Analysis: Job challenge looms for next Mexican president

Reuters News
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Posted: Jul 21, 2012 4:26 PM
Analysis: Job challenge looms for next Mexican president

By Pablo Garibian

MEXICO CITY (Reuters) - In a country beset with drugs wars and a massive underground economy, Mexico's president-elect faces a tall order to stem the drift of young people into organized crime and off-the-books work: create jobs, lots of them.

Enrique Pena Nieto of the Institutional Revolutionary Party (PRI) was elected president early this month on a pledge to provide more work and raise living standards to bring economic growth to about 6 percent a year, triple the average growth rate of the outgoing administration.

This is what business leaders say Mexico, whose working population is growing faster than other major Latin American economies, needs to satisfy the demand for jobs.

It is a goal that no Mexican president has achieved over a sustained period for more than 30 years.

Pena Nieto, who will take office in December, has pinned his hopes on fiscal, labor and energy reforms, much like outgoing President Felipe Calderon did when he took office six years ago.

Calderon could not get the bills through Congress, where he never had a majority. Pena Nieto faces the same problem.

In his first five years in power, Calderon created less than 2 million jobs, well short of his promise of 1 million per year.

Over the same period, the number of Mexicans old enough to work grew by some 6.5 million, according to data from the national statistics office.

"You're sending more than a half of the new job seekers to unemployment," said Alfredo Coutino, chief economist for Latin America at Moody's. "It's a petri dish for illegal activities and, of course, even worse social problems."

When Calderon took office, an estimated 25.6 percent of workers were employed in the underground economy, or informal sector. By 2012 the figure had risen to 28 percent, according to the statistics office.

The International Labour Organization (ILO) reports an even higher figure, with 34.1 percent of Mexican workers trapped in the informal sector, against 32.1 percent in Argentina and 24.3 percent in Brazil.

The lack of jobs in Mexico has swelled the ranks of drug gangs, whose turf wars and clashes with the state have killed over 55,000 people since Calderon took power in December 2006.

Attracted by quick money, around 1.2 million minors do occasional criminal work ranging from drug-dealing to driving cars for hit men, according to consultancy Risk Evaluation.

One aspiring sociologist in the northern border city of Tijuana said he resorted to selling marijuana and methamphetamines to help pay for his university education and support his family.

"Once you've knocked on every door and get no opportunities, you have no choice," said the 25 year-old. "You don't have to go to a factory for eight or 10 hours a day. In a couple of days you earn the same you do in a week at the factory."

He said he could earn between 25,000-30,000 pesos ($1,900-$2,300) a week dealing drugs, some of which went to paying bribes to police.

That is roughly 20 times the average wage in Mexico.

DRUG WAR PRESIDENT

Though the birth rate has been falling in Mexico in the last 20 years, the country still has a growing young population, partly due to persistent poverty and poor family planning.

The ILO forecasts that between 2010 and 2020 the number of Mexicans of working age will grow by 20 percent, outpacing expected increases of 14 percent in Brazil and Argentina.

Further complicating matters, for the first time in decades, thousands of migrants are returning home from the United States, where the economy is struggling to recover from recession.

According to the Organization for Economic Cooperation and Development, unemployment among 15- to 24-year-olds in Mexico is now double the rate for all workers.

Mexico's economy shrank more than 6 percent in 2009 and companies cut thousands of jobs to stay afloat.

The country has since recovered but has not cleared structural hurdles that have depressed sustainable growth. On top of that, shootings, kidnappings and extortion linked to the country's drug gangs have increasingly plagued businesses who once saw Calderon as the pro-business leader they needed.

"He became the drug war president. That didn't create jobs," said Gabriel Merino Fausto, head of the Tijuana-based Industrial Association of Mesa de Otay.

The piecemeal changes Calderon did achieve spurred investment in industries like automobiles and aeronautics, but were not enough to stop more and more people working off the books.

Pena Nieto has pledged to fight on against the cartels, he says his main priority is to cut levels of murder, extortion and kidnapping.

"Today there's very little work on offer, which means that we have poorly paid jobs," Pena Nieto said just days before he won the July 1 presidential election. "Today we either have to take whatever badly paid work is on offer or we just end up without one. That's the reality."

Still, Pena Nieto's record on job creation while governor of the State of Mexico in 2005-2011 was little different from Calderon's. Over six years, he created some 225,000 formal jobs while the population of working age increased by 600,000.

NO TIME TO WASTE

To change this, economists say, Pena Nieto must realize his plans to make hiring and firing easier, extend the tax base and allow more private capital to invest in state oil giant Pemex.

The PRI helped to block similar reforms under Calderon, and it fell short of a majority in the July 1 elections. Though Calderon's conservative National Action Party (PAN) has said it could help pass the measures, the defeated party will not want to make it too easy for Pena Nieto.

"We can't waste any more time, the country urgently needs reforms like the fiscal, labor and energy ones, and the only way to get them is if all the players work together", said Francisco Funtanet, president of Mexican industry federation Concamin.

If Pena Nieto does manage to negotiate the reforms through Congress, it should complement progress made under Calderon in narrowing the gap on labor costs with China. That competitive advance is attracting companies eager to profit from low salaries and the country's proximity to the United States.

In April, Europe's biggest carmaker, Volkswagen, said it would invest around $2 billion in a new plant in Mexico. A month earlier, its U.S. rival Ford said it would spend $1.3 billion modernizing its works in Hermosillo, Sonora.

According to the World Bank's latest Doing Business report, workers in Mexico are cheaper than in other countries in Latin America. Argentina's minimum wage is three times higher than Mexico and Brazil's minimum wage is twice as high.

But Mexico's labor market is still lagging behind.

To date, Mexican unemployment has not returned to lows last seen before the financial crisis of less than 4 percent. By contrast, Brazil and Argentina brought their jobless rates below pre-crisis levels in 2010 and 2011, respectively.

The 4.83 per cent rate registered in Mexico in May sounds impressive compared with the high joblessness of the United States and Europe. But for statistical purposes, a 14-year-old boy who works at least one hour a week is officially considered employed, regardless whether he is paid.

If Pena Nieto's government cannot break the deadlock on jobs, the country faces a rough future, said businessman Merino Fausto from the Mesa de Otay lobby group in Tijuana.

"We need jobs, otherwise we are going to become a country of criminals," he said.

(Additional reporting by Lizbeth Diaz, Angel Gutierrez and Mica Rosenberg; Editing by Dave Graham and Leslie Adler)