Abstract
Mexico is an open economy with strong real and financial links to the rest of the world with risks of spillovers from global turbulence. Recent gains in market share in the U.S. manufacturing market are owed to improved relative unit labor costs and reemergence of a location advantage. Mexico’s current fiscal framework requires measures to offset the emerging challenges of a decline in oil revenues and the projected increase in health- and pensions-related spending. The sustained increase of bank credit after the global crisis has been reversed. The effects of migration depend on labor reform.
V. Mexico: Migration and Labor Markets1
Urban unemployment in Mexico remains higher than in past recoveries. At the same time, Mexican migration to the United States has decelerated significantly since the mid-2000s, linked to the slump in construction in the U.S. This suggests that the dynamics of migration has played a role in the evolution of urban unemployment in Mexico through an increase in participation in the labor force. In turn, the increase in labor participation has contributed to contain labor costs and to help regain competitiveness. Over the medium term, the effects of migration on urban unemployment and output would depend on the recovery in the U.S. construction sector and on how permanent the change in migration dynamics is. The labor reform being considered by congress would facilitate adjustments in labor markets in coming years.
A. Background
1. The level of urban unemployment in Mexico is falling after the crisis, but remains elevated compared with the early 2000s, when it reached a multi-decade low. After peaking at more than 7½ percent in 1995, urban unemployment fell steadily following the recovery from the 1994 crisis and the incorporation of Mexico into NAFTA. As a consequence, urban unemployment hit its minimum since the mid-1980s in the last quarter of 2000. In the last decade, the evolution of urban unemployment could be characterized by three different plateaus (Figure 1). The early 2000s were characterized by very low urban unemployment rates, which trended up after 2003 into a ‘mid-decade plateau’. A third plateau with urban unemployment around 6 percent followed the fall in economic activity after the global crisis.
Urban Unemployment
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, serie unificadaUrban Unemployment
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, serie unificadaUrban Unemployment
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, serie unificada2. Mexican migration to the United States decelerated in the 2000s compared to previous decades. Migration to the U.S. was particularly dynamic during the 1970s and 1980s.2 However, recent data from both INEGI and the American Community Survey (ACS) shows that migration flows have decelerated sharply during the second half of the 2000s, associated with the weak U.S. construction sector and the increase in unemployment in U.S. states with a strong presence of Mexican population.
B. Recent Developments in Labor Markets
3. Following the economic recovery after the 1994 crisis, Mexico recorded historically low unemployment rates in the early 2000s. After a prolonged and sustained fall since the mid 1990s, urban unemployment rate reached 2¾ percent in December 2000, the lowest level on record since the mid 1980s. This historically low urban unemployment rates took place in the context of fairly stable participation rates and moderate employment creation during this period (Table 1).3
Mexico: Labor Market Indicators
Year-on-year growth rates, at a quarterly frequency.
Number of people in the economic active population.
Number of people employed.
Mexico: Labor Market Indicators
| Period | Average Quarterly Growth 1/ | |
|---|---|---|
| Labor Participation 2/ | Employment 3/ | |
| 2000-2004 | 1.86 | 1.51 |
| 2005-2008 | 2.16 | 2.21 |
| 2008-2009 | 1.46 | 0.24 |
| 2010-2012 | 1.91 | 1.56 |
| 2011-2012 | 2.50 | 2.73 |
Year-on-year growth rates, at a quarterly frequency.
Number of people in the economic active population.
Number of people employed.
Mexico: Labor Market Indicators
| Period | Average Quarterly Growth 1/ | |
|---|---|---|
| Labor Participation 2/ | Employment 3/ | |
| 2000-2004 | 1.86 | 1.51 |
| 2005-2008 | 2.16 | 2.21 |
| 2008-2009 | 1.46 | 0.24 |
| 2010-2012 | 1.91 | 1.56 |
| 2011-2012 | 2.50 | 2.73 |
Year-on-year growth rates, at a quarterly frequency.
Number of people in the economic active population.
Number of people employed.
4. An increase in labor participation before the global crisis pushed up urban unemployment despite buoyant labor demand. The four years before the global crisis showed a significant acceleration in employment creation (from 1½ percent to 2¼ percent). Despite buoyant labor demand, the urban unemployment rate in this period increased to 4¾ percent, from slightly above 4 percent in 2000–2004, due to the increase in participation rates since 2003. This latter peaked at over 61 percent at end-2007 (Figure 2).
Unemployment and Participation
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, series unificadasUnemployment and Participation
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, series unificadasUnemployment and Participation
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI, series unificadas5. The global crisis halted job creation and triggered a sharp increase in urban unemployment. While labor participation stabilized at around 60 percent of the working age population during the global crisis, the creation of employment plummeted, falling to about ¼ percent from about 2¼ percent in the period 2005–2008. In turn, the urban unemployment rate spiked to more than 7 percent in 2009.
6. Urban unemployment has fallen with the recovery in economic activity in 2010-2012, but it has remained high compared to historical averages. Urban unemployment remains at 5½-6 percent, compared with 4¾ percent before the global crisis. Despite that employment creation has been strongest since the early 2000 (see Table 1), labor participation has continued to growth more rapidly than in the past, especially in 2011 and 2012.
7. The increase in labor participation has likely contributed to a reduction in unit labor costs (Figure 3). Despite a healthy expansion in employment between 2005 and 2008, unit labor costs in the manufacturing sector remained broadly stable. Following the global crisis, manufacturing unit labor costs have fallen by about 5 percent between end-2009 and end-2011.4
Unit Labor Costs
(Index: 2008=100)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI and staff calculationsUnit Labor Costs
(Index: 2008=100)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI and staff calculationsUnit Labor Costs
(Index: 2008=100)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI and staff calculationsC. Migration: Recent Developments
8. The number of Mexican migrants to the U.S. grew rapidly during the 1970–2000 period. In 1970, there were close to one million Mexican born residents in the U.S. That number increased dramatically to almost 9 million in 2000, after the strong Mexican migration flows in previous decades. These migrants were mainly located in California (about 45 percent), Texas (over 20 percent), Arizona, and Illinois.
9. Migration flows to the U.S. fell significantly in the 2000s, particularly after 2005. Migration flows decelerated sharply in the second half of the 2000s, with some indicators showing reversed migration flows from the U.S. to Mexico during the global crisis:5
The American Community Survey (ACS) is an ongoing statistical survey that presents data on Mexican-born residents in the U.S. since 2000. The ACS shows that these residents increased by 35 percent between 2000 and 2010; it also shows that the net number of Mexican migrants to the U.S. was negative in 2008 (Figure 4a).6
A survey by INEGI compiling quarterly information on net migration flows suggests that these flows have declined sharply since 2006 (from about 144 migrants per ten thousand people in Q2-2006 to about 30 in Q4-2011) and has stabilized at low levels in the last few years (Figure 4b).7
Mexico: Migration to the U.S.
(Thousand per year)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: American Community SurveyMexico: Migration to the U.S.
(Thousand per year)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: American Community SurveyMexico: Migration to the U.S.
(Thousand per year)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: American Community Survey
Migration to the U.S.
(Migrants per ten thousand people)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)Migration to the U.S.
(Migrants per ten thousand people)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)Migration to the U.S.
(Migrants per ten thousand people)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)10. The data suggests that migration began decelerating with the downturn in the construction sector in the U.S. Annual data from the ACS suggests that the turning point in U.S. construction activity and migration from Mexico to the U.S. took place in early 2006 (Figure 5), after which unemployment rates in some key states in the U.S. began to increase.8
Migration and U.S. Construction
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: ACS, U.S. Department of CommerceMigration and U.S. Construction
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: ACS, U.S. Department of CommerceMigration and U.S. Construction
(In percent)
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: ACS, U.S. Department of CommerceD. Migration and Labor Markets
11. Evidence suggests that migration has had an impact on urban unemployment during the last decade. The impact of migration flows on urban unemployment has in part taken place through the increase in labor participation in Mexico in the second half of the 2000s (Figure 6). The sustained increase in participation has also played an important role in the sluggish fall in urban unemployment rates that took place after the global crisis, despite a healthy recover in economic activity and employment creation in Mexico.
Labor Participation and Migration
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)Labor Participation and Migration
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)Labor Participation and Migration
Citation: IMF Staff Country Reports 2012, 317; 10.5089/9781475543551.002.A005
Sources: INEGI (ENOE)12. The longer-term impact of migration on urban unemployment (and potential output) will depend on how persistent the recent trends in migration are. In particular, the effect of migration on urban unemployment would depend on: (i) the pace and extent of the recovery in the U.S. construction sector, which is still 35 percent below its peak; (ii) the dynamics of migration flows as the U.S. construction activity recovers; and (iii) the impact of higher labor participation on real wages in Mexico. A permanent shift in labor participation in Mexico can potentially have a sustained impact on unit labor costs and increase potential output in Mexico.
13. Prospects for a persistent increase in Mexico’s labor participation highlight the importance of labor market flexibility. In this context, the labor reform being considered by congress—which allows new types of temporary employment contracts, streamlines the settlement of labor disputes and limit compensation for unjustified dismissals, introduces more flexible seniority rules favoring productivity and labor skills, and changes the regulatory framework for outsourcing—would be important to facilitate the incorporation of new entrants in the labor markets.9
References
Alcaraz, Carlo, 2009, “Informal and Formal Labor Flexibility in Mexico,” Desarrollo y Sociedad, Primer Semestre de 2009, pp 115–143.
Alcaraz, C. and D. Chiquiar, 2008, “Diferenciales salariales intersectoriales y el cambio en la composición del empleo urbano de la economía Mexicana en 2001–2004,” Banco de Mexico Working Paper 2008–2006.
Cervantes González, Jesús, 2001, “Remesas familiares y la migración de mexicanos a Estados Unidos,” Centro de Estudios Monetarios Latinoamericanos, Documento de Trabajo.
Chiquiar, D. and M Ramos Francia, 2009, “Competitiveness and Growth of the Mexican Economy,” Banco de Mexico Working Paper 2009–2011.
Duval-Hernández, R. and P. Orraca Romano, 2009, “A Cohort Analysis of labor Participation in Mexico, 1987–2009,” IZA Discussion Series Paper 4371.
Prepared by Enrique Flores and Esteban Vesperoni.
See CONAPO at http://www.conapo.gob.mx/
Labor participation, which had stood at around 50 percent in the late 1980s/early 1990s, increased significantly during the first five years before the Tequila crisis, not only pushed by favorable cyclical conditions, but also in part by an increase in labor participation by women. After reaching values around 55 percent in 1993/4, it remained stable during the following 10 years to the early 2000s. For an analysis of labor participation in Mexico, see Duval-Hernández and Orraca Romano (2009).
The dynamics of wages—and unemployment—may also be affected by participation in formal and informal labor markets. See Alcaraz (2009) and Alcaraz, Chiquiar and Ramos Francia (2008).
Data on migration flows between Mexico and the U.S. can be obtained from different sources, but all of them offer a similar picture for the last decade.
For a comprehensive analysis of this data, see Cervantes González (2011).
In contrast with the ACS, data from INEGI does no show a recovery in migration flows after the global crisis (Figure 5).
Quarterly migration data from INEGI and regional unemployment rates in the U.S. also support this point.
For the effects of labor market rigidities on productivity, see Chiquiar and Ramos Francia (2009).
