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The following OECD assessment and recommendations summarise chapter 5 of the Economic survey of Mexico published on 4 October 2007.
Click here to read the addendum to the Economic Survey of Mexico 2007.
Improving labour market outcomes and reducing poverty
A well functioning labour market and effective social polices are also essential to promote stronger and more equitable growth. Open unemployment is low, but there is a high incidence of informal and low productivity jobs. Promoting the creation of more – and especially more productive – jobs requires action on a broad front, including human capital formation and improvements in the business environment, as well as reforms in labour market and social policies. First, there is a need to improve the prospects for workers to move to more productive jobs by upgrading skills and competences. Second, greater labour market flexibility coupled with effective protection in case of job loss (for instance through individual savings accounts) would enhance labour market efficiency. Third, a range of actions is required to fight exclusion and widespread poverty.
Upgrading skills and competences
The education system can play a vital role in helping Mexico’s modernisation and enhancing its capacity to meet the rising and changing demand for skills in the new global environment. Poor education outcomes do not result from a lack of spending but from the sector’s low efficiency. Educational resources need to be better allocated; incentives for teachers to perform well should be strengthened. Furthermore, measures to improve the education system’s performance have to be complemented by renewed efforts to upgrade the workforce competences through adult training. Policy makers should focus on promoting privately provided training and financial support should continue to go to trainees or firms to stimulate the demand for training, rather than financing training providers.
Enhancing the attractiveness of formal sector employment
Tackling the problem of informality also requires labour market measures to strengthen the incentives for formal employment. Two reforms undertaken in the beginning of 2007 are expected to improve the functioning of the formal labour market. First, the reform of the public sector pension system (ISSSTE), by allowing portability of pensions across sectors, will facilitate labour mobility. Second, the pension savings account reform (SAR), which aims at reducing fund managers charges, is expected to enhance the net returns on private pension funds, thereby helping to make formal sector employment more attractive. But more has to be done. Because policies are inter related, a comprehensive reform strategy is essential to increase incentives for formal sector employment. Priorities include:
Reviewing the tax-benefit package, in particular to improve the efficiency and reliability of social security services, as this would enhance incentives to formal sector employment, especially for low-paid workers.
Increasing labour market flexibility, by broadening the legal ground for dismissal, while improving the effective protection of workers. To facilitate mobility in the formal sector, consideration should be given to replacing severance payments with a system of individual savings account. This would reduce transaction costs while increasing income security.
Broadening the scope for temporary contracts and part-time work - this would help the creation of jobs in the formal labour market and promote female participation in particular.
Strengthening control over compliance with tax and social security obligations, although this can only be a part of the strategy.
Providing effective social protection and fighting exclusion
A reduction in poverty levels has been achieved over the past few years. But poverty remains widespread and social policies are not always effective. On the one hand, there is a contributory social security system which covers only about half of the population. It is neither equitable nor efficient. Because benefits delivered exceed contributions, it has been subsidised by general contributions. On the other hand, the population which is not covered by social security has access to poor quality state health services. The basic health insurance, Seguro Popular, was created to extend the coverage of health insurance and reduce the risk of catastrophic out-of pocket health care spending for the uninsured. In the long-term, moving towards a unified system integrating state health services and social security system would be appropriate to improve efficiency and equity. In the short-term, strong action is required both in the social security system and for the more vulnerable uncovered population. In the contributory health systems, measures should be taken to improve efficiency in service delivery and ensure financial soundness. For the non-uninsured population, further widening of Seguro Popular is appropriate, as done for instance with the recent creation of the health insurance for the youngest generation, provided reliable budget funding is available. Beyond health care provision, as the budget constraint is eased, more measures will have to be introduced to ensure that the most vulnerable population groups have access to adequate nutrition and basic education services. Income support for targeted families through the conditional cash transfers programme Oportunidades has shown good results and it should continue. The programme’s effectiveness should be further enhanced by increasing the quality of basic health and education services. Small-scale social programmes were created in 2007, but it is unclear whether the financial resources will be available on a steady basis. More generally, it would be appropriate to rationalise social programmes in place, based on systematic evaluation, and to improve the cost-effectiveness of social assistance as a whole, while ensuring that programmes preserve incentives to work.
Poverty in Mexico
As per cent of population
1. Population having income insufficient to purchase the basic food basket.
2. Population having income insufficient to purchase basic food, health and education services.
3. Municipalities with population larger than 15 000.
Source: World Bank calculations, based on ENIGH Generación de Ingreso y Protección Social para los Pobres.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
Una versión para imprimir de la síntesis en Español, en formato pdf, también puede ser descargada. Esta incluye la “Evaluación y recomendaciones” de la OCDE, pero no incluye todas las figuras que aparecen en las paginas anteriores.
The complete edition of the Economic survey of Mexico 2007 is available from:
For further information please contact the Mexico Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Bénédicte Larre, David Haugh and Bruno Rocha under the supervision of Stefano Scarpetta. Research assistance was provided by Roselyne Jamin.