Job Quality and Informal Employment : The Experience of Mexico IX Hemispheric Meeting Poverty and Social Protection Network Félix Vélez Fernández Varela September 13, 2007 Washington DC Employment and Job Placement Policies to Overcome Poverty

Content 1.Mexico in Figures 2.Characteristics of the Labor Market 2.1 Productivity 2.2 Informal Employment 3. Programs to Fight Poverty and Generate Income 3.1 Capacity Building 3.2 Productive Projects 3.3Temporary Employment

1. Mexico in Figures: Poverty *Source: Coneval 2007

1. Mexico in Figures: Population and Employment INDICATORTotal More developed areas 2 Less developed areas 3 I. Total population % of population compared to total 49.19%50.81% 2. Population 14 years and older Economically Active Population (EAP) Rate of participation58.43%60.30%56.46% Unemployed Not Economically Active Population (NEAP) Available Sum of Unemployed and Available Population Employed population: Income level Up to minimum wage x minimum wage % Employed pop. with access to health services35.47%47.26%22.39% 1.Areas with more than 100,000 inhabitants 2.Areas with fewer than 100,000 inhabitants Calculations based on National Employment and Occupation Survey (ENOE) 2006

Open Unemployment Rate (percentage of EAP) Source: INEGI 1. Mexico in Figures: Population and Employment Total MenWomen

Fuente: IMSS. Informe Mensual de Población Derechohabiente. 1. Mexico in Figures: Social Security

2. Some Characteristics of the Labor Market Job market in Mexico characterized by: Low productivity. Low levels of education and technological capacity. Sub-employment and temporary employment. High percentage of informal employment. Errors in regulating employment. - Labor demand side: high cost of hiring. - Labor supply side: desired level of training and productivity has not been achieved. Why?

What Affects Productivity? TRAINING (Education) Capital goods and the use of new technology Sense of belonging (company philosophy) Social Security 2.1. Productivity

Low levels of education Low level of labor force training Companies don’t generate jobs that require superior skills Lack of incentives for students to invest in skill-acquisition UNPRODUCTIVE JOBS 2.1. Productivity LOW WAGES MEXICO

2.2. Informal Employment Cost-benefit analysis of people, households and companies in the formal and informal job markets. Individuals –Difficulty being accepted into schools, low level of education, low productivity. –Lack of social security negatively impacts productivity and disincentivizes investment in human capital. –Some personal characteristics may impede access to education and the formal job market: gender, age, ethnic origin. Companies –Companies without access to credit, sources of innovation and wholesale markets/products, and those that evade taxes, may be forced to operate at a suboptimal level. –In the aggregate, a large concentration of workers in small or mid-sized companies may lead to lower growth of productive jobs and capital.

Market –Low levels of education in the country have impeded the growth necessary to generate jobs in the most modern and productive sector of the economy. One-time gains due to commercial liberalization. Low technological development of the agricultural sector. –Errors in regulating the job market incentivize the growth of the informal sector. Labor reforms and incomplete competency reforms. Increase in unstable and informal employment contracts Informal Employment

Unemployment and Informal Employment in Mexico World Bank, Informal Employment

Distribution of Informal Workers According to their Monthly Income Economic Research Center SHCP, Informal Employment

Employment Rate in the Informal Sector (Percentage of Employed Population) Source: INEGI. National Survey of Occupation and Employment (ENOE). Population 14 years and older Informal Employment

3. Public Policy Interventions: What can be done? Two visions of why people opt for informal employment: 1.Exclusion/vulnerability of the workers 2.Structure of the market  Differentiated public policy interventions Training and education policies are crosscutting issues for these two visions. They are the primary tools for improving job quality, increasing productivity and, therefore, increasing wages.

To succeed in breaking the vicious cycle of low productivity and poverty, and to maximize social benefits of commercial liberalization, training policies must be promoted. Well-trained labor force National companies with competitive advantage. Greater ability to adapt to accelerated technological and market changes. Greater economic growth Less poverty 3. Public Policy Interventions: What can be done?

1. Capacity Building  Oportunidades Human Development Program Impacts the short-term well-being of households –Conditional Cash Transfers, improvements in health and nutrition Impacts the medium- and long-term well-being of households –Increases school attendance and decreases drop- out rates for those living in poverty, giving them access to better jobs and wages in the future 3. Public Policy Interventions: What can be done?

ComponentType of supportObjectiveConditionality Education Scholarships. Support in acquiring educational tools. To promote attendance, low drop-out rates and academic achievement of children and young people. Regular school attendence (85%). Attend health talks (high school students). Health Basic Health Services Package. To improve health and encourage preventive health care. Attend health, nutrition and hygiene talks. Attend medical check- ups in health centers. Nutrition Food supplements. Monetary support. To prevent child malnutrition. To improve the quantity and diversity of food consumed. Family members to attend periodic healthcare visits. Beneficiary to attend health education sessions.

3. Policies to Fight Poverty through Income Generation  Break the link between social security and formal employment Encourage universal health insurance that is independent from employment. –Improvements in health increase productivity –Prevention of catastrophic health costs for the uninsured population, especially the most poor. –Decreased hiring costs in formal employment, which may increase employment in the formal sector. Percentage of individuals without access to social security 43% 71% 83% 90% FoodCapability Cultural Not poor

2.Productive Projects  Productive Options Program led by the Ministry of Social Development to meet the needs of the poverty-stricken and marginalized rural population. Support for viable and sustainable productive projects, and for human, technical and commercial capacity building, which will allow individuals to increase their wages and the well-being of their families. Move from an assistance-based approach to co- responsible productive support. Alternative: Grant credits through the Development Bank. 3. Policies to Fight Poverty through Income Generation

3.Temporary Employment  Temporary Employment Program (PET) This program strives to contribute to fighting poverty in two ways: Additionally, maintain a reserve for unforeseen economic and environmental hardships. Targeting is limited to highly and very highly marginalized areas. 1. Employment. Provide paid temporary employment to unemployed individuals from poor families to cope with temporary income shocks. 2. Infrastructure. Create durable assets by establishing infrastructure for poor families and their surroundings. 3. Policies to Fight Poverty through Income Generation

3.Job Placement  Child Care Facilities Programs to support working mothers The program seeks to improve women’s wages in two ways: –Facilitate job placement of femal heads of household by offering them subsidized child care. –Child care facility management. There was a great need for this service: In 8 months of operation, 3,500 facilities have been opened and 63,000 children are cared for. 3. Policies to Fight Poverty through Income Generation