levels through 1998.2 (See table 1.) The lingering effects of the downturn also still could be seen on the employment side of the labor market. By 1997, unemployment had returned to pre-crisis figures, and the rate of employment growth was greater than before; even so, the aggregates conceal a disproportionately high rate of growth over the longer term in a number of key indicators of informality.
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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 Oportuna, September 1999, table 2.27.
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