Informal Economy Makes Up 26% of Mexico's GDP

Mexico City, Mexico  According to Mexico’s National Institute of Statistics and Geography, the informal economy contributed on average 26 percent of the gross domestic product (GDP) over the decade from 2003 to 2012. That is more than one in four dollars of the total value generated by the Mexican economy in that period.

Small sized businesses that lack basic records, elements of the agricultural sector, domestic services and forms of labor that are connected to the formal economy, but lack labor protections, all form the base of the institute’s findings.

The agency found that 59.8 percent of the total population in the country, participates in the informal economy. Meanwhile the formal economy generated 75 percent of GDP with only 40.2 percent of employment.

Mexico has one of the highest rates of off-the-books workers in the hemisphere, with the International Labor Organization estimating that 47 percent of Latin America's non-agricultural employment is in the informal sector.

The study also found that the rate of growth of the informal economy was 2.23 on average in the ten years considered, less than the 2.76 percent recorded for the economy as a whole. 

“Informal employment in Mexico, along with migration have served to alleviate the problem of unemployment,” says Economist David Lozano. “In some cases the informal work is in the street or in one’s own small business. In many cases families turn to the informal economy so as to subsist.”

According to Lozano, 30 million Mexicans, or 60 percent of workers, toil in the informal economy. This equates to a massive workforce that the government is trying to convince to pay taxes in return for wider social security.

Last year Mexico’s Congress passed a fiscal reform as one of the many structural reforms proposed by president Pena Nieto. 

The reform seeks to employ an "incorporation regime" to lure those in the informal economy into paying taxes in a gradual manner, paying full amounts 10 years after starting the program. In return, they would get social security from the start, including public health care coverage.

Many workers from the street hold doubts on the effectiveness of the regime. Tomas Lugo explains that he barely makes enough for his family. “How am I expected to pay more for a government that really does little for me,” he said.