Creation of employment: a race against the clock

Article published in Plaza de Armas (www.plazadearmas.com.mx) , April 25^th, 2011

Definitely the variable that has recovered more slowly in the world after the economic crisis we had is employment. Since the ending of last year, OECD projected that unemployment figures for its 34 countries would remain high during all the 2011, and it even predicted that we could be facing a structural situation, where high unemployment levels will be a new economic reality in our societies.

The International Labour Organization estimates that at world level there are 30 million more unemployed people than in 2007, and it mainly affects young people.

In Mexico we have different bright and dark sides regarding this subject. First, let’s understand that the official figures published by INEGI are occupation data, and therefore it considers any kind of activity developed by the population that is 14 years old or more, formal or informal, paid or unpaid, so we have very different levels of quality, safeness and productivity within this index (1 out of 4 persons in the economically active population is occupied in the informal sector, with all the social and economic implications it has).

Taking this into account, let’s see the positive and negative aspects of occupation in Mexico. We have two good news: according to INEGI, we had in March the lowest unemployment rate in the last 2 years; the second good new is that it has begun to be a trend for the last 4 months.

Now, the bad news: despite the reduction on unemployment rate, it is still 66% higher than the one we had in 2008. The second bad new is the underemployment rate, that refers to people with an occupation (and therefore they are not unemployed), but that are willing and have the need to work more hours; this rate is not stabilized yet, and it had in March its second highest level in the last 7 months.

This shows us we are following the same world dynamic of a slow recovery in employment. Now, let’s see this information taking demographic and geographic variables.

For example, unemployment affects strongly to people looking for their first job. This is particularly relevant since we are living our “demographic bonus”; that means that due to the changes in our population pyramid, we have now the biggest proportion of people in productive age (14 years and older); so, there are a lot of young people looking for their first jobs. Since there are no opportunities, or not growing at the same rate, it is becoming a very important social risk in the short and medium term.

If we review the States, those in the North are the ones with the highest unemployment rates (Baja California and Coahuila are the only two border States that are not in the top 10 of unemployment rates). This is correlated with the economic activities in each State and the employment conditions of each activity; for example, construction and industry, the main sectors in the northern States, are still falling behind the recovery of employment. The economic sectors that have created more jobs are commerce and services, and we see that since the States with the lowest unemployment levels are, mostly, important tourist centers, nationally and internationally.

Employment and income levels are the variables that allow to transfer macroeconomic results to the microeconomy, in the citizens’ pockets; therefore the need to convert the economic growth to a recovery in these variables is urgent. Besides the world dynamic we mentioned, we have different matters where to work: improve the quality of employment, the productivity of employees and workers (linked with the quality in education), the effectiveness of the labor market (linked to a labor reform), and create a bigger volume of jobs, mainly focused to those incorporating to the productive sector. It sometimes seems that these needs are considered distant, and subject to the political times; it will be the social reality that will show the opposite soon.

Employment in Mexico: improvements, but still a long way to go

During October we had the official statement that employment is at an all-time high, and obviously, that the jobs lost by the financial crisis were already recovered.

Both facts are true according by the figures given by Social Security (IMSS) and by INEGI’s employment national survey. This situation reflects the economic recovery we have lived on the last quarters.

However, there is a part that is not mentioned: population growth. The rhythm of employment creation is less than the increase of population, and although the employment level of 2007 has been recovered, there are more than 3 million Mexicans that have entered the group of potential workers (14 years or more) on the last two years and a half.

What does this unbalance between new jobs and population growth means? According to INEGI’s figures:

1.       To have 2.5 million Mexicans unemployed

2.       To have more than 5.5 million Mexicans that do not look for job because they think they don’t have a chance! With the waste of talent and social risks this attitude implies.

3.       To have 4 million Mexicans with an occupation, but willing or needing to offer more working hours (sub-employment)

4.       To have almost 13 million working in the informal economy, with all the consequences it implies to national economy.

5.       To have an average of lower income than two years ago (occupied population that earns less than 2 minimum wages passed from 42% to 46% on the last two years and a half).

What are the consequences?

·         A weak domestic market. The economic growth has been mainly by exports to United States, and although retail sales have increased in this year, it has not been enough to recover last year’s fall.

·         Social risks. The famous “demographic bonus” is turning into an important social risk due to the number of young people without employment opportunities.

·         The opportunity to find unemployed talent. Within the unemployed, there are 834,000 mexicans with high school or tertiary education. This is one of the highest concentrations of unemployed people with this profile on the last 10 years.

I don’t mean to be pessimistic. I want to offer a complete view of the risks and opportunities in the labor market, so you can analyze how they will affect your organization.