International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper on Mexico documents the composition, trends, and labor market implications of informality using data from the National Employment Survey (ENOE). Over half of the employed population has informal contractual relationships in Mexico both at formal and informal firms. Informality is found to be associated with lower levels of pay—even when accounting for worker composition differences—and lower wage growth over the life cycle. Policy drivers of this market duality, including minimum wage policy, are discussed. The results suggest that informality tends to select workers with lower earnings potential and limits their development. Informality indeed tends to be more prevalent among younger and less educated workers, for which better paid jobs are harder to come by. Moreover, it appears to lead workers toward a path of limited earnings and perhaps skill growth potential. Future labor market reforms should take a holistic approach that addresses both distributional concerns and formality barriers. One alternative 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.
This Selected Issues paper focuses on the fiscal challenge for Belgium in coping with population aging, including the sustainability of prevailing fiscal federalism arrangements across all levels of governments. The analysis demonstrates that the current strategy of upfront consolidation is likely to fall short of achieving sustainability. Further reductions in aging-related spending and growth and productivity-enhancing reforms beyond those assumed under the authorities’ strategy appear to be necessary. The paper also assesses whether the wage bargaining framework, a key labor market institution, is conducive to preserving external competitiveness and raising employment rates.