Labor market: the worst weakness for Mexico in terms of productivity

I talked last week about Mexico’s strengths according to the World Economic Forum’s Global Competitiveness Report. Now I will focus on Mexico’s weaknesses, based on two criteria: the areas where Mexico has the worst rankings, and the areas where it lost more positions in the ranking.

Mexico’s worst areas are:

·         “Labor market efficiency”, where Mexico is the number 120 out of 139 countries. The worst rankings in this area are for hiring and firing practices highly impeded by regulations, a low reliance on professional management (senior management positions usually hold by relatives or friends without merits, more than professional managers), and a low female participation in labor force.

·         “Institutions”, occupying the 106^th place. This area refers to the legal, ethical and administrative environment where the organizations’ economic activity and their relationships with the government are developed. The result is due to really bad positions (on the last 10 places) for matters related with security (significance costs on businesses imposed by crime and violence, cost impact of organized crime, and a low reliability of police services), a high burden of government regulation and a low efficacy of corporate boards.

The area where Mexico had the biggest fall is “Financial market development”, going from place 73 to 96. This fall was due to a worsening for the regulation and supervision of securities exchanges, and a bad grade on the provision of financial services at affordable prices (this was scored for first time on this year).

These are also the weak areas when compared with the other 22 Latin America and Caribbean countries evaluated, having the places 17, 15 and 14 respectively.

As a summary, the negative results are consequence of three aspects: the increase on insecurity, the lack of structural reforms (labor, fiscal and political regulation), and the need of a more professional management on businesses. The legislative agenda shows no signs of major changes on the short term for these structural areas, so improvements will have to rely on a more professional way to manage businesses on the country.