Economics: Fourth quarter labor market review

MEXICO - Report 22 Feb 2021 by Mauricio González and Francisco González

Fourth quarter labor sector data and formal sector payroll numbers through January 2020 portray a greatly debilitated labor market, and there is as yet little clarity as to when we might begin to see any significant improvement. Further complicating the outlook is the sharp departure from trends of past recessions that bodes ill for the future economic prospects of many Mexican households left struggling under the combined impact of the Covid-19 pandemic and the associated recession.

Given the nature of the shock to economic activity and the labor market, Mexico has reported relatively moderate jobless rates over the past year. However, the economically active population (EAP) began to contract significantly as of April, and at a faster pace than the reduction in the employed population, which explains why there was no considerable rise in the rate of unemployment during 2020. An abrupt change in the composition of the EAP has been accompanied by a considerable rise in the economically inactive population that wishes to work (PNEA), many of whom have been kept home by pandemic-related developments or have seen jobs dry up in the industries for which they are qualified. The economically inactive population wanting to work almost tripled to 17.5 million at the second quarter, and 8.9 million remained in that category last quarter.

At the same time, we have seen a dramatic rise in underemployment, as many who lost full time and better paid jobs have quickly embraced any available work, accepting fewer hours and benefits, and more precarious working conditions in general, even as informal sector work possibilities also deteriorated.

These high levels of underemployment, and above all the available yet economically inactive population, entail heightened levels of income precarity that we do not expect to improve as we move further into 2021. The absence of public policies for dealing with the surge in disguised unemployment that could contribute to a reactivation of better paying formal sector jobs threatens to leave in place heightened poverty rates and depressed consumer spending.

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