Economic development and the labor market in Mexico

ECONOMIC DEVELOPlMENT AND THE LABOR MARKET IN MEXICO By Peter Gregory Series: Studies in Employment and Rural Development No. 70 Division: Employment and Rural Development Department: Development Economics Development Policy StafL International Bank for Reconstruction and Development This paper was prepared by the author as part of a larger study of RPO 671-84 and is to appear in a volume of contributed papers in honor of Professor L. G. Reynolds, Y=ale University. The views expressed are those of the author and the report may not be published or quoted as representing the views of the World Bank or its affiliated organization. Washington, D. C. August 1981  aL in X'ICxic, I. Introduction The period of' acceleratcd growch and modernization in !eIxico dates fromi about 1940. The groun6-:ork for change had alread'y been laid by the sweeping changes flowingr from thc. preceding thirty years of revolutionary activ ity that produced far reaching social and institutional chaniges. The onset of o'Drld '?ar II brought withi it a disruption of .raditional sources of supply for industrial goods and stimiulated the e::pansion of manufacturing production for intetnal consumnDtion. The large-scale land distribulion prograz= of the Cardenas regime during the preceding decade resulted in a substantial incrci-Se inr the land under cultivaLion andn ila agricult-ural output. Thus, t:he decade saw all of the principal s-ct,ors of the economy growing in tandem fashion. As is evidenced in Table 1, the rates of grou't h of thie three broad sectors showed only small differences. Followzing the end of t1he war and a return to more competitive condi- tions in producL v=:ar'.kets, the government opted for a policy of fostering the furtlher growth of domescic industry behind protective tariff walls and import controls. It also embarked on a l.arge-s3c1L investmcnt pro- gram to provide infrastructure for an eoerging :Mc "errn com-irrcial a-r-Icul- tural sectcr. Large-scale irri-ation and rond-building projects in the sparsely populated nor:li anCd northwestern provinces prcided a stimulus for a continuc., e:epansiocln of a'-ricultur-nl output for both riontestic con-  (Millions of pesos of 1950) 1940 1950 1940-50 1960 !970 Sectors 1I cNr GNP Annual Pate N P CNp of Clhange PPr ra r: Bankr. of N'2xico 11,433 2.2 16,473 3. 7 UnIkel 5,221.0 9,242.0 5.9 13,916.61 4.2 17,606.77 2.4 S--Con da r Br.nL of eico 20;956 5.3 48,727 Uni' e1 6,788.58 12,466.0 6.3 24,603.00 7.0 52,203.2 7.8 TercIa!]y Bank: of Mexico 39,404 7.4 76,278 6.8 un 1k;el 10,930.80 19,352.13 5.9 35,695.57 6.3 S2,',30.62 e- 'rc.t ,.1 }ianrk of Mexico 71,793 5.7 141,478 7.0 Unikel 22,940.38 41,060.13 6.0 74,215.18 6.1 152,250.59 7.5 1/ The sectors are composed of the following sub-sectors: Primary: Agriculture, cattle, forestry, fishing. Secondary: Manufacturing, construction, mlining, petroleum, electricity. 'rertiary: Transportation, Co1i- !:.U:dcations, comirerce, govcrnmeflt, othler services. Source: L. Unikel, El Pesarrollo Jrbano de Miexico, 2nd Edition (Mlexico: El Colegio de Mtexico, 1978) ,.T bles VI-k5 to A8. The revised GNP estimrates originatte witi the Banco de tixico as reported by C. Reynolds, "A Shift-Share Analysis of Regional and Sectoral Productivity Growth in Contemporarry Mexico," January 1979 ((mimeo), p. 27. L .  sumption and Lor export. I,:ith the e::hau23tion of "casy" import substitutiou, incentives tw!ere adopted for domestic producti"on of consum.er durable goods and thcenforintcrm.lliate and capital goods. Throughout .,ost of the past four decades, Mfexico succeceled in maintaining a high and stable rate of grow.th, one that faltered significantly only during thle middlO of the past decade. While the acheivernents of the MNexican economy are surely impressive, nevertheless, there remain areas of concern. A rapidly growing population of labor force age poses a formidable challenge to the economny's ability to absorb it in productive employment. The pattern of development, particularly in agriculture, has been dual. While a highly productive cornmercial agricultural sector has emerged, the bulk of the rural population is to be found in areas 'with scarce land and water resources and in which increases in productivity have been modest. Rural poverty remains a serious problem; some students of Mexico hold that the incomes of a sizable rural population have not shared in the general increase that characterizes the country as a whole, or have shared only to an insignificant extent. The relative distribution of incomes continues to rank among the most unequal in Latin America and appears to be emerging as an acute social and potitical issue. The dualistic character of agriculture is reflected in the large differences bet.een the productivity of land and labor among the various classes of agritultural holdings. In 1970, the output per hectare on farm units cmploying "modern technology1' was four times that in subsistence farm units (those which destined only a small part of output for markets). The ratio of output per worker was even greater, or the order of 20 to one. 1/ 1/ E. Hernandez Laos and J. Cordova Chalvez, "Estructura de 11 Distribucion del In-reso oi Mexico," Comorcio _:L:terior 29:5 (M1a) 1979, p. 506.  -4- The dual clia ruc tr of thle sector, -,oreCov'r, has stron, re-ional asscciations. In 1970, for exampie, the output per hectare ,;is 20 times greater in Sonora thani in Quinti<ana Roo. ln 12 other states, the productivitLy of land was no greater thain one fourtth that of Sonora. 2/ SLic'i large differences in the productivity of diffcrenit classes of far= units and regions may be *expected to give rise to similar differences in agricultural inco.es. Intrasectoral differences in productivity ard earnings among productive units exist in other sectors, as might be expected, though they are not as pronounced as those indicated in agriculture. In 1975, value added and total remunerations per worker in manufacturing establishments employing over 750 workers were 3.8 and 3.1 times greater respectively than in small shops with 5 or fewer employees. 3/ In the service sector, the differential in the rate of earnings between small (5 or fewer employees) and large (over 50 employees) establishments was more modest, on tthe order of 2.1 to 1 in 1975. 4/ In 1970, the differential in earnings between small and large establishments in cb.merce was slightly narrow.er at 1.9 to 1. 5/ 2/ L. Uniel>e, El Desarrolo 'Urbane dIe e ico (Me-xico Citv: El Coleoio de Mexico, 1976), .pp)endix. Table VI--A1S. 3/ Secrataria ie- Pro'gr-!nacion y vPrcsupuest6 Censo Industrial. 1976 (Datos de 1975) (Mlexico: 1979) Vol. 1, TablFe 8, P. 167. %'hen the 1975 census provides data on remuneracions and total e-ployM ent by establishment size, it does not separate out the unre: unerated component of total employnent oni a siriilar basis. Trie lacter component w.as estimated on the basis of miore cot:iplete data in earlier censuses by applying the past ratio of unro7%unc.