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Six in 10 Mexican workers toil in the country’s informal economy. The new president is after the potential income taxes they’re not paying. Wish him luck.
MEXICO CITY, Mexico — Meet Luis Troncoso, enemy of the dynamic modern economy envisioned by Mexico's leaders.
Troncoso, 70, and many of the 150 other street vendors who work with him rise before dawn five days a week, heading first to buy provisions at Mexico City's huge produce distribution center and then to one of the neighborhood streets where they hawk their goods.
"This is the opportunity that we have,” said Troncoso, whose own stall selling an array of candy is flanked by others displaying used clothes, fresh meats, fruits and flowers. “There aren't any other jobs. This work is passed down from generation to generation.”
On a better 12-hour day the vendors can clear $40, or about eight times Mexico's daily minimum wage, nearly all of it immune from taxes. With that they feed their families, pay rent, and support other merchants with purchases.
“Informality has turned a large number of people into entrepreneurs, into people who know how to seize opportunities by managing available resources,” conservative Peruvian economist Hernando de Soto wrote in a groundbreaking book, The Other Path, that in 1989 championed his country’s own mammoth informal economy. “It has meant survival for those who had nothing and has served as a safety valve for societal tensions.”
So Mexicans like Troncoso are admirable anchors of a thriving market economy, right? Wrong, according to President Enrique Peña Nieto, other officials and business leaders.
Off-the-books labor "affects us all as a society, threatens people's rights and limits the true economic potential of our country," Peña Nieto said last week in announcing a campaign aimed at shrinking the so-called informal economy that employs 6 of every 10 Mexican workers.
"Informality is a false solution for society,” the president said.
Reining in the informal sector is key to the Peña Nieto government’s hopes of increasing Mexico’s tax take, ranked the lowest in the 34-country Organization for Economic Cooperation and Development (OECD). Without more sources of tax money, economists say, the government will find it impossible to reform the state-owned oil monopoly, Pemex, which now supplies more than a third of public revenue.
But the president's campaign on Mexico's not-so-underground economy likely will prove even more daunting than those his government is waging against obesity, hunger, and criminal violence.
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As Mexico's quickly urbanizing population has exploded in the past generation, rising from 69 million in 1985 to about 118 million today, its legitimate economy has failed to supply the more than 1 million new jobs needed each year. With so many fresh young workers piling into a largely static labor pool, both age discrimination and low wages remain rampant.
“Go around the city to the bus terminals or the parks and see how many people are out of work,” said Andres Flores, 42, a father of three who is one of scores of men and women scrounging $25-a-day temporary work as brick layers, gardeners and maids at a leafy plaza in southern Mexico City.
“That's the sad reality. And we're the problem?”
Some 28 million of Mexico's 50 million employed adults labor off the grid: without regular paychecks, payroll taxes or social safety nets. They include some 5 million poor farmers scratching a living from postage stamp plots and urbanites doing everything from peddling merchandise, washing cars and cutting grass to juggling at traffic lights, selling drugs or trading sex for cash.
The predominance of such jobs, amid glowing talk of Mexico's sudden and arguable emergence as an industrialized middle-class country, embarrasses politicians and business magnates alike.
"The lack of productive, quality jobs is one of Mexico's greatest challenges of our days," Labor Secretary Alfonso Navarrete said in a speech following Peña Nieto's in announcing a plan to create 200,000 on-the-books jobs by year's end. "Labor informality is one of the principal causes of the low productivity that holds back the economic growth of Mexico."
But many of Mexico's factory and retail jobs pay as little as half what Troncoso and his street vendors can bring home each week. And too many architects, lawyers or other professionals earn about the same as the vendors or less, according to job postings by Mexico's labor department.
Pouring many thousands of new workers into the economy, which has stalled in recent months, likely would further shred those already threadbare wages. Besides, too many Mexicans lack the education or employment history wanted by employers.
“They won't hire you without experience and you can't get experience until someone hires you,” said Betty Miranda, a 24-year-old mother of three who takes home about $20 a day selling cosmetics at the street market Troncoso supervises. “There really isn't any alternative for us.”
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