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Growth, Employment, and Poverty in Latin America$

Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz

Print publication date: 2017

Print ISBN-13: 9780198801085

Published to Oxford Scholarship Online: June 2017

DOI: 10.1093/oso/9780198801085.001.0001

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Mexico

Mexico

Chapter:
(p.320) 17 Mexico
Source:
Growth, Employment, and Poverty in Latin America
Author(s):

Guillermo Cruces

Gary S. Fields

David Jaume

Mariana Viollaz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198801085.003.0017

Abstract and Keywords

During the 2000s Mexico grew less than the average for Latin America. Labour market indicators exhibited mixed changes, with improvements over the period for some of them and deterioration for others. While the composition of employment improved and poverty decreased, labour earnings fell and informality increased. The country was severely hurt by the international crisis of 2008, which affected in one way or another all population groups, but Mexico surpassed its pre-crisis output levels by 2012. Most labour market indicators were affected negatively by the crisis, and labour earnings and poverty indicators had not recovered their pre-crisis levels by 2012.

Keywords:   Mexico, labour market indicators, earnings, poverty, international crisis

17.1 Introduction

This chapter on labour markets and growth in Mexico since 2000 is one of sixteen studies of Latin American countries, each of which analyses the growth–employment–poverty nexus and aims to answer the following broad questions: Has economic growth resulted in economic development via improved labour market conditions in Latin America in the 2000s, and have these improvements halted or been reversed since the Great Recession? How do the rate and character of economic growth, changes in the various labour market indicators, and changes in poverty relate to each other?

To answer these questions, we analyse the growth experience of Mexico during the 2000s and a wide set of labour market indicators that we assign to one of two different categories: employment and earnings indicators, and poverty and income inequality indicators. More specifically, for the group of employment and earnings indicators we construct statistics on the following variables: the unemployment rate; the employment structure by occupational group, employment position, economic sector, registration of workers with the social security system, and educational level; and mean labour earnings and hourly wages. We present all these indicators for the employed population as a whole and for different population groups (youth, adults, men, and women). For the group of poverty and income inequality indicators, we compute poverty rates using the official moderate and extreme poverty lines and the international lines of 2.5 and 4 dollars a day. We also calculate the Gini coefficient of household per capita income and labour earnings.

All the statistics in this chapter are obtained using microdata from the Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH) for the years 2000, 2002, 2004–6, 2008, 2010, and 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America and the Caribbean (p.321) (CEDLAS and World Bank 2014).1 The resulting labour market indicators were compiled into a large number of tables and figures, which are available in an earlier version of this study (henceforth, Cruces et al. 2015). Chapter 1 of this book provides the definition for each of the indicators we analyse here, while Cruces et al. (2015) includes details on definitions and classification systems used by Mexico’s household surveys, and on comparability issues of these surveys over time.

17.2 Economic Growth

Mexico experienced slow economic growth from 2000 to 2012. The country’s economy was affected by the 2000–01 recession in the US, and it was severely hurt by the international crisis of 2008, although by 2012 output levels had surpassed pre-crisis levels. (Cruces et al. 2015: figures 1 and 2)

During the period 2000–12, Mexico experienced slow economic growth by Latin American standards. GDP per capita increased by 10.6 per cent, while the average for the eighteen Latin American countries was 36.2 per cent during the same period. GDP (measured in PPP dollars of 2005) grew by 28.7 per cent, and GDP per employed person rose by 6.1 per cent. The annual growth rate of GDP per capita was 1.1 per cent, and it varied from a minimum of −5.9 per cent in 2009 to a maximum of 3.8 per cent in 2010 (Table 17.1).

Table 17.1 Mexico: Evolution of growth and labour market indicators over the 2000s

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Growth Indicators

GDP per capita

11,810

11,575

11,440

11,460

11,807

12,017

12,462

12,695

12,711

11,962

12,412

12,747

13,067

Mexico

GDP per capita growth rate

3.72

−1.99

−1.17

0.17

3.03

1.78

3.70

1.86

0.13

−5.89

3.76

2.70

2.51

Mexico

Employment and Earnings Indicators

Employment-to-population ratio

59.43

59.89

59.28

59.72

62.34

59.43

57.79

62.48

Mexico

Unemployment rate

2.18

2.95

3.77

3.77

3.31

4.48

5.66

4.23

Mexico

Share of low-earnings occupations

32.04

31.26

28.91

28.98

29.16

28.98

41.41

43.08

Mexico

Share of mid-earnings occupations

53.01

55.43

56.49

55.76

55.59

55.42

39.64

39.06

Mexico

Share of high-earnings occupations

14.95

13.31

14.60

15.26

15.26

15.60

18.94

17.86

Mexico

Share of employers

4.79

4.04

3.29

3.81

4.07

9.93

9.43

10.72

Mexico

Share of wage/salaried employees

66.14

65.73

70.22

68.86

67.16

71.78

72.94

68.31

Mexico

Share of self-employed workers

21.81

23.21

21.17

21.39

22.61

12.80

12.76

15.06

Mexico

Share of unpaid family workers

7.26

7.02

5.31

5.94

6.17

5.49

4.87

5.91

Mexico

Share of workers in low-earnings sectors

31.52

30.13

26.74

26.56

26.24

26.11

25.93

28.12

Mexico

Share of workers in mid-earnings sectors

47.80

49.13

50.53

50.79

51.84

50.99

50.65

49.64

Mexico

Share of workers in high-earnings sectors

20.67

20.74

22.74

22.65

21.92

22.91

23.43

22.24

Mexico

Share of low-educated workers

49.48

48.48

45.01

44.06

42.69

40.98

37.86

37.19

Mexico

Share of medium-educated workers

35.49

38.14

39.72

40.50

41.92

43.64

44.66

46.25

Mexico

Share of high-educated workers

15.03

13.38

15.27

15.43

15.39

15.38

17.48

16.56

Mexico

Share of workers registered with SS

45.63

41.58

40.32

39.38

40.99

39.61

37.15

34.94

Mexico

Mean labour earnings

598.6

575.4

591.7

616.5

616.6

622.0

554.6

563.9

Mexico

Poverty and Inequality Indicators

Official extreme poverty rate

24.61

20.49

18.67

18.89

15.15

19.26

19.31

20.16

Mexico

Official moderate poverty rate

55.63

51.59

47.89

47.71

44.43

48.51

50.88

52.00

Mexico

Poverty rate 2.5 dollars-a-day

19.54

17.15

14.73

14.98

11.83

13.57

12.61

11.45

Mexico

Poverty rate 4 dollars-a-day

36.97

34.10

30.82

29.89

27.03

28.54

28.16

27.65

Mexico

GINI of household per capita income

0.536

0.510

0.507

0.509

0.495

0.502

0.472

0.491

Mexico

GINI of labour earnings

0.520

0.515

0.497

0.507

0.505

0.508

0.474

0.512

Mexico

Note: The shaded figures of labour market indicators represent statistical significant improvements at 5 per cent between the initial and final years for all the employment and earnings indicators and poverty and inequality indicators. The only exceptions are the share of mid-earnings occupations, share of mid-earnings sectors, and share of medium-educated workers for which we did not assign welfare evaluation criteria. The vertical lines indicate that series are not fully comparable before and after that line. For occupational indicators we compared 2000 and 2008; for employment position indicators we compared 2000 and 2006.

Source: SEDLAC (CEDLAS and World Bank 2014) and World Development Indicators (World Bank 2014).

Mexico (jointly with Guatemala) exhibited the worst economic performance among all of the countries in Latin America in terms of GDP per capita growth during the 2000s. The period under study was characterized by marked fluctuations in the growth rate which were closely related to variations in the U.S. growth rate. In fact, changes in U.S. growth have been one of the factors explaining the variation in Mexico’s growth rate since the formation of the North American Free Trade Agreement (NAFTA) in 1994 (Blecker 2008).2 A first episode of slow growth occurred from 2001 to 2003, during which Mexico’s economy was affected by the 2000–1 recession in the U.S. Though GDP grew at an average rate of 0.3 per cent per year from 2001 to 2003, annual GDP per capita fell by 1.0 per cent.

The economy bounced back and resumed growth in the following years, but another sharp decline ensued in 2009 as a consequence of the economic crisis in Europe and the U.S. Indeed, Mexico was affected more by the international (p.322) (p.323) (p.324) crisis than any other Latin American country. The impact of the crisis was felt in Mexico through several channels. First, the deep recession in the U.S. led to a drop in the demand for Mexico’s exports. The high dependence of Mexico on exports to the U.S. (Mexican exports to the U.S. accounted for almost 80 per cent of total exports before the crisis) as well as their composition (a considerable proportion of those exports are durable goods) are factors that help explain why the growth collapse was more pronounced in Mexico compared to other countries in Latin America (Martorano 2014). Second, the global recession also led to a drop in international energy prices; because Mexico is an oil exporter, this drop coupled with a decline in domestic oil production had an unfavourable effect on Mexico’s export earnings. Third, due to the labour market downturn in the U.S. Mexican migrants to the U.S. faced greater difficulties in finding and keeping jobs, which negatively affected the flow of remittances to Mexico (Sidaoui et al. 2011).3 The effect of the international crisis was also felt through some financial channels. The crisis led to an increase in the risk premium of emerging market debt and to a reversal in capital flows to these economies. In Mexico, big conglomerates were affected the most due to their dependence on external funds for their operation. The depreciation of the Mexican peso also impacted negatively on the private sector, which owed more than 50 per cent of Mexico’s external debt, a large fraction of it in foreign currency (Moreno-Brid and Paunovic 2009). GDP per capita fell by 5.9 per cent in 2009, although pre-crisis levels were regained relatively quickly by the year 2011, and economic growth continued throughout 2012.

The recovery resulted primarily from three factors. First, a rebound in manufacturing exports, mostly to the U.S. but also to other markets. Second, a strengthening internal market fuelled by a healthy domestic financial sector and the growth in employment rates.4 Third, significant capital inflows from advanced economies seeking higher rates of return in emerging markets such as Mexico (Cañas et al. 2011; IMF 2013).

(p.325) 17.3 Unemployment

The unemployment rate increased substantially between 2000 and 2012 overall and for all population groups. Within the period, the unemployment rate increased from 2000 to 2004, fell from 2004 to 2006, exhibited an upward trend again until 2010, and dropped in the last year of the period. The international crisis of 2008 led to an increase in the unemployment rate. (Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) grew from 2.2 per cent in 2000 (861,563 unemployed persons) to 4.2 per cent in 2012 (2,327,977 unemployed persons) (Table 17.1). Even though these unemployment rates are relatively low by developed country standards, the unemployment rate almost doubled in the twelve years under study. The movements along this increasing trend followed the business cycle. The unemployment rate rose from 2.2 per cent to 3.8 per cent between 2000 and 2004 when the country suffered the effects of the U.S. recession of 2000–1. It then stabilized at around 3.5 per cent and even decreased slightly in 2006. However, it shot up once again during and after the Great Recession, reaching a maximum for the period of 5.7 per cent in 2010 (2,816,714 unemployed persons). The increase in the unemployment rate after the international crisis was driven mainly by the destruction of jobs in the manufacturing sector (Freije et al. 2011). Unemployment fell to 4.2 per cent in 2012—while lower than the level of 2008, this is still higher than the pre-crisis rate (3.0 per cent in 2006).

Between 2000 and 2012, the unemployment rate increased for young and adult workers, and for men and women. Within the period, the unemployment rate followed the aggregate trend for each population group, with an increase in the early years of the period, a reduction between 2004 and 2006 for young workers, between 2005 and 2006 for adults and men, and between 2004 and 2005 for women, an upward trend up to 2010, and a reduction in 2012.

The international crisis led to an increase in the aggregate unemployment rate and in the unemployment rate of all population groups. Both the number of persons in the labour force and the number of employed persons increased between 2006 and 2010, indicating that the increase in the unemployment rate during the international crisis was explained by the new entrants into the labour market who could not find a job. By 2012, the youth unemployment rate and the unemployment rate for women were below the pre-crisis value of 2006; the adult unemployment rate was above the level of 2006 and 2008; the unemployment rate for men was below the level of 2008 but above the level of 2006.

(p.326) 17.4 Job Mix

The employment composition by occupational group improved moderately between 2000 and 2008 in the aggregate and for all population groups, and deteriorated between 2010 and 2012 overall and for adult workers, men, and women. (Cruces et al. 2015: figure 4)5

The share of the following occupations shrank between 2000 and 2008: agricultural occupations (drop of 3.9 percentage points); crafts and trades occupations (drop of 1.8 percentage points); and plant and machine operators (drop of 0.7 percentage points). The share of the following occupations grew: services and sales workers (increase of 4.2 percentage points) and elementary (increase of 1.5 percentage points). The share of the other occupational groups remained largely unchanged. These changes in the occupational composition of employment can be interpreted as a slight improvement since low-earning occupations (agricultural, elementary, and plant and machine operators) reduced their share in total employment by 3.1 percentage points between 2000 and 2008, while mid-earning (crafts and trades workers, services and sales, clerical, and armed forces) and high-earning occupations (management, professionals, and technicians) gained share in total employment (increase of 2.4 and 0.7 percentage points respectively) (Table 17.1).

During the period 2000–8, young workers, adults, men, and women improved their employment structure by occupational groups.

Due to a methodological change in the household survey, the series up to 2008 is not fully comparable with the years 2010–12. Unfortunately, the effect of the crisis is difficult to disentangle from the methodological change.6 Nonetheless, from 2010 to 2012 there was an increase in the share of low-earning occupations in total employment and a decrease in the share of high-earning occupations. The increase in the share of workers in low-earning occupations is explained mainly by the rise in the share of agricultural occupations. These changes suggest a worsening in the employment composition after the crisis, with no sign of recovery in the short term. Disaggregating by population group, the changes in the employment structure by occupational group between 2010 and 2012 show a worsening for adult workers and women, a slight worsening for men, and an improvement for young workers.

(p.327) The employment structure by occupational position remained essentially unchanged from 2000 to 2006 and worsened from 2008 to 2012, in the aggregate and for all population groups. After the international crisis of 2008, the employment structure by occupational position improved overall and for young workers, adults, and women, but it remained largely unchanged for men. (Cruces et al. 2015: figure 5)7

During 2000–6, the employment structure by occupational position exhibited small changes. The share of low-earning positions in total employment (self-employed and unpaid workers) dropped by only 0.3 percentage points. From 2008 to 2012, the employment structure by occupational position worsened, as the share of low-earning categories increased by 2.7 percentage points (Table 17.1).

Between 2000 and 2006, the employment structure by occupational position improved for young workers and men, while it remained largely unchanged for adults and women, and worsened between 2008 and 2012 for all population groups. The deterioration that took place from 2008 to 2012 is explained by the rise in the share of self-employment for all population groups. In a context of increasing unemployment, as was the period 2008–10 in Mexico, economic necessity may have compelled workers to take up free-entry self-employment activities.

During the international crisis of 2008, the employment structure by occupational position exhibited a slight improvement in the aggregate, for young and adult workers and women, and small changes for men. Between 2008 and 2010 (a comparison between 2006 and 2010 is not possible due to a methodological change in the survey), the share of low-earning positions in total employment dropped in the aggregate and for young workers, adults, and women. For young workers, men, and women, there was a substantial increase in the share of low-earning positions in total employment after the crisis (between 2010 and 2012) due to the rise in the share of self-employment.

The employment composition by economic sector improved over the course of the period studied overall and for all population groups. The international crisis of 2008 did not interrupt the improving trend in the employment structure by economic sector in the aggregate and for young workers, adults, and women, but it led to a slight worsening for men. (Cruces et al. 2015: figure 6)

The period 2000–12 witnessed a reduction (from 31.5 per cent to 28.1 per cent) in the share of workers in low-earning sectors (domestic service, primary activities, and low-tech industry). There was, during the same period, an (p.328) increase (from 20.7 per cent to 22.2 per cent) in the share of high-earning sectors (skilled services, public administration, and education and health) in the total. These changes resulted in an increase in the share of mid-earning sectors in total employment (from 47.8 per cent to 49.6 per cent) over the same period (Table 17.1).

The employment composition by economic sector improved during 2000–12 for young and adult workers, men, and women, as they moved from low-earning sectors to high-earning sectors.

The international crisis of 2008 did not affect the improving trend in the employment composition by economic sector in the aggregate and for young workers, adults, and women, but it led to a slight worsening for men. The continued improvement in the structure of employment by economic sector despite the international crisis in the aggregate and for young workers, adults, and women can be explained by the reduction in the share of workers in the low-tech industry sector in total employment. That occurred as a consequence of the sharp drop in exports to the U.S. (Villareal 2010). As the low-tech industry sector is a low-earning sector in Mexico, the reduction in its share in total employment implied an improvement in the labour market for those workers who remained employed.

By contrast, between 2006 and 2010, the share of low-earning sectors in total employment increased for men. The share of high-earning sectors increased as well, but by slightly less. The share of low-and high-earning sectors continued to increase by the end of the period for men, but the increase in the share of high-earning sectors was always below that of the low-earning sectors.

The educational level of the employed population in Mexico improved steadily over the period for all population groups, and especially among young workers. The improving trend was not adversely affected by the international crisis of 2008. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 49.5 per cent in 2000 to 37.2 per cent in 2012, while the shares of workers with medium and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 35.5 per cent in 2000 to 46.3 per cent in 2012 and from 15.0 per cent to 16.6 per cent respectively (Table 17.1).8 We interpret this result as an improvement for the employed population as the level of education is an important predictor of labour earnings. Consequently, the changes in the employment (p.329) structure by educational level implied an increase in the share of workers that tend to have high levels of earnings and a decline in the share of workers with low earnings levels.9

The educational level of the employed population improved during the period 2000–12 for all groups and especially for young workers. The more rapid reduction in the share of workers with low levels of education for youth compared to adults could be indicating that the insertion of young workers into the labour market is more difficult as they need higher education to become employed compared to adults (for whom their educational level is largely predetermined). However, Lopez-Calva et al. (2013b) indicated that the improvement in the educational level of the employed population seems to be associated with higher public spending per student in basic education and an increase in education coverage in rural areas. These factors eased supply-side constraints while the conditional cash transfer programme Oportunidades reduced demand-side constraints by compensating poor households for schooling costs and for the opportunity cost of children’s labour.

The pattern of improvement in the level of education of the employed population in Mexico continued even during the international crisis of 2008, overall and for all population groups.

The percentage of wage/salaried employees registered with the social security system decreased between 2000 and 2012 overall and for all population groups. The worsening trend continued during the international crisis of 2008. (Cruces et al. 2015: figure 8)

Mexico has several social security systems, which are intended to provide pensions and health care as well as other benefits to workers and their families (ISSA 2014). Some of the systems are: (1) the IMSS, which covers workers in private enterprises, and a series of full subsystems; (2) the ISSSTE, which covers public employees; (3) the ISSFAM, which covers armed forces employees; (4) Pemex (Mexico’s state oil company), which covers Pemex’s workers; and (5) RJP IMSS, which covers IMSS employees. In addition to these traditional institutions of contributory social security (the social security system, for short), recent programmes have provided some social insurance benefits for those not covered by the system. Most notably, the Seguro Popular provides health insurance only for poor persons, informal, and self-employed workers.

The benefits are provided by the social security systems through contributory and non-contributory schemes. The contributory scheme is mandatory (p.330) for private-sector employees who contribute to the system jointly with employers and the government to cover health risks and old-age pensions. For other workers, like self-employed persons, household workers, and employers, the contribution is voluntary. The non-contributory schemes cover persons living in households with income below a legally defined threshold and are funded totally by the government. An intermediate system is the Seguro Popular that covers health risks for informal workers, the self-employed, and poor persons. The system is funded by the government and by the families according to their socioeconomic level.

Mexican social security system records show that the percentage of wage/salaried employees who are registered with traditional institutions of contributory social security fell from 45.6 per cent in 2000 to 34.9 per cent in 2012 (Table 17.1). This trend abated in 2006, but resumed at a steady rate in 2008 during the Great Recession. Indeed, in terms of registered employment, Mexico was one of the countries most affected by the economic crisis (ECLAC-ILO 2012), and there was no sign of a major recovery in this employment indicator as of 2012. There was a lower rate of registration with the social security system among wage/salaried employees in Mexico in 2012 than in 2000 for two reasons. First, registered wage/salaried employees increased much less compared to wage/salaried unregistered workers from 2000 to 2012. The number of registered workers grew by 876,414, while the number of unregistered workers increased by 9,472,012. Second, those workers who were unemployed or inactive and who wanted to enter the labour market found it more difficult to obtain registered (formal) jobs so they took up unregistered (informal) wage and salaried employment or self-employment instead (Lederman et al. 2011). Consequently, the mix of employment involved larger numbers of unregistered employees compared to the number of registered employees.

The rate of registration with the social security system dropped for all population groups (young and adult workers, men, and women). The pattern of reduction in the percentage of wage/salaried employees registered with the social security system continued during the international crisis of 2008 overall and for all population groups. The number of registered workers contracted by 136,143 between 2006 and 2010, while the number of unregistered workers increased by 3,045,103 over the same period.

17.5 Labour Earnings

Labour earnings decreased between 2000 and 2012 for workers as a whole. Within the period, there was a reduction in the early years of the period (from 2000 to 2002), an increase from 2002 to 2008, a fall in 2010, and an (p.331) upward change in the last year. Over the full period (2000 to 2012), labour earnings decreased for adult workers and men, but increased for young workers and women. The evidence of earning changes by employment categories over the period indicates that labour earnings reductions tended to be larger in percentages for high-earning categories compared to low-earning categories. All population groups and employment categories were affected negatively by the 2008 crisis in terms of earnings.(Cruces et al. 2015: figure 9)

Average monthly earnings, expressed in dollars at 2005 purchasing power parity (PPP), decreased by 5.8 per cent, from US$599 in 2000 to US$564 in 2012 (Table 17.1). Labour earnings fell at the beginning of the period—between 2000 and 2002—rose between 2002 and 2008, fell during the international crisis, and increased in the last year of the period studied. Interestingly, in a context of moderate inflation, as was the case in Mexico during the 2000s, the adjustment of the labour market took place mainly through changes in the level of employment rather than changes in real hourly wages, in contrast to what happened in the 1980s and 1990s (Samaniego 2009; Messina and Gambetti 2014).

Disaggregating, we find that adult workers and men suffered a reduction in their labour earnings, while young workers and women enjoyed an increase between 2000 and 2012. Labour earnings fell between 2000 and 2002 for young workers, adults, and men, increased for all population groups in the following years, and experienced a new reduction during the international crisis.

Between 2000 and 2012, average earnings increased for some employment categories and decreased for others. The earnings decreases (increases) tended to be larger for workers in high-earning (low-earning) categories compared to low-earning (high-earning) categories. Among occupational groups, we can only compare 2000 with 2008 and 2010 with 2012. Agricultural, forestry and fishery workers, workers in elementary occupations, and plant and machine operators (low-earning occupational groups) had an average increase in their labour earnings between 2000 and 2008 and an earnings reduction between 2010 and 2012. Workers in management, professionals, and technicians (high-earning occupational groups) suffered an earnings reduction on average between 2000 and 2008, and an increase between 2010 and 2012. When the working population is broken down by occupational position, we can make comparisons between 2000 and 2006, and between 2008 and 2012. The self-employed had a larger increase in labour earnings than employers between 2000 and 2006, and a larger reduction between 2008 and 2012. Among economic sectors, domestic workers and workers from primary activities and low-tech industry (low-earning sectors) exhibited larger earnings gains over the period than workers in skilled services, public administration, and education and health (high-earning sectors). Finally, labour earnings of workers with (p.332) high educational levels suffered a larger earnings loss than workers with medium and low levels of education.

The evidence of falling labour earnings for all educational groups can be interpreted in light of previous findings of improving educational levels of the Mexican employed population and improving employment structure by economic sector over the period. The improving employment structure by economic sector implied an increase in the share of sectors that can be expected to employ workers with high educational levels, such as skilled services, public administration, and education and health, and a reduction in the share of sectors that employ workers with low educational levels, such as primary activities and low-tech industries. This evidence indicates that the demand for workers with high and medium educational levels relative to those with low educational levels increased between 2000 and 2012. On the other hand, the educational level of people in the labour force improved over the same period, indicating an increase in the relative supply of workers with high and low levels of education (Cruces et al. 2015: table 8). The prediction of a supply and demand analysis is that the relative wages of workers with high and medium educational levels relative to those with low educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Mexican labour market the relative wages of workers with high and medium educational levels relative to those with low educational levels fell over the period (Cruces et al. 2015: table 7). The adjustment process also led to an increase in the unemployment rate of all educational groups with a larger increase for workers with high levels of education (Cruces et al. 2015: table 9).

The international crisis of 2008 led to a reduction in labour earnings in the aggregate and for all population groups and employment categories. The only employment category that recovered its pre-crisis level of earnings by 2012 was the public administration sector.10

17.6 Poverty and Inequality

For all poverty lines, the poverty rate was lower in 2012 than in 2000, and so too was the percentage of households classified as working poor. Within the period, the poverty indicators decreased between 2000 and 2006 and then either increased or decreased at a slower pace than before, depending on the poverty line used. (Cruces et al. 2015: figure 10)

(p.333) The moderate poverty rate (measured by the country’s official poverty line) fell from 55.6 per cent in 2000 to 52.0 per cent in 2012; the extreme poverty rate dropped from 24.6 per cent to 20.2 per cent (Table 17.1); the percentage of working poor (defined as the proportion of persons in the population living in poor households where at least one member works) decreased from 43.8 per cent to 40.8 per cent over the same period. The analysis of trends based on the 2.5 and 4 dollars-a-day PPP international poverty lines also shows a reduction between 2000 and 2012. A closer look at the evolution of poverty indicators based on the official poverty lines over the period under study indicates a U-shaped pattern with the lowest poverty levels in 2006. Poverty levels increased markedly with the economic crisis of 2008 and the substantial increase in food prices. The number of poor persons according to the official moderate poverty line increased from 47.6 million in 2006 to 56.8 million in 2010. Poverty indicators responded more slowly than GDP did. The moderate poverty rate continued to increase until 2012, when it reached 52.0 per cent. The patterns are very similar for the evolution of the proportion of the working poor, and for the proportion of the extreme poor. The analysis of trends based on the 2.5 and 4 dollars-a-day PPP international poverty lines shows an almost monotonic reduction over the period. These poverty rates increased slightly in 2008, and then resumed the downward trend of the previous period, although at a slower pace: the poverty rate based on the 2.5 dollars-a-day line fully recovered from the crisis (drop of 2.1 percentage points between 2008 and 2012), while the poverty level based on the 4 dollars-a-day PPP line had only partially recovered, not reaching its pre-crisis level (drop of 0.9 percentage points between 2008 and 2012).

The poverty patterns reported in the last paragraph can be interpreted by examining incomes from various sources as well as government programmes. The analysis of sources of household total income indicates that labour income and transfers from poverty alleviation programmes increased between 2000 and 2008 (Cruces et al. 2015: figure 11). There is evidence showing that half of the reduction in the moderate poverty rate measured by the official poverty line between 2002 and 2004 can be explained by the Oportunidades programme (del Río et al. 2011). Moreover, government transfers enabled 2.6 million persons to escape poverty in 2008 (CONEVAL 2009). On the other hand, income from capital declined from 2000 to 2008, while income from pensions was stable. Between 2008 and 2010, labour earnings exhibited a substantial decrease; capital income and transfers from poverty alleviation programmes like Oportunidades, Programa para adultos mayores, and other programmes suffered a small decline. However, government transfers recovered in 2012.

Despite the poverty reduction effort of Mexico’s government, the poverty rates based on Mexico’s official poverty lines increased between 2006 and (p.334) 2012. When the analysis is based on the international poverty lines, poverty increases were smaller and temporary (they increased between 2006 and 2008 only) compared to the poverty increases based on the official lines. These differing patterns of poverty indicators between 2006 and 2012 can be explained by the different procedure applied to adjust the poverty lines over time. International lines are constant in real terms using the CPI. Official poverty lines are constant in real terms using the FPI. The increase in food prices that occurred starting in 2008 determined a more rapid increase in the official poverty lines compared to the international lines in current pesos. Consequently, poverty rates measured by the official poverty lines increased from 2006 and 2012, while poverty indicators based on international poverty lines decreased.

Household per capita income inequality diminished over the period, while inequality of labour earnings did not change substantially. (Cruces et al. 2015: figure 12)

Household per capita income inequality decreased in conjunction with the increase in GDP up to 2006. It did not follow a clear pattern afterwards: inequality increased slightly between that year and 2008, and then dropped markedly until 2010, when it increased once again. The overall evolution is captured by the Gini coefficient, which fell from 0.536 in 2000 to 0.491 in 2012 (Table 17.1). The origin of the decline in household per capita income inequality from 2000 to 2006 has been attributed to the enactment of the North American Free Trade Agreement (NAFTA) (Esquivel 2009) and to the progressiveness of public spending (Esquivel et al. 2010; Lopez-Calva et al. 2013a). In 1994, the Mexican government launched Procampo, an income-support programme aimed to help farmers deal with the transition costs resulting from the opening of agricultural trade under NAFTA. Progresa (known as Oportunidades since 2002) was established in 1997. It is a large anti-poverty conditional cash transfer programme, which reached around 19.0 per cent of households in 2012. Labour markets also played an important role for the evolution of income inequality. Esquivel et al. (2010), Campos et al. (2012), Lopez-Calva et al. (2013a), and Cornia (2013) found that labour incomes contributed to income equalization during the 2000s. Remittances too proved to be equalizing in Mexico during the 2000s (Esquivel et al. 2010; Cornia 2013).

The level of inequality of labour earnings also diminished over the period under study but in a smaller magnitude. The Gini of labour earnings among employed workers was 0.520 in 2000 and 0.512 in 2012 (Table 17.1). It was mostly stable over these years, with the exception of a pronounced fall in 2010, after the economic crisis, when it reached a level of 0.474. According to our previous evidence, after the international crisis, workers with medium and (p.335) low levels of education increased their earnings relative to those with high levels of education. However, it is interesting to notice that earnings declined for all workers, regardless of their level of education. Consequently, the reduction in labour earnings inequality occurred at the expense of lower labour incomes. The main driver of the reduction in labour earnings inequality during the 2000s was the reduction in the education wage premium (or the ‘price effect’). The gap between the wages of skilled workers (those with secondary or higher education) and unskilled workers (those with no schooling or incomplete primary schooling) fell systematically over the period under study (Esquivel et al. 2010). This change in the wage structure has been explained by market forces—i.e. an increase in the relative supply of skilled workers along with a reduction in the relative demand for skilled labour (Gasparini et al. 2011; Campos et al. 2012; Cornia 2013)—rather than by institutional factors (Campos et al. 2012). The distribution of the stock of education (the ‘quantity effect’) in the labour force became more equal too (Gasparini and Lustig 2011). The reduction in the relative supply of workers with low levels of skills (measured by school attainment) might be associated with changes in public spending on education combined with the effects of the conditional cash transfer programme Oportunidades, which tied monetary transfers to keeping children of poor households in school. Although the distribution of educational attainment has become more equal, this change has had a disequalizing or neutral effect (Campos et al. 2012; Azevedo et al. 2013).11 Then, the reduction of income inequality in Mexico is explained by the falling education wage premium or price effect.

17.7 Conclusions

By Latin American standards, Mexico experienced slow economic growth during the 2000s. The country was severely hurt by the international crisis of 2008, but Mexico surpassed their pre-crisis output levels by 2012.

The evidence regarding the changes in labour market indicators between 2000 and 2012 was mixed. Some of them improved while others deteriorated over the period. The improvements were as follows. The employment composition by occupational group improved moderately between 2000 and 2008 as workers moved from agricultural, forestry and fishery occupations, and occupations related to plant and machine operation to better-paying occupations like professional jobs. The employment structure by occupational (p.336) position improved from 2000 to 2006 through the increase in the share of employers and wage/salaried employees in total employment. The employment composition by economic sector improved from 2000 to 2012 as the share of high-earning sectors like skilled services, public administration, and education and health increased and the share of low-earning sectors like primary activities and low-tech industries diminished. The educational level of the Mexican employed population improved steadily from 2000 to 2012. The moderate and extreme poverty rates and the rate of working poor households showed important reductions between 2000 and 2012, as the Gini coefficient of per capita household income, while the Gini coefficient of labour earnings remained essentially unchanged.

The worsening was as follows. The unemployment rate increased substantially between 2000 and 2012. The employment composition by occupational group deteriorated between 2010 and 2012. The employment structure by occupational position worsened from 2008 to 2012. The percentage of wage/salaried employees registered with the social security system decreased between 2000 and 2012, and labour earnings fell.

Looking specifically at the international crisis of 2008, most labour market indicators were affected negatively. The unemployment rate increased and recovered its pre-crisis level by 2012. The employment structure by occupational group worsened between 2010 and 2012. The worsening trend in the percentage of wage/salaried employees registered with the social security system continued during the international crisis. Labour earnings fell between 2006 and 2010 and never recovered their pre-crisis level. The poverty indicators increased during the international crisis of 2008. The comparison between the effects of the international crisis of 2008 on labour market indicators and the effects generated by the recession in the US at the beginning of the period (2001–3) reveals that the Great Recession impacted Mexico more strongly. The reduction in GDP, the increase in the unemployment rate, and the decrease in labour earnings were larger during the international crisis than in the recession of 2001–3. Moreover, the moderate poverty rate (measured by the country’s official poverty line) increased during the international crisis, while it continued to decrease during the first recessionary episode. The reasons behind the larger negative impacts of the international crisis compared to the recession at the beginning of the decade were the fall in the demand for Mexican exports and the domestic demand, and the reduction in remittances and the emigration of workers to the US due to the recessive labour market conditions in that country.

Young workers had worse labour market outcomes over the period compared to adults, but they do not seem to be more vulnerable to macroeconomic crises. Men and women exhibited a balanced situation in their labour market outcomes, and the negative impacts of the crises were evenly distributed among (p.337) them. The unemployment rate was higher for young compared to adult workers; the shares of young employed workers in low-earning occupational groups and economic sectors were larger than the shares of adult workers; the percentage of young workers registered with the social security system was lower when compared to adults; and labour earnings of young workers were below those of adults. On the other hand, the share of young workers in low-earning occupational positions was lower than the share for adults, and their educational level improved more rapidly. Despite the generally inferior situation of young workers in the labour market, only two youth labour market indicators were more affected by the episodes of crises. They were the unemployment rate, which increased more for young workers than for adults during the recession at the beginning of the period and during the international crisis of 2008, and the percentage of registered workers, which decreased more for young workers during the international crisis. Disaggregating by gender, we found that men were better than women in some cases, e.g. the share of male workers in low-earning positions was lower compared to women, and labour earnings of men were higher than labour earnings of women; in other cases, the opposite occurred, e.g. the female unemployment rate was lower, and the percentage of workers registered with the social security system was larger for women compared to men. The negative impacts of the crises were also evenly distributed between men and women. Men were hit hardest by both crises in the case of the unemployment rate, the percentage of workers in low-earning sectors, and labour earnings. Women were the main losers during the crises episodes when we analysed the percentage of workers in low-earning occupational groups and the percentage of workers registered with the social security system.

In summary, Mexico exhibited mixed labour market changes during the 2000s and some deterioration during the international crisis of 2008, and while all population groups were vulnerable to macroeconomic crises, no group was clearly more vulnerable than any other.

References

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Notes:

(1) See Cruces et al. (2015: table 1) for details on the size of Mexico household surveys.

(2) The North American Free Trade Agreement (NAFTA) is a trilateral free trade agreement that eliminated trade and investment barriers between Canada, Mexico, and the United States.

(3) Remittances represented 3.9 per cent of private consumption in 2007. Even though this figure does not seem high, the consumption of low-income families in the regions of Mexico with high migration rates depends heavily on the flow of remittances from the United States (Sidaoui et al. 2011).

(4) The stimulus package of the Mexican government included infrastructure spending, support to small- and medium-sized enterprises and to the export sector, introduction or expansion of employment programmes (Programa de Preservación del Empleo and Programa Temporal de Empleo), expansion of the Oportunidades cash transfer programme, regulations to facilitate the withdrawal of savings from individual pension accounts, extension of coverage of the medical insurance and maternity benefits for dismissed workers, and guaranteed pension to elderly individuals who became unemployed and had contributed for at least twenty-four years (Martorano 2014). There is no evidence indicating to what extent each of these policy measures contributed to the recovery of the economy.

(5) A methodological change in the classification of occupations used by Mexico’s household surveys in the year 2010 prevents us from comparing the series up to 2008 with the years 2010–12. See the WIDER Working Paper of this chapter for more details.

(6) Until 2010, the participation of occupations related to services and sales was the largest in relation to total employment. However, in 2010 the participation of elementary occupations increased by 12.0 percentage points in two years to become the main occupational category. The methodological change in the classification seems to be behind this evolution.

(7) The comparison between the periods 2000–6 and 2008–12 is problematic because in 2008 the survey questionnaire was modified with different questions geared to identify occupational positions.

(8) The most frequent value of years of education for employed workers in Mexico was six in 2000 (18.9 per cent of employed workers had six years of education) and nine from 2002 to 2012 (around 21.8 per cent of employed workers had nine years of education).

(9) The improvement in the employment structure by educational level is related to changes in the relative demand and supply of workers with high levels of education with corresponding implications for the wage gap by educational group and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in Mexico in section 17.5.

(10) We did not include the effect of the international crisis on labour earnings by occupational categories due to comparability problems in the series.

(11) This means that had the skill premium remained unchanged, educational upgrading would have been disequalizing. Because this sounds counter-intuitive, this finding is known as the ‘paradox of progress’.