GRADUATE INSTITUTE OF INTERNATIONAL STUDIES

THE IMPACT OF THE 1985–2000 TRADE AND INVESTMENT LIBERALISATION ON LABOUR CONDITIONS, EMPLOYMENT AND WAGES IN MEXICO

Ph. D Thesis grade of Doctor in International Relations

Gloria Moreno-Fontes Chammartin

(MEXICO)

Thesis no. 675

Geneva 2004

i

Copyright 2004 by Gloria Moreno-Fontes Chammartin

Gloria MORENO-FONTES CHAMMARTIN

Sur le préavis de M. Richard Blackhurst, Professeur associé, de M. Pierre Du Bois, Professeur à l’Institut, et de M. Claude Auroi, Professeur à l’Institut uni- versitaire d’études du développement (IUED), le Directeur de l’Institut univer- sitaire de hautes études internationales de Genève, agissant au nom de la Commission mixte de l’Université et de l’Institut, composée des Doyens des Facultés de droit, des lettres, et des sciences économiques et sociales, autorise l’impression de la présente thèse sans entendre par là exprimer d’opinion sur les propositions qui y sont énoncées.

Genève, le 4 octobre 2004

pour la Commission mixte:

Professeur Philippe Burrin Directeur

Thèse N° 675

ii

FOREWORD

The process of trade and investment liberalization in Mexico, especially since December 1989, placed considerable pressure on Mexican employers and labour force to adjust to new international competitive trends. The present report covers the period 1985-2000 and concentrates on providing information on how the Mexican labour force fared after the trade opening. It presents information on how liberalization affected the different economic sectors, how employment fluctuated with the opening of the economy, how firms were changing in terms of economic performance and how firms responded in terms of wages and employment status adaptation to the trade liberalization process and movement in the economy due to the structural adjustment process. It also addresses questions on Mexico’s strategy to lower labour costs through greater labour flexibility in order to obtain a comparative advantage in the creation of a more liberal trade environment.

Acknowledgements are due to my husband, Eric Chammartin, and daughter, Nylsa Darlène Chammartin, for their supporting care and loving patience in providing me the necessary time free to achieve this work. Special thanks are also due to my family in Mexico, Mother, Father, brothers and sisters for their valuable moral support. Without my family’s encouragement to continue, I would have probably given up since during most of the writing of the thesis I was working full time, and I really had moments where I thought that I just could not continue with such a heavy workload.

Gloria Moreno-Fontes Chammartin

KKK

Table of Contents

I. Introduction...... 1 II. Pre-Trade Liberalisation Period...... 4 A. Before August 1982 ...... 4 B. End of 1982–June 1985 ...... 14 III. Post Trade-Opening: Joining GATT and NAFTA ...... 17 A. July 1985 and Mexico’s accession to GATT...... 17 B. The consolidation of trade liberalisation policies (December 1988- December 1994) ...... 28 1. NAFTA’s birth (January, 1994) ...... 34 2. NAFTA’s labour parallel agreement and complaints presented ...... 40 3. The New 1993 Foreign Investment Law and the December 1994 Crisis ...... 46 C. Economic Recovery and Trade Diversification until December, 2000...... 51 1. Another difficult adjustment process ...... 51 2. Trade and foreign investment agreements with the rest of the world...... 54 IV. Effects on the Labour Force of the Trade Liberalization of Goods, Investment and Services ...... 57 A. Total employment...... 58 B. Formal Employment ...... 62 C. Informal Employment...... 68 D. Employment flexibility levels...... 76 1. Unemployment, underemployment and other indicators...... 77 2. Levels of employment flexibility in trade-related sectors...... 83 V. Manufacturing Goods and Foreign Investment as a Substitution to Agricultural Goods and Oil’s Income?...... 91 A. Imports-exports of goods and services’ growth ...... 91 B. Direct foreign investment absorption ...... 102 VI. Other Important Employment Issues...... 108 A. Total employment distribution by size of establishment ...... 108 B. Women’s participation in export-oriented employment and child labour...... 111 VII. Employment Fluctuations per Sector and Subsector according to Growth in Exports-Imports and Foreign Investment...... 116 A. The primary or agricultural sector...... 116 1. Introduction ...... 116 2. Before 1992 ...... 117 3. The law reform ...... 122 4. The agromaquila and U.S. main advantages ...... 126 5. NAFTA’s main provisions concerning the sector ...... 127 6. Agricultural wages...... 129 7. Who have been the winners of the game?...... 130 8. What could have been done better? ...... 130 B. The secondary or industrial sector...... 132 1. General trends...... 132 KX

2. Maquiladoras ...... 140 3. Evolution by Subsector ...... 147 a) Metal products, machinery and equipment...... 147 (i) Automobiles, trucks and auto parts...... 149 (ii). computer industry and other electric and electronic goods...... 152 b) Chemicals, rubber and plastics subsector...... 154 c) Food, beverages and tobacco ...... 155 d) Textiles, clothing and leather...... 157 e) Basic metals ...... 161 f) Four other manufacturing subsectors ...... 162 C. The tertiary or commerce and services sector...... 164 1. Some facts ...... 164 2. Trade Development of Services...... 167 VIII. The Impact of Trade Liberalisation on Wages, Income Distribution and Poverty ...... 171 A. Liberalization effects on wages...... 171 1. General ...... 171 2. Wage differentials by employment status...... 178 3. Wage differentials by educational level...... 178 4. Wage differentials by occupation ...... 179 5. Wage differentials by gender...... 184 6. Other remuneration indicators...... 190 B. Purchasing power and prices’ fluctuations ...... 191 C. General effects on income distribution...... 195 D. Poverty levels...... 201 IX. Results of a Simple Econometric Model...... 205 A. Introduction...... 205 B. Data ...... 205 1. Employment...... 205 2. Gross Domestic Product...... 206 3. International Trade...... 206 4. Foreign Investment ...... 206 5. Inequality...... 207 C. Models used ...... 207 1. Trade and Total Employment ...... 207 2. Trade and Sectorial Employment ...... 208 3. Foreign Investment and Employment ...... 208 4. Income Inequality and Trade...... 209 D. Results...... 209 E. Conclusion ...... 212 X. Workforce’s Health Protection, Education and Training...... 213 A. Public expenditures on education and health...... 213 B. Training opportunities available...... 218 C. Technology transfer and development of science...... 221 D. Social Security coverage ...... 223 E. Productivity increases...... 226 XI. Trade in Goods and Investment Liberalization Effects on Documented and Undocumented Migration ...... 229 X

A. Rural to urban...... 229 B. International...... 230 C. Remittances ...... 236 XII. Brief Comparison with South East Asian Countries ...... 238 A. General...... 238 B. Agriculture ...... 238 C. Employment, Unemployment and Wages...... 238 D. Free trade management ...... 239 E. Income distribution and poverty ...... 240 F. Research, education, and health ...... 240 G. Training ...... 241 XIII. Conclusion...... 242 Appendix I. List of Tables and Figures ...... 260 Appendix II. Classification of economic sectors in Mexico...... 267 Appendix III. Classification used in the manufacturing sector...... 268 Appendix IV. Bibliography...... 269 Appendix V. Endnotes ...... 285



I. Introduction

On June 1985, and after three decades and a half of protectionist import-substitution policies, Mexico decided to become part of the free trade euphoria of the neo-liberal economic era by accelerating a process in trade liberalisation of goods, services and international flows of capital.

After providing brief background information on Mexico’s trade history, the present study covers the first decade and a half of this process of trade liberalisation: 1985-2000. The study will cover the accession of Mexico to the General Agreement on Tariffs and Trade in 1986, the first seven years of the implementation of the North American Free Trade Agreement (NAFTA), as well as information on Mexico’s diversification of trade policies by the signing of trade agreements with a long list of countries.

Since trade liberalization in general is a subject that has been extensively studied in Mexico, the study only provides a brief view on how the different economic downturns contributed to push the trade liberalisation process further.1 However, the bulk and most important part of the present report concentrates on providing information on how the Mexican labour force2 has fared by the opening of the economy during this last 15 years: 1985-2000. So, the purpose of this study will not be to provide information on trade liberalization measures and its specific technical tools. World Trade Organization’s official documents can do that much better than the author. Rather, the author concentrates on providing a comprehensive, as well as a specific view of workers’ situation and conditions during the period studied. More than fifteen years after the opening, the author considers important to recapitulate and look at trade liberalisation policies’ impact on employment and wages.

However, the study of the impact of trade liberalisation on employment and wages is not a simple one. First of all, it is important to study the linkages of the different trade openings: of goods, capital and services. Then, it is essential to look at how the three of them linked have influenced the performance of the economic sectors and the subsectors of the Mexican economy. It is also important to look further into how the different occupations and skill levels within these sectors and subsectors were affected.

Several labour force and income distribution surveys were carefully revised and its data included in the study to provide the necessary empirically based information and support to the theoretical assumptions included.3 Raw data from social security registries to cover formal employment and an extensive number of national employment surveys or labour force surveys to cover both formal and informal employment, as well as wages and other income data were analysed. Based on these surveys, the present research throws light on the significant impact of trade liberalisation on employment and real wages not only of the formal sector, but also of the rapidly growing informal sector, as well as on Mexicans working and living conditions, and to a less extent to migration levels. Further on, it tries to encompass its impact on Mexican workers’ income fluctuations and poverty levels.

The report will be presented dividing the information by economic sectors and subsectors, by occupation, by employment status and size of establishment and will be linked as much as possible with data on imports and exports’ of goods, investment and services trade growth. The report will cover demand for and supply of labour in export-oriented sectors and subsectors comparing 1985 to the year 2000 or the latest available data. While the report covers some information on all economic sectors indirectly related to the opening of the  economy, the study concentrates on those sectors and subsectors that are either considered highly export-oriented or foreign investment-related.

The sectors studied will mainly comprise manufacturing within the broader industrial sector (mining and quarrying, manufacturing, construction, electricity, gas and water); agriculture and fishing within the agriculture, forestry, fishing, livestock, hunting and bee- keeping sector; wholesale trade, transport, and communications, as well as financial, insurance, real estate, and restaurants and hotels within the wider commerce and services sector that covers, in addition, retail trade, and community, social and personal services. The data will be analysed as much as possible with a gender emphasis and considering the period covered as a transition period where only short to medium-term effects of trade liberalization can be assessed.

A data division was made between export-oriented and foreign investment-related sectors. All manufacturing industries exporting on average at least 12 per cent of their output from 1989 to 1998 were defined as export-oriented. The following 5 manufacturing subsectors were identified as export-oriented subsectors: textiles, garments and leather; chemicals, rubber and plastics; basic metals; metal products, machinery and equipment; and, other manufacturing industries. The rest were considered non-export oriented or import- competing. On the other hand, all those sectors in commerce and services receiving annually at least 700 million dollars of foreign direct investment from 1989 onwards were defined as foreign investment-related. The next 5 subsectors of the commerce and services sector fell into the category of foreign investment-related: wholesale trade; finance, insurance and real estate; transport, storage and communications; hotels and restaurants. Agriculture and mining were defined as non-export oriented for the purposes of this study since government policies have concentrated on increasing the importance of manufacturing trade and diminishing as much as possible the importance of these two mentioned sectors. The author considered that this division would provide the reader with a clearer and more comparable vision of the situation.

A basic econometric model has been included to support the relevant hypothesis and conclusions. Since this work approaches the whole liberalization process in Mexico, any study must include data from at least the mid-1980s. However, estimating an econometric model is not a straightforward task in Mexico. The structure of the main sources of statistical data in the country has only recently been reorganized in order to comply with international standards and to provide reliable information. In this process, some of the methods used to obtain and process the data, as well as the way results used to be presented, have changed considerably. This means that most of the series show some type of inconsistency, particularly if they cover a time period before the 1990s. For these reasons, econometric analysis is very restricted. However, some relations can still be estimated with the information available and they will be previously presented.

Some of the specific questions, among others, that the report intends to answer are: How did employment and other labour market indicators fluctuate with trade liberalization? How did not only the liberalisation of goods, but also of investment flows, and of trade-related services modify the economic sectors’ performance, as a whole?; Has competitiveness, and productivity risen?; Who has benefited from the gains from trade within these sectors?; Was the labour force prepared with the necessary educational level and have enough training been given since the opening of the economy?; Have enough jobs been created by this opening?. Finally, the report will very briefly make little comparisons with some of the Asian Tigers’ experiences in complementing liberal trade reforms with technological development, training, and educational support. 

During the whole study the author tried to separate the effects of stabilisation policies and trade liberalisation policies during the period under review. However, policy measures taken for both were so closely related and time-related that it was hard to distinguish their outcomes. In fact, trade liberalization policies were part of the response to solve macroeconomic imbalances. At the same time, economic recessions had a strong dominance on the potential positive effects of trade liberalization on employment and wages. As such, while an analysis of export-oriented and foreign investment-related sectors was made from non-export oriented and related sectors, the author realised that it was impossible to completely separate both above-mentioned policies, practices and trends.

The report's purpose is not to blame all economic problems on the opening of the economy to external markets. That would be too easy. In fact, the employment, wage and income distribution effects documented in this study cannot be associated with trade liberalization in a cause and effect sense because so many other economic problems (having nothing to do with trade liberalization) were going on at the same time. However, the study will provide information on the linkages (sometimes very strong) between on one hand the reduction of tariffs and non-tariff barriers, as well as changes in legislation concerning the opening to foreign capital and on the other hand, the search for competitiveness and modernisation within the trade liberalisation process, the lack of provisions to support non- competitive and non-export oriented sectors and subsectors with employment and informality fluctuations, as well as wage and income distribution’s evolution.

The study wants to be objective and show realistically that the Mexican economy had inherent traits in its development that needed restructuring before, or at the same time that the decision to liberalise trade was taken in July 1985. In fact, the so-called “process of modernisation” came after major economic crisis as well as several failed attempts to start the economy’s machinery going bringing it practically to a standstill. The trade liberalisation path taken by the different administrations seemed to be the only one left to finally stabilise the economy and achieve self-sustained growth through an efficient industrialisation and promotion of non-oil export expansion. However, the study will examine whether trade in goods, services and investment liberalisation were implemented at the right pace, whether accompanying support labour and social measures were taken, as well as the right policy decisions to benefit workers’ income and social conditions. Finally, the author considers useful to provide suggestions on future policy measures that could improve the situation of a large number of workers in the future. 

II. Pre-Trade Liberalisation Period

A. Before August 1982

Mexico began its industrialisation under an import-substitution protection wall that lasted from 1950 almost uninterrupted until 1985. During these three decades and a half, Mexico put in place strong trade barriers composed of high tariff rates and extensive import licence controls encouraging the development of the manufacturing sector and orienting its production to the domestic market. Under the infant industry argument, the government provided protection from external competition to national industry, while relying, as much as possible, on local content requirements.

Supported by a boom of the economy after the second world war, Mexico enjoyed from the beginning of the 50s to the beginning of the 80s first world financial and price stability levels (except during the period 1976-1977). Import substitution policies proved effective in increasing output with high and steady annual GDP percentage change averaging 9.1 per cent. Indeed, even if population growth averaged 3.3 per cent a year, real GDP per capita succeeded in increasing by 5.6 per cent a year between 1950 and 1979 (see figure Ch. II-1).

Figure Ch. II-1 GDP growth in 1975 billions of pesos, 1950-1979 1400

1200

1000

800

600

400

200

0

1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

source: Author's own calculations based on International Monetary Fund: International Financial Statistics Yearbook 1980

High economic growth was largely supported by the strong incentives and subsidies provided by the government to public and private manufacturing industry and to agriculture. The agricultural sector, in general, benefited from high levels of public investment in irrigation, the provision of cheap improved seeds and other inputs, as well as subsidized credit and a price support system. The agricultural sector became highly dynamic exporting a large share of its output, mainly livestock, cotton, sugar, coffee and shrimp. 

At the same time, the 1955 law on industrial promotion granted tax rebates to “new” and “necessary” industries whose output was not yet sufficient to supply 80 per cent of the domestic market. A selective system of tariffs permitted to import mainly capital goods such as agricultural machinery (no duty), intermediate goods for industrial use (15 per cent), machinery and tools (25 per cent) at very low cost, while tariffs were extremely high for goods that the country produced.4

Through local content requirements, import quotas, preferential government procurement and official import reference prices, the government encouraged the development of the whole manufacturing sector, but in particular certain subsectors considered necessary like the automotive, electronics, iron and steel, fertilizers, pharmaceutical, and petrochemicals industries. Special government decrees provided additional protection to the above-mentioned manufacturing subsectors. Other manufacturing subsectors like the food, beverages and tobacco, as well as the textiles, garments and leather benefited from a national consumer market closed to foreign goods, as well as a special tax and subsidized credit.

While some of the protected industries were wholly or partially owned by the government (cement, iron and steel, fertilizers and pharmaceuticals), private large-scale employers also benefited a lot from these policies. Mexican, as well as foreign, large-capital5 could invest at a relatively low cost, especially in manufacturing. Attracted by extremely high profits, considered around 15 to 20 per cent of value added, foreign direct investment6 expanded steadily and significantly in the strongly protected manufacturing sector (from about $300 million at the beginning of the 50s to a peak of $1.7 by the end of the 70s).7

Figure Ch. II-2 Proportion of Wages in GDP, 1950-1975

45

40

35

30

25

20

15

10

5

0 1950 1954 1958 1963 1967 1975

source: Author's own calculations base on Van Ginneken, Wouter, Socio-Economic Groups and Income Distribution in Mexico, ILO World Employment Programme Study, Geneva, 1980. Government policies benefited employment levels and growth rates of sectoral GDP. The proportion of wages in GDP increased rapidly from 28.6 in 1950 to represent 38.5 twenty-five years later (see figure Ch. II-2). The economically active population share in manufacturing between 1950 and 1970 increased from 17.4 per cent to 23.8 and that of services from 28.3 to 38.3 per cent. There was also a 60 per cent increase, between 1940 and 1960 of the  agricultural labor force. Total employment directly created by foreign firms was calculated at more than half a million in 1973.8

Since 1953, NAFINSA (later called NAFIN), one of the three national development banks, administered the Guarantee and Development Fund for Medium and Small Industries (FOGAIN). FOGAIN provided flat interest rates to commercial banks. In turn, the commercial bank assumed the risk and received the intermediary’s commission (usually representing 10 percentage points), but was obliged to provide preferential interest rates to large, medium, small and micro manufacturing enterprises (a maximum of 4 percentage points to large and medium, 3 to small and 2 to micro enterprises. NAFIN, also administered the Fund for Industrial Development (FONEI) that functioned more or less under the same conditions that FOGAIN. FONEI, though, was a specialized fund that provided long-term loans for the creation, expansion, or modernization of medium-scale export-oriented enterprises for purchases of equipment, feasibility studies, research, development and working capital. Later, NAFIN also financed programmes such as FIRA and BANRURAL mainly directed to assist small and medium-size agricultural establishments likely to provide permanent employment, increase productivity, aid regional development and strengthen technology and generate funds.

Meanwhile, the fast expansion of the public sector also meant that the middle class university graduates enjoyed from government employment opportunities and economic development. Higher education expanded considerably during this period. Enrollments at public universities rose from 224,000 in 1970 to 757,000 in 1980. The number of regular wage-earners and salaried employees grew at a yearly rate of about 4 per cent, while the overall labour force grew by about 2.5 per cent.9 In addition, government subsidised labour by means of housing (INFONAVIT and FOVISSTE) and social security coverage (IMSS and ISSSTE).

Figure Ch II-3 Total Employment by Employment Status in 1970

Employers (Medium-Large Establishments) Family workers 2% 10% Salaried employees 12%

Day-labourers 19%

Regular wage-earners 30%

Small-scale employers 27%

source: Van Ginneken, Wouter, Socio-Economic Groups and Income Distribution in Mexico, ILO World Employment Programme Study, Geneva, 1980. 

By 1970, as it is shown on figure Ch. II-3, the national economically active labour force was composed as follows:

• Day-labourers, mainly in agricultural activities, represented one-fifth of the total economically active labour force. Together with family labour, day-labourers composed the lowest income level group with a yearly income of 0 to 6,000 pesos a year, well below the poverty line of 10,000 pesos a year. Independent day labourers were unemployed for a considerable part of the year and hardly protected by any trade union. On the contrary ejidatarios and small-scale farmers engaged on day-labour were partly organised and partly covered by social security;

• Small-scale employers amounted to more than half a million in 1970. Their incomes varied between 10,000 in agriculture to about 30,000 pesos a year for self-employed owners of small commercial enterprises to about 15,000 pesos a year for the owners of small-scale enterprises in manufacturing and construction;

• Regular wage-earners comprised around a third of the economically active population. This category of workers was reasonably well paid on average. However, there were significant differences between those in small-scale and large-scale enterprises and those in different economic sectors. For example, small-scale manufacturing workers earned between 6,000 and 9,000, while those in commerce and services were earning between 8,000 to 20,000 pesos a year. Regular wage-earners in large-scale manufacturing enterprises earned higher incomes of 14,000 to 18,000 a year. In the services and commerce informal sector, however, employees were obtaining incomes ranging between 6,000 to 10,000 pesos a year;

• Salaried employees who totalled 1.7 million in 1970. One-third of them worked in government (including education and health), in large enterprises, and in banking and insurance companies. Their well-above average income ranged from 15,000 to 60,000 pesos a year;

• Medium and large-scale employers were estimated to total about 300,000 in 1970 and were equally distributed over industry and services and a smaller share in commerce. Personal incomes, after tax, of the large-scale employers were estimated to be about ten times as high as those of employees, ranging from 50,000 to 6 million pesos a year.10 (see table Ch. II-1)

Table Ch. II-1 Annual income by employment status, 1970

No. workers/employees/employers % Annual Annual income Annual income Income in pesos in US $ dollars Medium & Large-scale employers (4,000 to 480,000 U.S. dlls) 307471 2.13% 50000 to 6 million 4,000 to 480,000 Salaried employees (1,200 to 4,800 U.S. dlls) 1743410 12.05% 15000 to 60000 1,200 to 4,800 Small-scale employers (800 to 2,400 U.S. dlls) 4329064 27.33% 10000 to 30000 800 to 2,400 Regular wage-earners (480 to 1,440 U.S. dlls) 3953672 29.92% 6000 to 18000 480 to 1,440 Day-labourers (480 U.S. dlls) 2753672 19.03% 6000 480 Family workers (0 to 80 U.S. dlls) 1381302 9.55% 0-1000 0 to 80 14468591 100.00% source: Van Ginneken, Wouter, Socio-Economic Groups and Income Distribution in Mexico, ILO World Employment Programme Study, Geneva, 1980. According to Van Ginneken, while the Gini coefficient in 1968 still showed high inequality (.493), given a poverty line of 10,000 pesos, the proportion of poor families declined from about 60 per cent in 1950 to about 20 per cent in 1975. The number of poor families slightly decreased between 1950 and 1968 but significantly between 1969 and 1975,  while the number of families in extreme poverty almost disappeared. The total number of illiterates also decreased by an annual average of 2.3 per cent between 1970 and 1976.11

With the purpose of promoting the development of industrial goods, thought to be crucial to the economy, in the early 1970’s the government took additional measures aimed at diversifying its exports’ base. In 1971, some export-promotion programmes were created with the objective of benefiting export growth. These programmes included tax rebates called Certificados de Devolución de Impuestos (CEDIS), as well as tax credits and exemptions in the form of Certificates of Fiscal Promotion (CEPROFI). On the import-side, a preferential system of import duties was established where tariffs12 for imports of industrial inputs and capital goods were lower than those for final consumption goods. Later, short-term programs like the Export Fund (FOMEX) were created to facilitate imports of technology. Lastly, additional programmes were created to strengthen export promotion efforts and facilitate access to international markets (IMCE).13

The aforementioned programmes were additional tools to subsidise the manufacturing sector and aimed at the modernization of consumer durables and capital goods, large-scale industries, mainly the automotive sector, pharmaceuticals, petrochemicals, and electric/electronics industries. Between 1970 and 1974, the manufacturing sector enjoyed annual percentage increases of 6.9 per cent, while agriculture’s GDP showed a modest annual percentage increase of 2 per cent (see figure previously mentioned Ch. II-2).

Yet, import-substitution policies did not succeed in reducing total imports of essential and significant industrial goods and manufacturing imports were creating large trade deficits. Sophisticated manufactured goods such as precision machine tools, and others were imported, as well as costly raw materials, intermediate products and capital equipment. In addition, the manufacturing sector proved itself too inefficient to compete in international markets. During the first two decades of the import substitution period, the agricultural sector was obtaining profitable export revenues and served as a subsidy to the industrial sector. Its trade surplus financed almost all the industrial trade deficit until the beginning of the 70’s. Unfortunately, the agricultural trade balance underwent accelerated deterioration as agricultural output and productivity stagnated by the beginning of the 1970s. While agriculture never showed deficits until the year 1980, by 1979, oil exports were to replace agricultural goods as the next subsidy to the manufacturing sector (see figure Ch. II-4).

By the middle of the 70’s the import substitution model started clearly facing difficulties since its highly regulated nature reduced its ability to adapt to changes in demand, and diminished pressures to introduce new technologies. Moreover, the government was pursuing public expansionist expenditures’ policies not accompanied by a growth in revenues. Factors such as the oil shock of 1973 resulted in a widening trade gap and created serious exchange difficulties. Foreign borrowing began to play an increasing role and the resulting external debt provoked a heavy burden in terms of interests paid abroad. As a result, fiscal deficit grew contributing to inflation, and financial confidence began to disappear creating an important capital flight at home.14 In 1976, Mexico underwent its first post-second world war economic crisis.

As a solution, a stabilization agreement was signed with the IMF in 1976 comprising a devaluation of the peso, wage restraint, reduction of the government deficit, control of the money supply, and limits on the growth of the external debt. However, the 1976 crisis was of brief duration since large reserves of oil were discovered in 1978, and oil exports showed an explosive growth. Traditionally an agricultural exporter, Mexico became in a very short time one of the most important worldwide “oil exporting countries”. At the same time, oil revenues  provided the necessary funds to continue subsidizing the manufacturing sector. By 1981, oil exports represented two-thirds of total exports.

Figure Ch. II-4 Trade Balance of Agricultural, Manufacturing Goods and Oil, 1971-1982 20000

15000

10000

5000

Agriculture 0 Manufacturing 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Oil

-5000

-10000

-15000

-20000 source: Author's own calculations based on World Bank; World Tables 1994 Further trade promotion measures were taken from 1977 to 1982 in the form of import- liberalisation of capital goods when the Mexican economy registered an accelerated growth rate due to oil income. Since the government considered absolutely necessary to develop the industrial base, it put strong emphasis in promoting consumer durables and capital-goods industries. To achieve this goal, special protectionist programs continued encouraging the growth of the automobile, as well as other heavy intermediates’ subsectors through import licence reductions. Partial and increasing access to inputs at international prices was offered in exchange to the achievement of export targets.15

In 1977, under the “Alliance for Production” an agreement was concluded between the government and heads of major industries and representatives of chambers of commerce, involving 140 companies. The agreement provided tax deductions and credit support to a large number of manufacturing industries such as the petrochemical, cement, and automotive industries, as well as services sectors like tourism.16

Table Ch. II-2 Oil, Agricultural and Manufacturing Exports and Imports,1971-1982 (millions of dollars)

Agriculture Manufacturing Oil T O T A L T R A D E B A L A N C E Exports Imports Ex - Im Exports Imports Ex - Im Exports Imports Ex - Im Exports Imports Ex - Im 1971 785 339 446 504 1964 -1460 31 104 -73 1320 2407 -1087 1972 1174 421 753 649 2371 -1722 22 143 -121 1845 2935 -1090 1973 1503 793 710 1103 3060 -1957 25 293 -268 2631 4146 -1515 1974 1713 1529 184 1120 4102 -2982 124 426 -302 2957 6057 -3100 1975 1599 1347 252 931 4964 -4033 463 361 102 2993 6672 -3679 1976 1902 887 1015 1012 4802 -3790 554 343 211 3468 6032 -2564 1977 2089 1143 946 1182 4280 -3098 1014 166 848 4285 5589 -1304 1978 2793 1548 1245 1704 6242 -4538 1804 263 1541 6301 8053 -1752 1979 3063 2204 859 1894 10069 -8175 3859 313 3546 8816 12586 -3770 1980 3280 4528 -1248 1842 14676 -12834 10320 388 9932 15442 19592 -4150 1981 3559 5066 -1507 2030 19358 -17328 14446 429 14017 20035 24853 -4818 1982 2831 2689 142 1988 11750 -9762 16352 470 15882 21171 14909 6262 source. World Bank; World Tables 1994 

Import liberalisation of capital goods reached its peak in 1980 through the elimination of capital-goods imports subject to licence controls to 75 per cent of the General Tariff Tax for Imports (TIGI). A significant number of import licences were also replaced by tariffs. Again, these measures were going to be too costly to the economy. By 1980, the manufacturing sector showed deficits of 12.8 billion dollars. One year later, the manufacturing sector’s trade balance had attained a deficit of 17.3 billion dollars. Not even oil revenues could cover such large deficits (see table Ch. II-2).

In 1979, there was an attempt to join the GATT that was blocked by strong interest groups from the private employers’ sector and some intellectual and leftists groups. At that time, a series of public consultations were taken. However, the “anti-GATT” group was much better organised and argued that if Mexico were to join the GATT, it will never attain the objectives of generating foreign exchange, industrial development and job creation. By that time, Mexico had attended all Tokyo Round meetings as an observer. The exact reasons for refusal were probably that the country was still not ready to embrace trade liberalisation since there was in the country a tradition of protectionism and mistrust towards trade agreements. In addition, strong interest groups of protected industries were afraid of losing a profitable national market. Another important reason was probably that policy makers and pressure groups were feeling over confident about oil exports and did not consider necessary to promote non-oil exports.

Table Ch. II-3 Total External Debt, Interest Payments and Total Debt Service Paid, 1980-2000 (US million $ curr.pr.)

YEAR TOTAL LONG-TERM DEBT PUBLIC PRIVATE INTEREST TOTAL DEBT EXTERNAL DEBT OUTSTANDING (guaranteed) (nonguaranteed) PAYMENTS SERVICE PAID 1978 35712 1979 42774 1980 57378 41215 33915 7300 6068 10962 1981 78215 53232 43032 10200 9767 14341 1982 86081 59651 52551 8100 11153 15684 1983 92974 81567 66767 14800 9994 14825 1984 94830 86022 69726 16260 11302 16960 1985 96868 88448 72703 15745 10220 15293 1986 100889 90929 75826 15103 8375 12946 1987 109468 98506 84358 14148 8326 12088 1988 99213 86529 80598 5931 8712 15473 1989 93840 80085 76114 3971 9310 15563 1990 104442 83393 77557 5835 7444 11456 1991 114067 86739 79119 7620 8369 13728 1992 112314 82939 72264 10675 7634 20774 1993 131726 85960 74450 11509 6996 20900 1994 140193 1995 166873 1996 157495 1997 148701 1998 161404 1999 167625 2000 150287 source: The World Bank; World Tables and World Bank World Development Indicators database Due to the facility to obtain international loans at low or zero interest rates, the government decided to get heavily indebted: the external debt grew from 35.7 billion dollars in 1978 to 86 billion dollars in 1982 (see table Ch. II-3). In addition, due to the security that oil revenues provided, the government decided to embark in expansionist public sector policies. As a result, between 1978 and 1981 GDP showed average percentage changes of 9.2 per cent (see table Ch. II-4).



Table Ch. II-4 Gross Domestic Product, Per Capita and Percentage Change divided by Periods, 1960-1982

YEAR GDP GDP per capita GDP annual Average (in constant Population in 1995 US percentage percentage change 1995 US billion $) (millions) constant $ change 1978-1981 9.2 1960 60.6 36.1 1680 1961 63.6 37.3 1706 5.0 1962 66.5 38.5 1727 4.7 1963 71.9 39.9 1804 8.1 1964 80.5 41.3 1952 11.9 1965 85.8 42.7 2010 6.6 1966 91.0 44.1 2062 6.1 1967 96.4 45.7 2110 5.9 1968 105.4 47.3 2230 9.4 1969 109.0 48.9 2228 3.4 1970 116.1 50.6 2295 6.5 1971 120.5 52.2 2307 3.8 1972 130.4 53.9 2419 8.2 1973 140.7 55.6 2528 7.9 1974 148.8 57.4 2594 5.8 1975 157.3 59.1 2663 5.7 1976 164.3 60.8 2701 4.4 1977 169.9 62.5 2716 3.4 1978 185.1 64.2 2881 9.0 1979 203.0 65.9 3080 9.7 1980 221.8 67.6 3282 9.2 1981 241.2 69.2 3486 8.8 1982 239.7 70.8 3387 -0.6 source: Author's own calculations based on World Bank: World Tables, 1994, World Bank Development Indicators Database, and International Monetary Fund "International Financial Statistics" Yearbook 1980 The rapid growth of the oil industry, though, created domestic inflation and deficit spending since the construction of the oil complex required heavy investment and led government and consumers to increase expenditure. The appreciation of the real exchange rate led, at the same time, to a growing demand for manufacturing capital goods imports (13 per cent of GDP in 1981) and in spite of the high increase in oil exports, the deficit in the trade balance comprising agricultural and manufacturing goods, as well as oil augmented to – 4.8 billion dollars in 1981 (see table previously mentioned Ch. II-2).

Meanwhile, public sector growth created a monetary expansion, while the real exchange experienced an appreciation. That same year, the “oil boom” process was soon interrupted by the lack of foreign exchange due to the plummeting of international oil prices by the mid- 1981 and Mexico’s refusal to reduce its own oil price. In addition, in 1981 high interest rates in international capital markets almost tripled in a short period of time attracting Mexican capital to the U.S. more secure environment. At the same time, high international interest rates quickly increased the country’s debt-service burden.

The government, finding itself in a difficult situation, still borrowed additional capital from the middle of 1981 to the middle of 1982. However, by the beginning of August 1982, high indebtedness in conjunction with the rapid expansion of the economy, and the high value of the peso relative to the dollar, as well as the growing manufacturing trade balance deficit created serious disequilibrium in the balance of payments, provoking a serious financial and economic crisis. Mexico was forced to declare a moratorium on the external debt during 90 days. At that moment, the external debt represented 49 per cent of GDP. The country announced that it could no longer pay the money it owed without special arrangements that allowed it to postpone payments and borrow back part of its interest. The measure had a very negative impact on capital. Large foreign as well as Mexican capital flows left the country at a very quick pace. 

The Mexican peso suffered a devaluation of 400 per cent in less than a year and inflation went up by 102 per cent (see table Ch. II-5). Credibility on the government fell and mistrust spread when the government announced the nationalisation of the private banking system and froze all foreign-currency accounts, as an attempt to control the increasing capital flight provoked by insecurity. In 1983, for the first time in more than three decades and a half, GDP showed a negative outcome of -30 per cent from the previous year.

Table Ch. II-5 Inflation indicators, 1980-2000 (percentages) Inflation Inflation Inflation consumer prices food prices GDP deflator (annual %) (annual %) (annual %) 1980 26 33 1981 28 26 26 1982 59 54 61 1983 102 91 90 1984 66 75 59 1985 58 60 57 1986 86 86 74 1987 132 131 140 1988 114 110 113 1989 20 20 27 1990 27 25 28 1991 23 20 23 1992 16 11 14 1993 10 7 9 1994 75 8 1995 35 39 38 1996 34 42 31 1997 21 19 18 1998 16 16 15 1999 17 16 15 2000 9612 source: The World Bank; World Development Indicators database 2002 It is worthwhile mentioning the political context during which all these changes were taking place. From the beginning of the 1930s until then, the Institutional Revolutionary Party (PRI) had been in power in the country promoting not only a closed economy, but also a nationalistic political culture and society. Nationalism was highly praised by the PRI endorsing it through such principles as political and economic independence and self- determination. At the same time, protectionism and State control over natural resources were integrated into a political identity that was understood as being specifically Mexican. As such, the economic self-determination of the import-substitution period was equated with issues such as sovereignty and national independence.

Mexico’s foreign policy before the 1970s was characterised by its legalistic, passive and almost isolationist nature.17 It remained cautious and never exceeded declarations expressing its disagreement with certain issues, as well as being consistent in embracing the following principles: non-intervention, self-determination of States, peaceful solution of international conflicts, respect for international law, defense of human rights and fundamental liberties, and defense of State sovereignty, political independence and territorial integrity. 

As to the relations with its Northern neighbour with whom it shares a 3,107 km border, the U.S. has always been Mexico’s main foreign policy concern. Mexico’s policy of legal non-confrontation and almost isolationism was strongly related to economic concerns: more than 70% of Mexico’s trade already depended on U.S. companies, and 75% of its external debt was payable to U.S. banks. At the same time, North American investment in Mexico accounted to more than 35% of Mexico’s economic activities.

However, the Government and Mexicans, in general, had traditionally seen the U.S. with antipathy as an imperialist threat since the 19th century when it lost almost half of its original territory to the U.S. Indeed, Mexico had reiterated its opposition to interventions such as the one during the Guatemalan Revolution in 1954 where armed bands from neighbouring countries backed by the U.S. invaded the country and overthrew the military government. In 1964, when the Organisation of American States (OAS) approved a U.S. resolution requesting all of its members to break off relations with Cuba, Mexico was the only Latin American country to defy the resolution deciding instead to continue its diplomatic and commercial relations with that country. Mexico declared that its vote did not mean in any manner whatsoever Mexican sympathy for communism, however that if Marxism-Leninism was going to be considered incompatible with the Inter-American system, then it should also be for dictatorships and other tyrannies.18 Mexico’s reaffirmed its position based on the principle of self-determination.

Again, in 1965 when the United States intervened militarily in the Dominican Republic claiming that there was a strong communist element in the rebel force, that it needed to “protect American lives and hemispheric security”, Mexico opposed the intervention on the grounds that it clearly violated the principle of non-intervention and asked the United States to withdraw its troops from the Dominican Republic. At the same time, Mexico firmly opposed the formation of a peace-keeping force with the OAS stating that the United States was attempting to legitimatize a unilateral action.

1970 marked the beginning of a more active and independent foreign policy in Mexico with Luis Echeverria Alvarez’s assumption of the presidency (1970-1976). Mexico began putting in practice its foreign policy principle, with the aim of legitimizing Mexico’s image in the international community as an “international champion of justice”.19

In its bilateral diplomacy, Mexico adopted an independent and anti-imperialistic position considered by the U.S. as excessively aggressive strengthening trade, cultural and political links between Mexico and Cuba, but also giving its open support to Salvador Allende in Chile and breaking diplomatic relations with the Government of Pinochet. At the same time, between 1970 and 1982, the Mexican Government pursued a policy of international leadership of Third-world countries in multilateral fora based on moral denunciations of violations of the principle of non-intervention. Mexico became the leader of the Latin American Economic System (SELA), which was established in 1975 and which included Cuba in its membership. Mexico was also the promoter of the Declaration and Plan of Action for the Establishment of a New Economic International Order, of a 200 mile exclusive economic maritime zone, and of the Charter of Rights and Duties of States which was adopted in 1974 by the United Nations. From 1975 to 1977, Mexico was also one of the 19 developing countries closely involved in the North/South Dialogue.

In mid-1979, Mexico’s activism under Lopez Portillo’s presidency (1976-1982) started bringing it into open political conflict with the United States as the Mexican Government broke diplomatic relations with the Somoza government in Nicaragua on account of the “horrendous genocide” committed by his armed forces against Nicaraguan civilians. Mexico  also assumed the role of leader in initiating a campaign among the countries of the region to promote a diplomatic blockade of Nicaragua, and opposed before the OAS, the United States request to send an Inter-American peace force to Nicaragua. Moreover, when the Sandinistas came to power, Mexico gave them full support. In addition, the Mexican President also made an attempt to pacify acting as an intermediary in the Central American region by presenting the Central American Peace Plan on February 21st 1982. The Plan called for the Chiefs of State of Honduras and Nicaragua to explore together the options available for a peaceful solution of the conflict. The U.S. reaction to the proposal was cool and refused to attend to a dialogue between the U.S. and Nicaragua organised by the Mexican Government in Manzanillo in 1982.

By late 1980 and early 1981 when the conflict expanded to El Salvador, the Mexican Government declared that the way the Salvadorian people resolved their problems where the question of their unique and exclusive jurisdiction.20 On August, 1981, the Government of Mexico together with the Government of France recognised the Alliance of the Frente Faribundo Martí de Liberación Nacional (FMLN) and the Democratic Revolutionary Fronts and proposed that the two parties in conflict should initiate a dialogue in order to resolve their differences by peaceful means. Mexico, also firmly believed that, like in the case of Nicaragua, El Salvador’s problems were mainly a matter of social and economic injustices. Mexico maintained the argument that the origin of the conflict was in the centuries old exploitation of workers and peasants, and in the repression and authoritarianism of often brutal U.S.-supported right-wing dictatorships.

On April, 1982 during the Malvinas islands conflict while the U.S. aligned itself with Great Britain, Mexico gave its support to Argentina’s claim of sovereignty over the islands. Mexico based its support on long standing principles of non-intervention and anti- colonialism. However, it also stated that its statement did not constitute approval of Argentine military activities and initial provocation of the war. Other examples of Lopez Portillo’s activism during this period were the signing of the Convenio de San José, an agreement between Mexico and Venezuela to sell oil to the Central American and Caribbean countries (including Cuba) at a low price and on very favourable terms of payment.

B. End of 1982–June 1985

When De la Madrid took office in December 1982 he initiated a comprehensive reorganisation of the economy: carrying out a drastic austerity program and trying to get the external account into balance. One of the main decisions taken by the administration was to continue servicing the external debt. During his first two years in office, Mexico became a model debtor in accordance with the IMF, by further devaluing its currency, increasing interest rates and accepting to reduce the public budget deficit. De la Madrid decided to assign a big proportion of the country’s federal budget to service the external debt (about 7 per cent of GDP). In return, he received additional outside capital and a favourable rescheduling.

The 1983 National Development Program (PND) comprised a structural adjustment programme aimed at reducing the fiscal deficit. Government spending was cut by decreasing government employees’ real salaries, indirect taxes were increased, most public prices were deregulated, and a few state-owned enterprises (parastatals) were privatised. The PND stated as its main objectives the modernisation of the national productive apparatus, mainly the promotion of non-oil exports. The partial trade opening of the economy had resulted in large  deficits caused by the manufacturing sector, and the government wanted to avoid depending in such a large extent on foreign manufacturing imports.

However, due to economic austerity, the program of stabilisation of the debt crisis included an increase in import license requirements for all types of goods. In addition, with the purpose of eliminating the large trade deficit of the early 1980s, protection-specific programmes for the automotive and pharmaceutical industries were further developed and new ones (computer industries) were created. The policy of partial trade liberalisation of imports took some steps backward: 100 per cent of imported goods required, as at the beginning of the 70’s, direct import controls.

While the trade balance showed positive results from 1982 to 1985, mainly thanks to oil exports, the economy did not show any signs of growth. Inflation kept high and the debt service burden seemed to be draining a large output share. By the end of 1984, the balance of payments worsened again because of a new decline in international oil prices. In addition, international interest rates continued going up provoking more capital flight against the peso, and a fall in real wages was provoking a contraction of the internal market.

Additional steps needed to be taken since economic growth stagnated, private investment was depressed, and inflation remained high. Only moderate import liberalisation measures had been taken until then. Licensing import requirements had been partially relaxed and replaced by tariffs: from 100 per cent to 92.2 per cent of the value of imports. However, by the middle of 1985 import licences and official reference prices still affected 75 percent of total imports.

An important factor affecting the economy negatively during the presidency of De la Madrid was the economy’s domestic contraction of industrial demand due to the heavy transfer of its resources abroad because of the servicing of the external debt and the fiscal austerity period. A further disadvantage was that the internal increase of interest rates (trying to compete with U.S. interest rates) with the aim of attracting investment also raised the burden of domestic debt service.

On May 17, 1984, President De la Madrid made a strong speech before the U.S. Congress stating that international economic conditions and “unilateral” increases in interest rates were nullifying the efforts of developing countries to meet debt austerity stabilization measures. He added that external indebtedness, high interest rates and growing protectionism were both the cause and the effect of the different crisis affecting Latin American economies. At the end of his speech, De la Madrid made a call for an end to protectionism and a greater openness of world markets.21

By 1985, the IMF suspended its loans when it realized that the country was not going to fulfil its promises of acquiring economic stabilisation.22 The failure of the first adjustment program was attributed to the fact that essential reforms such as trade liberalisation and privatisation were mildly implemented until then. The Mexican Government started realising that the economic and trade liberalisation programs had to move forward. It realised that it was essential to diversify the export base as a result of the deterioration of petroleum prices and to reduce the vulnerability of the balance of payments to changes in oil prices.

In June 1985 Mexico succeeded in signing an initial bilateral trade agreement called «Understanding on Subsidies and Countervailing duties» with the USA. The agreement liberalised foreign purchases and eliminated export taxes in subsidies and countervailing duties23 in both countries. Mexico agreed to eliminate the export subsidy element of CEDI’s  tax rebates, not to establish or maintain any pricing practices concerning energy or basic petrochemicals that were considered an export subsidy, and to phase out the export subsidy element of its export promotion programmes.24

What was happening on the political arena meanwhile? During this three year period, the Government had continued pursuing its nationalistic policy creating some loggerheads over foreign policy and macroeconomic issues with Washington. Mexico continued showing itself unsympathetic and even openly hostile to Reagan’s war against communism in Central America (Nicaragua and El Salvador), and started the Contadora Process continuing its policy of promoting multilateralism to solve international conflicts which Washington deeply disliked.

In October 1983, during the invasion of Grenada, Mexico publicly denounced the U.S. intervention that established a new government. While Reagan justified the invasion under the principles of “protection of human rights, restoration of law and order and of democratic institutions”, Mexican diplomacy adhered to its traditional diplomatic principles and strongly condemned the action.

In January 1983, upon the proposal of the Mexican President and at the invitation of the Panama Government, the ministers of foreign affairs from Panama, Colombia, Venezuela and Mexico met on the island of Contadora where they began discussing the problems posed by the Central American conflicts. Contadora became a “peace cartel” which tried to open up dialogue and find a negotiated solution to the conflict, attempting at the same time to avoid violent intervention. However, there continued to be a basic disagreement between the U.S. and Mexico over Central America. Reagan constantly accused Nicaragua of wanting to spread communism throughout the whole Central American area and of supporting the FMLN in El Salvador and refused to have anything to do with the Contadora Group. At the same time, the U.S. organised, financed and coordinated paramilitary forces made of Nicaraguan exiles called “Contras”. Based in Honduras, the “Contras” engaged in armed incursions into Nicaragua.

During this period, the Mexican President De la Madrid declared that it did not accept the U.S. view that the conflict was Soviet-Cuban inspired and mentioned that the confrontations had been exacerbated by the threat of the U.S. armed intervention in Nicaragua, El Salvador and also in Honduras. The Mexican President mentioned that democracy could not be imposed by force since it was an expression of liberty, self-determination and equality that should be understood as a process of each country.

At the same time, Mexico continued offering its good offices to act as mediator in the process of finding a solution and continued promoting a direct dialogue between Washington and Managua. Between 1982 and 1985, representatives of both countries met several times in Mexico, but nothing came of the negotiations, especially because the U.S. did not want to abandon giving aid to the “Contras”. 

III. Post Trade-Opening: Joining GATT and NAFTA

A. July 1985 and Mexico’s accession to GATT

The most important attempt to open the Mexican market to foreign imports began in July 1985 within a new tentative to stabilise the economy recommended by the Bretton Woods institutions. The central point of the IMF structural adjustment recommendations was a comprehensive program of trade liberalisation accompanied by government rationalisation, privatisation, and elimination of distortions and rigidities in labour markets and elimination of controls on direct and indirect foreign investment. To obtain high economic gains from the policies of trade liberalisation, the Bretton Woods specialists recommended:

C further fiscal restraint with a substantial reduction in public investment;

D an overall fiscal balance consistent with the international obligations of the country;

E removal of practically all policy-induced distortions in factor markets;

F a sustained real devaluation with a free exchange rate allowed to fall; and

G a low uniform tariff as well as the replacement of import licences by tariffs.25

The new approach had as its main objective to insure a long-term growth of the economy. One of the main beliefs was that heavy government intervention in the economy had been a mistake and that Mexico should now start by letting the market forces freely decide future economic trends. The economy needed a deep structural transformation. An open regime would improve efficiency and export competitiveness in international markets. Subsequently, employment would be created, real wages would increase and in turn, a consequent reduction of poverty and an improvement of income distribution will follow. Agriculture would also benefit by a larger flow of financial resources and a reduction of domestic prices due to the entrance of cheap international products.

As a result, import licensing needed to be significantly relaxed as well as import-related taxes, official reference prices and others. The most important element of the trade liberalisation policy was the promotion of a strong non-oil export platform of manufacturing goods. Indeed, making the country more competitive on manufacturing exports was the main part of this restructuring since the strong dependence on oil exports was believed to have very negative effects on Mexico’s stability.

According to Sinclair (1993), Mexico’s decision to liberalise trade in 1985 was also very much taken under pressure from the U.S. who wanted to strengthen a regional trading system, while moving away from multilateral commitments to free trade. At the same time, Mexico was urged to join GATT by the Bretton Woods Institutions. The financial reconsideration of the external debt under the «Baker Plan» was announced to be conditional to a wider trade openness of the country, making it clear that Mexico’s accession to the GATT was necessary to qualify for the plan.

In addition, like Lustig states: «With inflation approaching a triple digit level several times during the 1980’s, no new lending from foreign private sources, and domestic investors’  capital leaving the country, trade liberalisation policies were not really a choice».26 The Mexican government did not have the option of preserving a strong public sector while protecting its borders from international goods. It knew that if the country was to survive within the new globalisation of the economy, it had to comply with the Bretton Woods recommendations.

On July 1985, President De la Madrid initiated the process of trade liberalisation and the promotion of non-oil exports with a series of reforms. These reforms planned to eliminate or reduce a series of trade barriers within a period of five years. The program began with the significant reduction of import licence coverage on a large number of tariff items: reduced from 83.4 to 35.1 percent. The program did away with import permits for almost all intermediate goods and for many capital goods. Tariffs became the principal tool of trade policy. Import permits were replaced by tariffs for 4,408 items. As a result, ten tariff rates were established and 90 per cent of all goods were subject to ad-valorem27 tariffs not exceeding 50 per cent. The weighted tariff was reduced to 13.3 percent, and the tariff dispersion rate to 18.8 percent (see table Ch. III-1).

Table Ch. III-1 Trade Indicators, 1983-1998

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1998

Total items subject to tariffs (no.) 8063 8091 8206 8445 8472 11932 11838 11815 11828 11841 11082 11288

Import licence coverage* 100 83 35.1 27.8 26.8 21.2 14 13.7 8.9 10.5 21.5 10.6 8.5

Reference prices 13.413.425.418.613.400000000

Items without import licence 2844 7252 7568 8116 8187 11608 11595 11461 11636 11632 10916 11196 (%) 35.3 89.6 92.2 96.1 96.6 97.3 97.9 91.0 89.5 78.4 89.4 91.5

Maximum tariff 100 100 100 100 20.0 20.0 20.0 20.0 20.0 25.0 25.0 25.0

Tariff average 27 23.3 25.4 22.6 10 9.7 10.4 13.1 13.1 13.1 13 12.4 13.1

Tariff dispersion 22.5 18.8 14.1 6.8 6.9 7.1 4.4 4.5 4.5 6.7 6.5

Weighted average tariff 16.4 8.5 13.3 13.1 5.6 6.2 10.1 10.5 11.2 11.5 11.6 5.7 2.6

Weighted dispersion 11.9 10.1 13.2 6.9 7.4 7.7 6.9 6.8 6.7

Number of rates 10 10 11 5 5 5 5 5 5 source: GATT; Mexico's Trade Policy Review II, p.49; OECD, Trade Liberalisation Policies in Mexico, p. 114; Banco de México, The Mexican Economy 1999, p.261 *Percentage of imports covered However, Mexico’s trade policy established since the beginning different tariff escalations according to the degree of goods’ processing. In 1985, ad-valorem tariff averages of consumer goods were decided to be 2 points higher than those for capital goods. In turn, intermediate goods ad-valorem tariff averages were as low as half of that for consumer goods (see table Ch. III-2).

Efforts to promote trade were accompanied by different export incentive programmes very similar to export-promotion programmes implemented during the import substitution period: car assembly and auto parts, microcomputers, pharmaceuticals and pharmachemicals. All of these programmes were a continuation of the support programmes provided during the import-substitution period to these manufacturing subsectors and were biased since they only benefited large-scale exporters and big capital:



Table Ch. III-2 Ad-valorem Tariff Averages by Type of Good, 1985-1993 (percentages)

TOTAL Consumer Intermediate Capital Manufacturing goods goods goods goods coming from the U.S. 1985 9.59 15.8 7.75 13.07 1986 13.05 13.71 11.8 16.39 1987 12.83 16.19 10.92 17.85 1988 6.28 11.08 4.93 8.42 1989 9.77 11.88 8.26 13.17 4.27 1990 10.21 10.93 8.64 13.89 4.52 1991 11.13 12.08 9.81 13.48 4.25 1992 10.82 11.84 9.84 13.31 4.99 1993 11.86 13.32 10.39 13.72 4.75 source: SECOFI, SICMEXICO, (Sistema con información sobre flujos comerciales); and INEGI's Indicadores de Competitividad Promedios arancelarios en Productos Manufactureros de Estados Unidos (Por ciento Ad-valorem) 1989-1993 note: consumer goods include food & live animals (meat, dairy prod., fish, vegetables, cereals, sugar, coffee, tea, etc), beverages & tobacco, precious & semi-precious stones, motorcycles, cycles & parts, road vehicles other than motor vehicles, clothing, miscellaneous manufactured articles (sanitary, plumbing, heating equip & parts, furniture, travel goods, footwear, watches, clocks); intermediate goods contain oil seeds, nuts & kernels, agricultural raw materials (hides, skins, furs, & crude crude rubber, wood, lumber and cork, pulp & paper, textile fibres, etc.) crude fertilizers & minerals, metal/ores scrap, coal crude oil, refined petroleum, miscellaneous petroleum products, gas fuels, electric current, animal/vegetable fats/oils, chemicals (pharmaceuticals, synthetic rubber, artificial fibres, etc.), manufactures by materials (like leather, fur skin rubber, wood and cork, paper, non-metallic mineral and metals), textiles/yarns/fabrics, iron & steel, non-ferrous base metals, precious metals and weapons; capital goods comprise non-electrical machinery, electronics (office machines & telecommunications apparatus & thermionic valves and tubes, transistors, etc., electrical machinery apparatus & appliances, automobiles & parts, transport equipment & material, railway vehicles & trains/aircrafts/ships. source: Secretaría de Comercio y Fomento Industrial (SECOFI) 1. The Program for Integral Promotion of Exports (PROFIEX) was started in late 1985. This program had the purpose of extending the advantages of the maquiladora program to industries located outside the free trade zones and refunded import taxes to exporters (DRAWBACK);

2. Exporters were given additional incentives in the form of import rights (DIMEX) that enabled them to import without prior permission and with a very low tariff of 10 per cent as against a general level of at least 30 per cent;

3. Under the Programme for the Temporary Import of Production of Exportable Goods (PITEX) import of technology and machinery used for the production of exports could be imported tax-free in enterprises exporting at least 10 percent of total sales and a minimum of 500,000 U.S. dollars of annual sales;

4. In 1986, the Program for High Volume Exporting Companies (ALTEX) established preferential treatment in the areas of credit, tax relief, and preferential access to import permits of capital goods for those enterprises exporting 40 percent of their production or a minimum of 2 million dollars; and,

5. The Foreign Trading Companies Programme (ECEX) was designed for firms specialised in the marketing of Mexican products overseas. It aimed at benefiting companies providing them with faster procedures (ten days) for value added tax refunding on local purchases of export goods. Companies had to have a minimum capital of 100,000 U.S. dollars and commit themselves to export non-oil goods of more than 3 million U.S. dollars annually.28

These export-incentive programmes defined Mexico’s trade policy as unfair since the beginning since no such incentives were offered to the largest bulk of small and micro enterprises that were providing the largest number of jobs. These measures, as it will be seen later, affected employment levels negatively in those industries not receiving any support since the rapid slash of tariffs and non-tariff barriers left them completely unprotected. 

The trade reform started in July 1985 was significantly further reaffirmed by Mexico’s announcement of its intention to join the General Agreement on Tariffs and Trade (GATT) in November 1985 and its definite decision to adhere in July 1986. This time the results of the national consultations were a wide consensus on accession. The opening to other markets and non-dependence on oil exports were recognised to be essential for Mexico’s advancement and growth. By being exposed to foreign competition, there were hopes that the domestic industry would become more efficient and competitive.29 In 1985, at the GATT negotiations, Mexico agreed to:

‰ accord most favored nation (m.f.n.) treatment to GATT contracting parties;

‰ remove import licensing;

‰ reduce tariffs on most import items to levels ranging from zero to 30 per cent over a period of thirty months (tariff reductions involved tariff concessions on approximately 16 percent of the totality of imports in 1985);

‰ set a maximum tariff level of 50 percent ad-valorem for both industrial and agricultural products;

‰ reduce export taxes;

‰ eliminate most export licence requirements;

‰ eliminate export subsidies and its fiscal incentives;

‰ apply voluntary export restraints only on certain textile and clothing products exported to the U.S.

30 ‰ eliminate official import reference prices in a period of two years.

The government firmly committed itself to avoid using anti-dumping31 and countervailing measures as disguised protective devices, as well as supporting the strengthening of GATT’s rules and dispute settlement mechanism. The country also accepted to adhere to four Tokyo Round Agreements: antidumping, customs valuation, import licensing and technical barriers to trade and to adopt the Harmonized System for the tariff classification of goods. Mexico’s trade regime became based mainly on ad valorem tariff protection with a relatively uniform tariff structure, and import duties ranging from zero to 20 per cent with a simple average of 13 per cent.

However, Mexico negotiated the right to temporarily exclude from licencing restrictions some agricultural goods like basic grains, and to maintain the special protection provided under the specific trade and industrial development programs mentioned before with an ad- valorem tariff level higher than 50 per cent for at least 8 years32. Indeed, the government continued subsidising export activity of large-scale firms within the accepted international norms. For example, imports of used cars continued to be prohibited and trade restrictions in the motor vehicle sector promoted local-content requirement of produced parts and components (see table Ch. III-3).



Table Ch III-3 Industrial Programmes 1993 Car assembly Auto parts Pharmaceuticals Pharmochemicals Microcomputers Benefits Protection QRs (licences & prohibition 20% tariff Stringent quality controls QRs (licences & quotas QRs on imports) on imports on imports) Tax credits (suspended Dec, 1987) 20% on investment Up to 30% of investment & Up to 30% of investment & 30% on investment and employment for Mexican firms employment for Mexican firms employment; 10% on purchase of domestic parts & components Public sector procurement Restricted to domestic Open to foreign enterprises suppliers, with preference and with permit for Govern- to domestic firms ment agencies Exemption from tariffs on inputs Reduction of import tariffs Reduction of import tariffs Reduction of import tariffs to zero to zero to zero Entry restrictions Direct foreign investment 100% 40%. Entry is granted only 100% 100%, but foreign firms 100% ownership if parts are not already may not acquire established produced by domestic firms Mexican-owned firms; new DFI may not displace nationals Licensing None Restricted to a list of SECOFI projects Property rights Weakly defined on product Weakly defined on product technology technology Production restrictions Number of lines One line for domestic market. No restriction for exports Domestic content requirements 60% domestic market 60% domestic market Criteria apply to firms Criteria apply to firms Only assembly 30% export market 30% export market seeking preferential seeking preferential requirements treatment in public treatment in public procurement procurement Excise taxes 5 to 25% Foreign exchange balance 100% requirement (50% 100% coming from domestic auto parts exports and 20% at most from maquiladoras Price controls Detailed report for basic and Flexible subject to general generic products: reporting law of price controls only for the rest Registration Annual register to check for Annual register to check for good manufacturing practices good manufacturing practices (SECOFI); register of (SECOFI); register of pharmaceutical products pharmaceutical products (SS and SARH) (SS and SARH) Quality norms Compliance with national or international standards Maximum price differential 15% of list prices source: SECOFI, quoted in World Bank (1990) and GATT: Trade Policy Review 1993, p.238-239 President de la Madrid gave 4 basic reasons to join the General Agreement:

C GATT could give Mexico a more reliable framework to promote exports;

D GATT’s safeguard provisions will protect the country’s production structure and employment;

E GATT’s dispute settlement mechanism could defend Mexico’s commercial interests and protect it from unilateral measures; and,

F Mexico will be able to participate in multilateral negotiations and in the formulation of rules that would favour developing countries.33

It is important to mention that the GATT’s agreement did not go much far beyond the reforms already started in July 1985, but it was considered as the best tactic to reinforce the private sector’s belief in the government’s long-term commitment to its newly adopted policy of trade liberalisation. The main reforms accelerated under GATT were the removal of import-licensing requirements and the elimination of official reference prices. However, for trade partners, it ensured the irreversibility of government’s policy.

Specific reference was made in the agreement to sovereignty over Mexico’s natural resources. However, the highly protected oil sector underwent rapid deregulation soon after. 

Responsibility for the international marketing of petroleum crude was taken away from the national petroleum industry’s (PEMEX) office for international trade and PEMEX representatives in London, Madrid, New York and Houston, and was handed over to a new holding company, the Mexican International Petroleum, composed of six foreign subsidiaries. Another company, Mexpetrol, a joint venture between the state (35 percent) and national capital (65 percent) replaced PEMEX’s Projects and Capital Works Division in the marketing abroad of petroleum technology, goods and services.34 In 1988, a number of petrochemicals until then reserved exclusively for PEMEX were redefined as “secondary” petrochemicals, allowing foreign investment in their manufacture and distribution to the level of 40 per cent.

In addition to these major measures taken, a big number of privatisations and liquidations took also place between 1985 and 1988. Hundreds of publicly owned enterprises were offered on sale. The government sold a large part of its enterprises in the capital goods sector, the majority of its holdings in the fishing sector, most of its sugar refineries, and steel mills. The number of state-owned enterprises (parastatals) went down from 1,155 in 1982 to 354 in 1988.

Liberalisation and deregulation, however, did not show immediate positive effects such as giving a forward impulse to the economy. Mexico’s accession to GATT, in fact, took place in the context of a severe economic crisis and the disappointment of many as to the poor performance of the economy achieved until then. A significant factor explaining the slow response of businesses to growth was the predominance of high inflation rates that reached a high point of 132 per cent in 1987. In fact, throughout the period of 1982 to 1987 inflation kept high (see table mentioned in previous chapter Ch. II-5).

Another important issue to mention is that hundreds of micro and small enterprises either stagnated, closed or survived as they could moving from the formal to the informal sector from 1982 to 1989 since commercial banks were not eager to provide them credit since they considered them “high-risk” establishments. It should be mentioned that short-term credit facilities with preferential interest rates for micro, small and medium industrial establishments were still supposed to be available and easy to obtain with FOGAIN and FONEI. However, since inflation created economic insecurity, commercial banks denied credit to those businesses (especially, non-export oriented) that were not in a position to pay back in the near future. Very often, if micro producers or small-scale producers in the formal sector did not have any property to guarantee their loans, they could not benefit from a credit. In addition, commercial banks were channelling their resources to cover part of the government’s debt.

Annual nominal interest rates in banking transactions rose as high as 100.8 percent in 1986 and went even further up to 123 percent by the end of 1987. By keeping nominal interest rates high the government was hoping to attract back those capitals that had left the country. However, the failures to boost the economy did not seem to attract enough of them. It is true that real interest rates were only around 15 per cent in 1985-86 and even negative in 1987, but the rapid devaluations of the peso and economic unstableness did not provide the necessary confidence to the commercial bank to offer credit to micro and small enterprises. As a result, most small and micro and some medium businesses, while surviving because the price of imports was high, they just did not have the chance to respond to the government wake up calls to restructure and increase their output rapidly, and could not create employment, but on the contrary started laying off workers and moving towards the informal sector (see table Ch. III-4).



Table Ch. III-4 Interes Rates and Exchange Rates, 1980-2000 INTEREST RATES* EXCHANGE RATES Money Market Rate Average Cost of Funds (pesos to U.S. dollar) Nominal Real Nominal Real Market Controlled 1980 26.6 0.6 20.7 -5.3 23.3 23.0 1981 33.3 5.3 28.6 0.6 26.2 24.5 1982 45.9 -13.1 40.4 -18.6 85.3 61.0 1983 57.5 -44.5 56.7 -45.4 151.2 122.1 1984 49.9 -16.1 51.1 -14.9 187.2 169.7 1985 62.4 4.4 56.1 -1.9 318.5 265.4 1986 88.0 2.0 80.9 -5.1 655.5 633.8 1987 95.6 -36.4 94.6 -37.4 1462.8 1415.7 1988 69.0 -45.0 67.6 -46.4 2292.5 2252.9 1989 47.4 27.4 44.6 24.6 2496.4 2468.6 1990 37.4 10.4 37.1 10.1 2848.2 2819.2 1991 23.6 0.6 22.6 -0.4 3021.1 2987.7 1992 18.9 2.9 18.8 2.8 3095.8 3093.0 1993 17.4 7.4 18.6 8.6 3.1 3.1 1994 16.5 9.5 15.5 8.5 3.4 5.3 1995 60.9 25.9 45.1 10.1 6.4 7.6 1996 33.6 -0.4 30.7 -3.3 7.6 7.9 1997 21.9 0.9 19.1 -1.9 7.9 8.1 1998 26.9 10.9 21.1 5.1 9.1 9.9 1999 24.2 7.2 19.7 2.7 9.6 9.5 2000 17.0 8.0 13.7 4.7 9.5 9.6 note: As of January, 1993, the Mexican peso lost three zeros and was renamed "new peso"; *Interest rates are given in yearly averages. source: Author's own calculations based on IMF's International Financial Statistics Yearbook and World Bank: World Bank Development Indicators Database 2002 Besides, it should also be added that the years from 1985 to 1988 were very difficult ones. Relevant external factors did not initially let the economy take off. Even after having signed a renewed rescheduling of the international debt with the Baker Plan, the high servicing of the external debt continued creating financial instability in the country. In addition, relatively high U.S. interest rates attracted Mexican capital, and the U.S. took the decision to stop buying Mexican gas. To make things worse, a terrible earthquake hit Mexico city in September 1985, and a second collapse in petroleum prices in early 1986 precipitated a new crisis. Furthermore, the New York Stock Exchange crash in 1987 created speculation on the Mexican stock market and official monetary authorities decided to withdraw from the currency markets.

During the whole period, there were continuous devaluations of the exchange rate. The results of all these negative factors were strongly felt in employment levels. As a result, government’s policy to liberalise trade under a very difficult macroeconomic situation proved to be disastrous in providing development opportunities to those economic sectors not ready to restructure and to open to international markets. Certain industries that took recourse to restructuring through borrowings were unable to bear the financial burden of their repayment liability. Particularly for formal sector micro, small and medium firms the main providers of jobs primarily oriented to national production, which were already suffering from the contraction of the domestic market, and they were laying off workers by thousands (see table Ch. III-5)

On the other hand, with the decline in petroleum income after the 1986 oil price collapse, the government had to compensate by reducing imports through more rapid and significant devaluations and these maxi devaluations of the currency had as a result a positive trade  balance surplus by stimulating exports at a higher rate than the increase in imports. The continuous devaluations of the peso then kept momentarily alive and protected those industries that did not have the means to become more competitive to start participating actively in international trade. The low international value of the currency further switched demand from imports towards domestic goods and permitted medium, small and micro industries to supply internal demand. Indeed, the floating exchange rate had the positive effect of creating the minimum conditions necessary for an immediate survival of a big part of these small and micro enterprises.

Table Ch. III-5 Credit provided by Development and Commercial Banks by Economic Sector, 1984-1995 Agriculture Manufacturing Social Services & Wholesale Total mining, forestry Construction Interest other & retail Government & fishing & Electrical Houses activities trade 1984 100 10.4 30.8 3.4 16.6 9.2 29.7 1985 100 10.0 26.6 3.3 15.6 6.8 37.7 1986 100 8.2 23.1 2.7 15.2 5.2 45.6 1987 100 7.8 20.9 2.4 15.0 4.6 49.2 1988 100 11.2 21.5 4.5 15.7 6.3 40.7 1989 100 10.9 22.5 4.7 18.4 11.3 32.2 1990 100 10.1 22.7 5.0 25.0 12.8 24.3 1991 100 8.9 23.6 4.6 29.5 14.7 18.7 1992 100 8.2 24.1 4.0 33.1 16.2 14.4 1993 100 7.6 20.6 13.2 31.3 14.9 12.4 1994 100 6.5 20.7 12.0 31.5 14.8 14.7 1995* 100 6.2 21.2 13.4 29.7 13.6 15.9 *information until April of that year source: Author's own calculations based on Banco de México, Indicadores Económicos en "La Economía Mexicana en Cifras 1995", p.234. The low international value of the Mexican currency also promoted the growth of exports. As a result, the trade balance was positive. From 1982 to 1988, exports went up from 24 billion to 30.7 billion U.S. dollars (see table Ch. III-6). Unfortunately, it was mainly the stronger segments of the manufacturing sector, large-scale industries, which responded positively to the government’s exchange policy since they had the means to do it and they were benefiting from continuous protection provided by the above mentioned export- promotion programs.

Table Ch. III-6 Total Imports and Exports of Goods and Services, Trade Balance, 1972-2000 (millions of $US current dollars) TOTAL EXPORTS TOTAL IMPORTS T O T A L T R A D E B A L A N C E Non-factor Factor YEAR Non-factor Factor Non-factor Factor Goods Services Services Goods Services Services Goods Services Services EX-IM EX-IM EX-IM EX-IM 1972 4024 1717 2100 208 5577 2610 2187 781 -1554 -894 -87 -573 1973 5076 2141 2699 236 7422 3656 2673 1093 -2346 -1515 26 -857 1074 6680 2999 3369 312 11122 5791 3574 1757 -4443 -2791 -206 -1446 1975 6651 3007 3352 292 12617 6278 4263 2075 -5966 -3272 -911 -1783 1976 7566 3476 3728 363 13246 5771 4996 2479 -5680 -2295 -1269 -2115 1977 8631 4604 3608 419 12805 5625 4610 2570 -4174 -1021 -1003 -2151 1978 12106 6246 5178 682 18241 7992 6797 3452 -6134 -1745 -1618 -2771 1979 17576 11512 5192 872 23538 13654 4901 4983 -5962 -2142 291 -4111 1980 23864 18031 4591 1242 35512 21087 6514 7911 -11648 -3056 -1923 -6669 1981 29932 23307 4983 1642 47597 27184 8489 11924 -17665 -3877 -3506 -10282 1982 29722 24056 4136 1530 37059 17009 6066 13984 -7337 7047 -1930 -12454 1983 31489 25953 4087 1449 27039 11848 4477 10714 4450 14105 -390 -9265 1984 36275 29101 4839 2335 33549 15915 5235 12399 2726 13186 -396 -10064 1985 33699 26758 4808 2133 34915 18359 5524 11032 -1216 8399 -716 -8899 1986 28205 21803 4591 1811 31492 16784 5194 9514 -3287 5019 -603 -7703 1987 35325 27599 5437 2289 33471 18813 5310 9348 1854 8786 127 -7059 1988 39728 30692 6084 2952 44432 28081 6281 10070 -4704 2611 -197 -7118 1989 45485 35171 7208 3106 53548 34766 7879 10903 -8063 405 -671 -7797 1990 52042 40711 8094 3237 62867 41592 10323 10952 -10825 -881 -2229 -7715 1991 55085 42687 8869 3529 71320 49966 10958 10396 -16235 -7279 -2089 -6867 1992 58371 46196 9275 2900 86589 62130 11959 12500 -28218 -15934 -2684 -9600 1993 64102 51885 9517 2700 91612 65366 12046 14200 -27510 -13481 -2529 -11500 1994 74603 60882 10321 3400 108788 79345 13043 16400 -34185 -18463 -2722 -13000 1995 93121 79541 9780 3800 99370 72453 9717 17200 -6249 7088 63 -13400 1996 111003 96002 10901 4100 118488 89469 10819 18200 -7485 6533 82 -14100 1997 126213 110431 11182 4600 139823 109808 12615 17400 -13610 623 -1433 -12800 1998 134221 117459 11662 5100 156986 125374 13012 18600 -22765 -7915 -1350 -13500 1999 148129 136392 11737 156448 141975 14473 -8319 -5583 -2736 2000 180208 166456 13752 191820 174457 17363 -11612 -8001 -3611 source: Author's own calculations based on The World Bank, World Tables 1994, and World Bank World Development Indicators Database. note: 1990 and 2000 data on factor services were not available 

Indeed, because during the presidency of De la Madrid, the free or floating exchange rate (except for several months in 1984), was successful in keeping imports from coming and achieving a trade surplus. However, in general, the economy performed poorly. GDP average percentage change was negative from 1982 to 1984. In sum, during De la Madrid’s presidency, GDP barely showed a positive growh from 1985 to 1988, and slightly recuperated from 1989 to 1994. Until the year 2000, GDP had not attained it 1980 levels. (see table Ch. III-7 and figure Ch. III-1).

Table Ch. III-7 Gross Domestic Product, Per Capita and Average Percentage Change divided by Periods, 1978-2000 YEAR GDP GDP per capita GDP annual Average Average Average Average Average (in constant Population in 1995 US percentage percentage percentage percentage percentage percentage 1995 US billion $) (millions) constant $ change change change change change change 1978-1981 1982-1984 1985-1988 1989-1994 1995-2000 9.2 -0.4 0.5 3.9 3.5 1978 185.1 64.2 2881 9.0 1979 203.0 65.9 3080 9.7 1980 221.8 67.6 3282 9.2 1981 241.2 69.2 3486 8.8 1982 239.7 70.8 3387 -0.6 1983 229.7 72.4 3174 -4.2 1984 237.9 73.9 3219 3.6 1985 244.1 75.5 3235 2.6 1986 234.9 77.0 3051 -3.8 1987 239.3 78.6 3046 1.9 1988 242.3 80.1 3024 1.2 1989 252.5 81.7 3092 4.2 1990 265.3 83.2 3187 5.1 1991 276.5 84.8 3260 4.2 1992 286.5 86.4 3317 3.6 1993 292.1 88.0 3321 2.0 1994 305.0 89.5 3406 4.4 1995 286.2 91.1 3140 -6.2 1996 300.9 92.6 3251 5.2 1997 321.3 93.9 3422 6.8 1998 337.5 95.2 3544 5.0 1999 349.7 96.6 3621 3.6 2000 372.9 98.0 3806 6.6 source: Author's own calculations based on World Bank: World Tables, 1994, World Bank Development Indicators Database, and International Monetary Fund "International Financial Statistics" Yearbook 1980 Even though manufacturing exports increased during these years, the rest of the economy did not feel the multiplier effects because high inflation did not permit the majority of the firms to develop their apparatus. Besides, the devaluations were positive for keeping imports away, but they also contributed to investment uncertainty.

Furthermore, a cause of concern during this inflationary period was that an increase in the money supply, was causing the depreciation of the currency, but at the same time was pushing price levels up. During most of the period, prices were high even if the purchasing power of the population had gone importantly down. Due to the low international value of the Mexican currency and to low wages, there was a large foreign/domestic price differential. Ten Kate (1991) implies that starting from 1985 to 1988, the depreciation of the exchange rate created a large foreign/domestic price differential across all tradable sectors which on one hand, protected domestic industry from international imports, but on the other hand, increased profit margins and resulted in inflation due to the rise in domestic prices justified by the fact that international prices were higher and there existed a large inter-market dependency35. 

Figure Ch. III-1 GDP per capita in 1995 U.S. constant billion dollars, 1980-2000 4000.00

3500.00

3000.00

2500.00

2000.00

1500.00

1000.00

500.00

0.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

source: Author's own calculations based on World Bank: World Tables, 1994, World Bank Development Indicators Database, and International Monetary Fund "International Financial Statistics" Yearbook 1980. As such, by the end of the year new financial international assistance was needed. It was provided again by the Bretton Woods institutions, but under the conditions of further consolidating public finances, further and faster liberalising international trade faster and reducing inflation.36 On December 15th 1987 the government made another attempt to restart the economy. The country was in a desperate need to resume growth and to participate in the world economy in better terms. This time, the government called the business, and labour sectors to commit themselves to a further structural adjustment agreement (Pacto de Solidaridad Económica or PSE) of price and wage control, further trade liberalisation and privatisation of public-owned enterprises. The PSE recognized that a comprehensive income policy had to be added to past reforms. It was hoped that fiscal and monetary adjustments would correct public sector prices, reduce government expenditures, increase the tax base and control the exchange rate. The PSE commitments called for a:

(a) freeze of wages, and some public and basic products’ prices, and the establishment of a fixed exchange rate which was allowed to fluctuate with daily rates of depreciation:

(b) cut of public expenditures by 1.5 percent of GDP;

(c) creation of new tax revenues;

(d) the programme of privatisation to be carried on with a new impulse;

(e) restriction of subsidised credit to the private sector;

Three of these commitments concerned specifically trade policy measures:

(f) reduction of the maximum import tariff from 40 to 20 per cent;

(g) elimination of practically all import permits and;

(h) elimination of subsidies, except in agriculture. 

The PSE started bringing down inflation. One of the main reasons was that the fiscal balance had improved considerably since the pact was agreed at a moment when federal reserves were high. Probably another is that it was implemented with a lot of flexibility (subject to revision each time the parties met) in relation to wage and price increases and thirdly, it was supported by a heavy concentration of political and economic power since the main sectors of the economy agreed to price and wage controls to reduce inflation and an exchange rate with gradual preannounced depreciations of the peso. But, a very significant reason was the absence of external negative factors affecting the economy during this period.

Lustig and Ros (1993) summarised the success of the pact saying: «the use of an incomes policy as a centrepiece of the program, complemented by fiscal and monetary discipline was the key for the successful outcome».37 Under a strict monetary discipline, the PSE reduced inflation from 114 per cent in 1988 to 20 per cent in 1989 and the economy finally grew with a modest 1.2 per cent that year.

In fact, with the PSE, trade liberalisation was pushed way ahead of schedule with one of its main components being the reduction of the maximum import tariff from 40 to 20 per cent (see table Ch. III-8). Tariffs were further reduced and five tariff rate categories were established: 0, 5 and 10 per cent tariffs to those products not produced in the country or insufficient but of high priority to industrial development; rates of 15 and the maximum tariff of 20 per cent were established for those articles produced in Mexico according to their level of elaboration.

Table Ch. III-8 Percentage of Items Subject to Tariff Rates, 1982-1998

1982 1983 1984 1985 1986 1987 1988 1989 1992 1993* 1994* 1996* 1998* June Dec. June Total lines 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Tariff rates Duty free 3.7 4.3 3.2 2.8 3.5 15.4 17.1 18.4 2.1 2.4 3.5 9.6 13.9 15.1 2 to 5 6.7 7.9 5.0 4.1 0.0 30.8 30.6 22.2 0.7 0.7 48.9 42.5 38.7 37.7 10 34.1 44.9 49.0 39.3 42.8 9.7 10.2 12.3 49.6 48.9 15 7.3 0.9 0.0 0.0 0.4 26.9 25.7 27.2 27.5 27.6 47.5 47.1 42.4 41.9 20 9.8 6.8 5.8 1.4 0.3 17.2 16.4 19.8 20.1 20.3 22.5 to 27.5 2.6 7.5 11.0 14.6 16.9 0.0 0.0 0.0 0.0 0.0 0.0 0.7 4.9 5.1 30 5.5 0.5 0.6 0.6 0.3 0.0 0.0 0.0 0.0 0.0 35 to 40 8.2 14.4 13.2 23.3 23.2 0.0 0.0 0.0 0.0 0.0 45 to 50 9.7 4.1 5.7 12.0 12.6 0.0 0.0 0.0 0.0 0.0 60 4.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 70 to 80 3.7 3.4 2.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100 4.5 4.8 4.2 1.9 0.0 0.0 0.0 0.0 0.0 0.0 source: GATT:Mexico's Trade Policy Review 1993, p. 78; and Banco de México "The Mexican Economy 1999", p. 261 *note: data for years 1993 to 1998 was only divided as follows: 0.1 to 10% tariff, over 10 to 20% tariff; over 20% tariff and prohibited Remaining non-tariff barriers included import-licensing requirements affecting less than 3.4 percent of total tariff goods, and import quotas.38 Licensing requirements dropped to 20 per cent of import value and practically the totality of official reference prices was removed. As a result, the average tariff went down to 9.7 per cent with a tariff dispersion of only 6.9 percent (see table previously mentioned Ch. III-1).

In addition, in a period of only two years and a half, two additional trade initiatives were agreed with the U.S. The first one on November 1987 was a “U.S.-Mexico Framework Agreement of Principles and Procedures” for consultations regarding trade and investment relations. The second was composed of sectoral agreements on steel, textiles and alcoholic beverages. According to Alarcón (1995), by the beginning of 1988, Mexico became one of the developing countries more open to international trade39.

There existed some public disagreement, though, on the government’s decision to implement trade liberalisation policies at the same time as the stabilisation policies. The expected positive effects of trade liberalisation (a more efficient allocation of resources,  promotion of employment, redistribution of income) were to be met in contrast to negative macroeconomic conditions since different macroeconomic and probably contradictory measures were necessary for both policies.

Lustig and Ros (1993) state that the measures taken in July 1985 and the additional trade liberalisation measures in late 1987 did not make any significant contribution to the deceleration of inflation achieved by the stabilisation program. As they say «it may have been wiser not to have accelerated trade liberalisation until inflation was completely under control and growth was resumed since an exchange rate appreciation was very probable with the fixed exchange rate comprised under the 1987 PSE».40 Lustig and Ros thought that the trade off between the price stabilisation objectives and the external balance constraints could increase the conflicting pressures on the exchange rate, apart from reducing the share of trade taxes in government revenues. Obviously for domestic industry in need of restructuring its machinery and technology, a fixed exchange rate would make it prohibitive to achieve this goal, and many of them would be forced to close off having a strong negative effect on employment and would increase informality levels. That is exactly what happened.

On the political scene, during this period, issues such as drug trafficking and immigration often created frictions between the U.S. and Mexico. By 1986 with the continued plummeting of the price of oil as well as other negative economic factors, Mexico began feeling economically strapped and more vulnerable to diplomatic pressure by the U.S. In fact, 1986 represented a year of substantial change in Mexico’s foreign policy. Because of the harsh economic situation, Mexico’s foreign policy started moving towards a discreet and more politically pragmatic diplomacy.

According to George D. Moffett:

Facing an urgent need for U.S. support for a play to reschedule its foreign debt, Mexico began to change course, moderating ties with Salvadoran leftists, questioning whether to continue to give its support to Nicaragua’s Sandinistas, and also taking a lower profile as one of four Latin American nations in the Contadora process.41

At the same time, by the time Mexico adhered to the GATT on July 1986, the Contadora process had almost come to an impasse. Later, the peace plan for the region drafted by Costa Rican President Oscar Arias, also upstaged Contadora, leaving Mexico out of the process it had initiated.

B. The consolidation of trade liberalisation policies (December 1988- December 1994)

The trade liberalisation process started on July, 1985 and pushed ahead in 1987, consolidated only after December, 1988 when President Salinas de Gortari came to power. Salinas decided to undertake wide-ranging structural reforms including large privatisations (the no. of State companies was reduced from 617 in 1987 to 215 in 1994), deregulations (in finance, transport, communications, agriculture, forestry and fishing) and an active search for external markets for Mexican products. The three main pillars of Salinas’s policy were: to accelerate the process of modernising the industrial apparatus through the deregulation of foreign investment flows, to consolidate trade liberalisation and to further stabilize the economy. 

While trade liberalisation had advanced significantly, Salinas considered necessary to slash additional trade barriers from the agricultural sector, to privatise the pharmaceutical industry, and to privatise as much as possible the oil industry.

In the case of the agricultural sector, where a large number of unskilled workers were found, new measures were taken to reduce the total number of imports subject to import- licensing requirements importantly from representing 95.8 per cent in 1985 to 42.4 per cent in 1988, and to less than 10 per cent by 1991. In addition, important types of protective measures were eliminated or significantly reduced: credit for production was eliminated, credit for irrigation facilities was only provided on the basis of operational cost recovery, and subsidies almost disappeared. However, it is important to mention that around three quarters of non- processed agricultural goods were still subject to licensing requirements and certain products like animal feeds enjoyed high effective rates of protection (see table Ch. III-9).

Table Ch. III-9 Domestic Production covered by Import Licences and Tariff Averages, 1985-1989 (percentages) Sector 1985 1985 1986 1987 1988 1989 June December Import licence coverage Agriculture 95.8 62.4 57.6 42.2 42.4 38.4 Oil and gas 100 100 100 100 100 100 Other mining 51.8 4.3 4.3 0 0 0 Foodstuffs 98.1 56 38.2 25.9 23 20.5 Beverages & tobacco 99.5 99.4 99.4 20.6 19.8 19.8 Textiles 90.7 9.6 9.6 7 3.1 1 Apparel & footwear 99.1 81.4 81.4 52.9 0 0 Wood products 99.9 46.8 11.8 0 0 0 Paper & printing 74.5 6.7 6.7 6.3 0.3 0.3 Petroleum refining 94.3 87.4 87.2 87.2 87.2 86.4 Chemical products 86.8 24.8 21.9 2.5 2.4 2.1 Non-metallic mineral prod. 95.6 15.3 10.3 2.1 2.4 0 Basic metals prod. 86.8 0.4 0 0 0 0 Metal products 74 8.3 2.6 1 1.1 1.1 Machinery & equip. 90.7 28.8 17.7 1.7 2.7 1.6 Transport equipment 99 77 64.2 58 41.4 41 Other manufacturing 91.8 22.9 18.3 0 0 0 All sectors 92.2 47.1 39.8 25.4 21.3 19.8 Production weighted tariff averages Agriculture 8.6 12.9 13.2 7.4 6.5 9.2 Oil and gas 000008.6 Other mining 19.1 18.5 17.8 8 7.9 11 Foodstuffs 22.6 31.5 28.8 13.6 8.7 11.9 Beverages & tobacco 77 77 40.1 19.7 19.7 19.7 Textiles 32.5 44.5 37.2 14.7 14.2 14.8 Apparel & footwear 46.8 48.2 41.4 18.7 18.1 18.5 Wood products 37 41.2 37 17.7 16.7 16.9 Paper & printing 19.6 22.1 18.7 9.6 4.8 6.7 Petroleum refining 2.2 3 2.1 1 1.1 4.4 Chemical products 28.7 31.8 27.7 13.1 11.7 13.4 Non-metallic mineral prod. 31.7 39.4 33.2 15 14.6 14.9 Basic metals prod. 15.1 22.2 19.8 8 8.5 10.6 Metal products 35.7 38.8 30.1 15.1 13.8 14.6 Machinery & equip. 27.4 38.3 34.2 16.3 15.6 16.4 Transport equipment 39.2 41.6 31.9 14.4 14.4 16 Other manufacturing 50.8 53.1 37.8 17.7 17.2 18 All sectors 23.5 28.5 24.5 11.8 10.2 12.5 source: SECOFI quoted in Ten Kate (1992) and in "Trade Policy Review Mexico 1993", GATT, p.132. On the other hand, Salinas decided that export-incentive measures protecting large-scale manufacturing enterprises were to continue in force at least until 1993. Salinas continued to consider that these industries required additional adaptation periods to the new economic  conditions, while providing very small support or none to the rest of the economic sectors and subsectors. According to the Mexican government, trade policy sought to maintain similar protective levels among all sectors. However, selective support for the motor vehicle industry continued subject to foreign exchange balancing requirements and the limitation of imports to a given share of domestic sales. Indeed, effective rates of protection42 kept higher than average in consumer durables and capital goods such as automobiles, computers, iron, steel, metal manufactures, basic petrochemicals (oil and gas), petroleum refining, cement, textiles and spinning and weaving, as well as electrical appliances and equipment and electronic equipment and apparatus.43 (see table Ch. III- 10)

Table Ch. III-10 Effective rates of protection in Mexican manufacturing selected products, 1980-1991 (annual averages in percentages) 1980 1988 1989 1990 1991*

Food, Beverages and Tobacco Meat & dairy products 94 31.3 6.8 0.9 15.2 Coffee processing 56 36.6 3.9 -26.3 -8 Vegetable, animal oils & fats 107 -38.7 -45.1 -46.6 -28.4 Prepared animal feeds -35.6 317.2 288.4 317.2 173.3 Other foodstuff 28 -34.7 -17.9 0.9 15.6 Alcohol distilling & production 212 -59.7 -57.8 -55.6 -66.8 Textiles, Clothing and Footwear Spinning & weaving (soft fibres) 7 298.5 206 160.9 187.5 Spinning & weaving (hard fibres) 42 -25.3 -22.1 -40 -32.7 Clothing 119 2.9 3.7 0.5 8.2 Footwear & leather products 30 -55.1 -50.2 -50.7 -52.6 Chemicals, rubber & plastics Petroleum refineries 32 46.5 84.8 -8.1 113.6 Basic petrochemicals -45 -48.4 -20.1 -42.1 -12.2 Basic industrial chemicals 121 -0.3 41.55 44.5 94.2 Fertilizers and pesticides -48 -17.2 -42.1 -277.2 2618.5 Pharmaceutical products 30 -63.4 -70.1 -73.3 -72.8 Other chemicals 82 97.8 40 113.5 84.7 Basic metals Iron and steel industries 381.230.143.458.7 Non-ferrous metal basic industries 34 -30.3 -23 -15.4 23.1 Metal Products, Machinery & Equipment Electrical machinery & apparatus 65 104.7 63.2 64.3 62.3 Electrical appliance and housewares 134 263.8 209.9 163.8 183.9 Electronic equipment and apparatus 36551.945.64545.1 Other electrical equipment & apparatus 111 -30.3 -35.4 -38 -30.1 Motor vehicles 39.6 3.15 12.9 -18.1 Other transport equipment 60 59.5 41.3 27.5 24.6 Other Manufacturing Industry 89 -88 -45.1 -53.8 -52.6 *information covers only 1st trimester note: effective rates of protection were calculated as the difference between value added at domestic prices and value added at international prices source: Ten Kate and Mateo Venturini quoted in GATT's Trade Policy Review, Mexico 1993, p.149-150. With the exception of textiles, spinning, weaving, and footwear, the rest of the sectors and subsectors enjoying high effective rates of protection were consumer durables and capital goods industries. By 1989, the GDP of the capital goods industry represented 14.6 per cent of total manufacturing GDP. The percentage of the capital goods industry GDP divided by total GDP was around 3 per cent throughout the period 1980-1989 (see table Ch. III-11).

That same year, Salinas announced the reinforcement of the Industrial Modernisation and Foreign Trade Programme, PRONAMICE, with the purpose of:

• contributing to national industry’s growth through strengthening most competitive exports sectors;

• achieving a more balanced industrial development by fostering a better utilization of resources; 

• promoting and defending Mexico’s trade interests overseas; and

• creating employment and increasing consumer’s welfare.

PRONAMICE provided specific support for qualification and technological development, export promotion and financial assistance. Training programmes for labour, were also included in the programme. However, PRONAMICE did not provide, either, the expected support to medium, small and micro enterprises. The Mexican government continued, as it had done during the import-substitution period, providing protection and special incentives mostly to large-scale, capital-intensive industry, largely foreign-owned who were employing a relatively smaller labour force than micro businesses known to be the largest providers of employment.

Table Ch. III-11 Capital Goods Industry GDP Percentages by Type of Good, 1980-1989 (percentages) 1980 1981 1982 1983 1985 1986 1987 1989

T O T A L 100 100 100 100 100 101 102 100 Structural metallic products 3.8 3.7 4.4 4.3 3.4 3.6 2.8 2.3 Other metallic products, except machinery 1.9 2.0 2.1 2.5 2.2 2.6 2.6 2.1 Non-electric machinery and equipment 23.5 22.4 21.8 21.7 19.1 19.6 18.4 19.2 Electric machinery and appparatus 9.5 9.2 9.5 9.4 9.0 10.2 10.1 8.7 Electronic apparatus 5.9 5.5 5.6 7.3 5.7 7.2 7.6 7.1 Electric apparatus 6.6 6.4 7.2 7.7 7.5 8.4 8.6 6.9 Automobiles 24.5 26.4 23.7 18.4 24.2 21.3 24.2 26.2 Motors and cars' accessories 17.6 17.8 17.8 20.1 22.6 21.7 21.2 21.2 Equipment and transport material 6.5 6.4 7.6 8.2 6.1 6.6 6.7 6.2 source: Author's own calculations based on Sistema de Cuentas Nacionales de Mexico quoted in "La Economía Mexicana en Cifras 1999", p.291 To succeed with his long-term objectives Salinas needed to attract foreign capital. Sinclair (1993) believes that under U.S. pressure, the Mexican government was advised to relax its restrictions on foreign direct investment, especially in its export-oriented sectors and oil industry. However, the government needed to regain private sector’s confidence, first. A lot of investors had left the country after the nationalisation of the banking system in 1982.

In January 1989, he signed another agreement to fight inflation: the Pact for Stability and Economic Growth (PECE). Again, it was a tripartite agreement between government, labour and business organisations aiming at consolidating public finances. The exchange rate was stabilised by shifting it to a crawling peg system in which the peso will fall against the dollar by one unit a day (equivalent to an annual rate of depreciation of 16 percent). The pact also comprised a monetary discipline and a negotiated agreement to adjust minimum wages according to the expected inflation rate as well as keeping public sector prices constant. Its major components were huge reductions in the fiscal deficit, a tighter monetary policy, structural reforms, and limits on price and wages. During the year 1989 inflation remained below 20 per cent and growth rate was positive. By 1990 a stronger program of fiscal and trade reform was started, while deregulation and privatisation were intensified.

A key element of the positive developments of this period was a final real restructuring of the external debt that contributed to increase confidence in the economy. In March 1990, the Brady Plan reduced interest and principal external debt payments relieving the Mexican economy from a good part of the burden of sending big parts of capital flows to the international banking institutions. Finally, the debt-strangulation of the economy that had lasted more than 8 years could be overcome. The Brady Plan had a positive influence on investor confidence in the Mexican economy and translated into higher domestic and foreign investment and capital repatriation. By February 1990, Mexico’s annual interest bill was cut by U.S. $1.1 billion and the face value of its debt was reduced by about 16 percent. 

Government debt as a percentage of GDP declined from 62.4 per cent in 1988 to about 33 per cent at the end of 1994.44 As a result, the economy finally started recovering: GDP grew from 1989-1992 at 3.6 per cent per year, and by 1994 annual inflation had fallen to 7 per cent.

At the same time, the law was softened to attract foreign investment inflows. While foreign investment had been restricted in Mexico under the 1973 Law to promote Mexican Investment and regulate Foreign Investment (LIMIE), Salinas’ aimed at relaxing the “de jure” rigid controls. The 1973 law had reserved a large part of economic activities exclusively for the Mexican State, other activities for Mexicans or corporations with an exclusion of foreigners, and additional ones were subject to specific percentage limitations. Besides, all foreign investors, as well as Mexican firms with foreign participation were required to fulfil lengthy and burdensome administration requirements in the National Registry of Foreign Investments (RNIE) and obtain approval from the Mexican Foreign Investment Commission (CNIE).

An initial modification of the 1973 law was promulgated in 1989, with the “Reglamento de la Ley para promover la Inversión Mexicana y Regular la Inversión Extranjera”. While still keeping 141 economic activities partially or totally restricted to foreign investment, the need to obtain prior approval from the National Commission on Foreign Investment (CNIE) was waived for maquiladoras, small and medium-size enterprises, and for up to 49 per cent of any Mexican company. In addition, a number of petrochemicals until then reserved to the State Petroleum Company (PEMEX) were redefined as “secondary” petrochemicals, allowing foreign investment in their manufacture and distribution up to the level of 40 per cent.45

The Regulation on Foreign Investment also simplified the procedures for authorizing private companies to become involved in infrastructure developments, as well as investment projects, and relaxed barriers to entry by foreigners into the Mexican stock market. Foreigners were permitted to participate in the stock market through the establishment of trust funds approved by the National Stocks Commission and the CNIE. The acquisition of these stocks was unlimited. The Ministry of Trade (SECOFI) could also authorize series “A” shares, normally reserved for Mexicans, to be acquired in trust. For certain activities not yet open 100 per cent to foreign participation, the Regulation provided a temporary scheme of acquisition for a 20-year period through the “Temporary Investment Trust”. The Trust covered sectors such as domestic air transportation, maritime transportation, and gas distribution exploitation, use of minerals, secondary petrochemicals and manufacture of automotive components.

At the same time, there was also a marked reduction of State-control of the economy: more industries were privatised from 1989 to 1994. The number of State-owned enterprises (parastatals) was reduced considerably. Salinas further privatised important and bigger enterprises such as the fertiliser, steel and telephone companies, airlines companies, the state’s silver and gold companies and the Cananea copper mine (one of the ten largest of the world).

As a result and after eight difficult years, economic indicators finally started showing positive results. Other factors that had a positive impact in the economy and in investor confidence was the increase in international petroleum prices sparked by the conflict in the Persian Gulf, the absence of negative external shocks, the lowering of interest rates in the U.S., the entrance of national capital stimulated by the privatisation process, the reprivatization of the banking system on May, 1990, and the announcement of a future trade agreement with the U.S. on August 1990.

However, Salinas’ determination to bring inflation down to U.S. levels of 3 to 4 percent per year, through a harsh monetary policy was widely criticised. His policy did not permit a  necessary devaluation of the peso since he had decided to attract investors by showing them a healthy environment with low inflation, a positive budget and high real interest rates. High interest rates aimed at fighting inflation and attracting foreign investment, did not contribute to productive investment of medium, small and micro firms since they put the price of credit up. But, Salinas was convinced that the stability of the exchange rate would maintain the needed credibility on his economic policies.

One positive development, at least for manufacturing companies engaged in foreign trade, is that starting from 1989, NAFIN took over FOGAIN and FONEI and the situation for many manufacturing medium, and small-scale enterprises gradually started improving. NAFIN assumed FOGAIN and FONEI’s responsibilities, increasing the number of establishments benefiting from preferential credit. While the establishments still had to prove that they were able to pay back, commercial banks eased some of the credit restrictions. By 1994, NAFIN’s funds were providing preferential short-term credit to 140,000 manufacturing establishments.46 Two of the pre-requisites to receive credit at preferential rates, though, were that these manufacturing establishments belong to “priority sectors” and that they actively participate in foreign trade.

A real exchange rate appreciation followed stimulating private investment by decreasing the import price of intermediate and capital goods and creating a widening current account deficit. A large deficit in the trade account developed (-15.9 billion dollars in 1992). At the same time, import-competition meant bankruptcy, employment lay-offs or a move towards informality for many national non-competitive businesses. It also obstructed the growth of exports and promoted investment in capital-intensive operations. In addition, the real exchange rate appreciation policy, together with the reduction in the price of imports, continued subsidising Mexican large corporations and U.S. exporters. Government officials justified the growing deficit saying that the industrial sector needed imports of machinery, equipment and other capital goods as their essential ingredients to promote sustained technological development of the Mexican economy.

During the period the author calls “the consolidation of trade liberalisation policies (1989-1993), Mexico moved more towards a more passive and cautious foreign policy. Faced with the hard economic reality of the country, Salinas de Gortari decided to take a real and clear turn in policy making sure not to take any action that could threaten his fruitful economic relationship with the U.S. Salinas stated that the country’s economic development was the first priority in the Government’s agenda and called for avoiding any irritation of the northern neighbour.

On the one hand, Salinas knew that without the aid of the U.S., Mexican economic growth would be impossible to achieve. On the other, Salinas was also faced internally with political pressures. The old pillars of the PRI political edifice began to crumble when dissatisfaction with authoritarian and anti-democratic politics, as well as corruption were combined with more than six years of continuous economic downturn. Corruption scandals undermined the credibility of the PRI and non-PRI candidates started gaining force. Passive resentment turned into active voting for the opposition and there were widespread rumors that Salinas had not won the 1988 election.

At the same time, the depth of the economic crisis was so great and the tensions it created in the political system were so acute that Mexicans were prepared to accept radical solutions, even a complete overturn of the relationship with the outside world based on the recognition that self-sufficiency was an illusion. 

The opening of the economy and the introduction of an export-led model of growth represented something more than a new economic policy; they were part of a political initiative that involved a profound revision of the Mexican perception of the outside world and, therefore, of the established notions of nationalism, sovereignty and self-determination.

According to Roett (1993), George Bush Senior’s positive redefinition of U.S. policy toward Central America eased the way for Mexican foreign policy’s reorientation. Bush decided to terminate U.S. support for the Nicaraguan contras and to support a peaceful, negotiated settlement of the civil war in El Salvador. At the same time, with the collapse of the Soviet Union and world communism in 1989-1990, the revolutionary left in Latin America weakened and civilian governments were restored through direct elections in the whole region (with the exception of Cuba).47

Salinas realised that to modernize the country economically would also require significant adaptations of the political system. However, he decided that political liberalization would come only after economic liberalization: put the economic house in order and all good things will follow. He believed that Russia’s struggle to manage political and economic liberalisation simultaneously was not the best example.

1. NAFTA’s birth (January, 1994)

According to Wilkie and Lazin, it was the Mexican President Salinas de Gortari who, in February 1990, explicitly proposed to create NAFTA to the U.S. President George Bush Senior who, seven months later, notified Congress of the administration’s intent to seek a free trade agreement with Mexico48. NAFTA became President Bush’s “Enterprise for the Americas Initiative” first step towards reshaping U.S.-Latin American relations. In October of that year, Canada joined the negotiations. After a “fast track” approval by the U.S. Congress, on December 17th, 1992, the text of the North American Free Trade Agreement (NAFTA) was signed by the Presidents of the three nations and it came into force as of January 1st, 1994.

The purpose of the agreement was to create an expanded and secure market for goods and services, to ensure a predictable commercial framework for business and investment opportunities and to enhance the competitiveness of NAFTA-partner firms. Furthermore, its objectives were to eliminate trade barriers, facilitate cross-border movement of goods and services, promote conditions of fair competition and increase investment opportunities between the three signatory countries.

The Mexican government declared that trade liberalization pursued through NAFTA was complementary to its policy objectives in the multilateral trading system since it affirmed its rights and obligations under the GATT.49 However, the implementation of NAFTA would obviously lead under the General Agreement on Tariffs and Trade to trade diversion by intensifying preferential trade with the U.S. and Canada. NAFTA specified that in the event of any inconsistency between its provisions and those of the GATT, NAFTA’s provisions would prevail.

NAFTA’s announcement came, however, at a difficult moment: U.S. industries were facing stiff competition from abroad, the economy was in a recession and unemployment was rising. On the U.S. side Economists and major U.S. business groups favoured the signing of the agreement arguing it would help create jobs in the long-run, and will have multiplier effects on economic growth, as well as keeping the quality of the goods high and prices low. 

However, there were some groups that strongly opposed the agreement; trade union organisations such as the AFL-CIO (American Federation of Labor-Congress of Industrial Organizations), environmental groups, and groups such as the textile industry and Florida fruits and vegetable growers who enjoyed special Government subsidies and favors and were afraid of losing them.

NAFTA’s agreement created by January, 1994 a 6.5 trillion free-trade area covering 360 million people, becoming the world’s largest trading block. In 1993, President Clinton pledged his support for the trade agreement stating that if Mexicans grew richer they would import more American goods. He said: «Mexican citizens spend more money in real dollar terms on American products than Germans, Japanese or Canadians». President Clinton urged Americans, as well, to embrace change by trying to «create the jobs of tomorrow in the U.S.».50

The three countries’ economies were very different from each other, but considered complementary since the United States had a relative abundance of high technology, Canada a relative abundance of natural resources and Mexico a relative abundance of low-skilled labour. Much of international trade between them had the form of a two-way exchange within industries (intra-industry trade) probable driven in large part by economies of scale.

Table Ch. III-12 Participation of Mexico in the Import of U.S. Manufacturing Products, and Average Tariffs Imposed to U.S. Manufacturing Products, 1985-1994 Mexico's participation in the Average tariffs imposed on import of U.S. products U.S. manufacturing products (ad-valorem percentage) 1985 3.21 1986 3.32 1987 3.94 1988 4.42 1989 5.10 4.58 1990 5.44 4.43 1991 5.84 4.80 1992 6.21 4.57 1993 6.50 4.34 1994 7.21 source: United States Department of Commerce (USDC), International Trade Division. It is very important to state that even if NAFTA created a lot of excitement, and all newspapers and scholars were writing about it, trade liberalization most important steps had been taken before. Almost every tariff and non-tariff barriers were already very low between Mexico and the U.S. before the entrance to NAFTA. By 1989, for example, U.S. manufacturing goods were covered with an ad-valorem average tariff of 4.6 per cent that went further down to 4.3 per cent by 1993 (see table Ch. III-12).

Most exports from Mexico to the U.S in 1990 were also already charged with a tariff of 4 per cent. However, traditionally protected industries still showed high effective rates of protection. For example, U.S. electronics and computer products faced an average import duty of 13.2 per cent. Other 357 products were taxed with more than 20 per cent of their value.

The case of Canada was very similar to that of the U.S. Canadian exports to Mexico (49 per cent) were already covered with a tariff of 10 per cent of its value. Less than 1 percent paid import-licenses of 5 per cent of its value, and 27.6 per cent were taxed with 15 per cent and 20.3 per cent with a tariff of 20 per cent. Most Mexican exports to Canada (58 per cent)  paid preferential tariffs that oscillated between 0.1 and 10 per cent of the products’ value and only 1.3 per cent of all imports from Mexico paid tariffs higher than 20 per cent of their value. Only some special products like tequila were subject to a tariff as high as 183.1 per cent of its value.51

It is also very important to mention that NAFTA only created a free trade area, not a customs union or a common market as the European Union did. It did not include free labour mobility of people among its members, either. Neither did it aim at a standardisation of regulations and laws, nor to a macro convergence or a monetary union. Finally, it did not have a major institutional superstructure with a common foreign policy or military co-ordination.

While NAFTA only extended a process of integration between the United States and Mexico that was already underway by continuing to reduce trade barriers, the agreement gave investors the security needed and the promises of long-term economic policies. The process needed to be taken a step further to obtain public confidence and recognition. As it was mentioned before, above all, the most important benefit expected by the Mexican government was the increase in foreign investment and the return of Mexican capital that could mean creation of jobs to Mexicans.

The Mexican official speech presented to the public when signing NAFTA was as «the final cure for all illnesses». Government officials said that the agreement was going to increase economic efficiency, expand markets for exports, recover economic growth, stimulate technology growth and employment, raise wages and reduce poverty and inequality. It was also stated that since agriculture would finally develop at its maximum without any barriers to grow, migration would be reduced and wage differentials between rural and urban workers would disappear.

Mexico represented a very attractive market to U.S. exports, and by increasing markets in a country like Mexico, the U.S. was probably planning to reduce its trade balance deficit in order to be able to compete with Japan and the Economic Union (EU). Grinspun and Cameron stated «NAFTA was a strategic response by the United States to global trends such as the increasing economic threat arising from the expanded and unified commercial blocks of Europe and Japan». They claimed that the relative decline of U.S. hegemony led to a new interest in regional and bilateral trade agreements in the Western Hemisphere.52 They argued that the U.S. government also wanted to move labour-intensive industries to Mexico, for U.S. domestic industry to concentrate on high-technology and increase its competitiveness in relation to other trading blocks. On the multilateral side, Aggarwal argues that the clearest pressure towards NAFTA in the U.S. came from frustration with the slow movement throughout the late 1980s of the Uruguay Round.53

On the other hand, some of the main factors that had pushed Mexican policy makers to seek further free trade with the U.S. were the fear that regional integration elsewhere in the world and in the western hemisphere, will leave the country out of the global scene. In addition, Mexico wanted to avoid future protectionist pressures from the U.S. market. Thirdly, needed foreign investment seemed hard to come from Europe and Japan, so the country wanted to secure U.S. investment that could stimulate growth and prosperity.

The agreement called for a reduction of tariffs at periods of 0, 5, and 10 years (see table Ch. III-13) and for some sensitive products for a maximum of 15 years. The system of general preferences to Mexican exports was consolidated. The exemption of tariffs applied to the totality of goods produced in the region and to those classified as having inputs coming from  the region. The U.S. and Canada agreed to exempt from tariffs the following percentage of Mexican non-oil exports and Mexico responded in a like manner:

Table Ch. III-13 Comparison of gradual tariff reduction on imports from and to Mexico

Year U.S. Canada Mexico (imports from (imports from the U.S. and Canada, Mexico) respectively

0 84% 79% 43% 41% 5 8% 8% 18% 19% 10 7% 12% 38% 38% 15 1% 1% 1% 1% source: México: Información Económica y Social, Revista Internacional del INEGI, Mayo–Agosto 1992, vol. iv, no.2.

All non-tariffs barriers (NTB’s) such as import licences, quotas, and other quantitative restrictions to regional exports and imports were eliminated and exports were not to be discriminated by provinces or regions within the countries. However, each NAFTA country kept the right to impose border restrictions in special circumstances such as necessary protection of human, animal or plant life, health, or the environment. The treaty provided for the use of drawbacks or the refund of customs duties on materials used in the production of goods subsequently exported to another NAFTA country.54 A series of arrangements were agreed, as well, on sectors traditionally protected by Mexico such as automobiles.

Within the NAFTA context, it was agreed that all North American investors should receive the «most favoured nation (MFN)»55 or «national» treatment, whatever was most favourable. The treaty removed significant investment barriers in new industrial sectors, ensured basic protection by expanding the right to manage and control investment and repatriate profits. The agreement also provided a mechanism for the settlement of disputes between investors and the NAFTA country hosting them. And, most of all, NAFTA gave confidence to investors.

Under NAFTA, investment covered all forms of ownership and interests in a business enterprise, tangible and intangible property and contractual investment amplifying the scope within which investors could decide on how and where to invest, how much to pay their workers and which benefits to provide them. A NAFTA investor could seek either monetary damages through arbitration or the remedies available in the host country’s domestic courts. To be in accordance with the prevailing law, in the case of Mexico exceptions were made concerning constitutional requirements reserving certain activities to the Mexican State (energy, communications, railroads, postal service -excluding message carrying systems-, telegraphic services, radiotelegraphy, issuance of currency, control and surveillance of ports and airports). Other reservations were made on additional sectors including transport, telecommunication, construction, educational services, and commercialisation of petroleum products, fishing, and newspaper publishing.

In the NAFTA accord, services were also an important part of the negotiations, including financial and banking services, transportation, and telecommunications and government procurement. Investment requirements were eased to enter the Mexican financial market. Each NAFTA country was required to treat service providers of the other NAFTA countries no less favourably than it treats service providers of any other country in like circumstances  giving them the most favoured-nation treatment. The following agreements were made for each service division:

¾ Financial Services: financial service providers of a NAFTA country could establish in any other NAFTA country banking and securities, insurance operations as well as other types of financial services such as finance companies. Each country permitted its residents to purchase financial services in the territory of another NAFTA country. Mexico’s permits to establish financial institutions in the country were subject to certain market share limits that applied during a transition period that ended in 2000. Thereafter, temporary safeguard measures were applicable in the banking and the securities sector, but not beyond January 2007. Concerning the rules of origin in this subject, the United States and Mexico decided to use a « residency » classification or a firm’s nationality determined by the place in which it was incorporated to permit trading of financial partners. Canada used the « control » classification that stated that the institution must have more than 50 percent of its shares owned by shareholders residents of NAFTA countries.

Mexico would permit Canadian and U.S. finance companies to establish separate subsidiaries to provide consumer lending, commercial lending, mortgage lending or credit card services. However, during the transition period, their aggregate assets would not exceed three percent of the sum of the aggregate assets of all banks and all types of financial institutions in the country. The above-mentioned limit of percentage share was to be lifted after the transition period;

¾ In the banking and securities sector, foreign ownership would be restricted to 8 per cent of the Mexican aggregate market share limit at first, allowing this market share to rise 1 per cent a year for seven years, to 15 per cent by 1999 and 100 per cent in 2000. In securities firms, up to a 10 per cent foreign market share was allowed at first, rising to 20 per cent over six years, then to 30 per cent over the next four years, after which it would disappear. After the transition period, bank acquisitions were to remain subject to a four percent market share limit;

¾ One of the most attractive markets opening to U.S. and Canadian companies was that covering insurance with a great potential for growth since the Mexican market was underinsured. Canadian and U.S. insurers gained access to the Mexican market in two ways. First of all, by establishing joint ventures with Mexican insurers, foreign insurers would be allowed up to a 30 per cent share of the majority of the market by that time only reserved to Mexican companies, and increasing their foreign equity participation to 51 per cent in 1998 and to 100 per cent by the year 2000. Second, by establishing subsidiaries with a 6 per cent limit of market share, they could gradually increase it to 12 percent in 1999. These limits were to be eliminated on January 1, 2000 and the restriction would end after seven years;

¾ Another NAFTA provisions permitted the temporary movement of business persons related to cross-border services. While NAFTA did not create a common market, it did grant temporary entry to four categories of business persons: business visitors, traders, intra-company transferees, and certain category of professionals56;

¾ Land Transportation: Since most merchandise traded between the three countries was transported by land, the agreement would eventually end restrictions preventing land transportation across the border in a 6-year period. After an initial three year period of harmonization of safety and regulatory standards, U.S. bus and truck 

companies could acquire up to 49 percent ownership in Mexican companies that own carriers that provide international cargo services, up to 51 percent seven years after and finally 100 percent, ten years later;

¾ Government Procurement-the agreement opened a significant part of the government procurement market in each NAFTA country on a non-discriminatory basis to suppliers from the other NAFTA countries for goods, services and construction services. Mexico would phase over a transition period its substantial procurement of energy-related goods and services;

¾ Telecommunications-NAFTA eliminated tariffs on trade in telecommunications equipment and provided that public networks and services be available on reasonable and non-discriminatory terms for firms and individuals who use networks to conduct their business. The three countries ensure that reasonable conditions of access and use include the ability to: lease private lines; attach terminal or other equipment to public networks; interconnect private circuits to public networks; perform switching, signalling and processing functions; and use operating protocols of the user’s choice. However, the operation and provision of public networks and services were not made subject to NAFTA.57

By the end of 1998, Mexico was importing 46 billion dollars on goods from the U.S. while they had only represented 9.9 billion dollars in 1985. Almost 5 times as much goods were imported in only 15 years. In a short period of time, Mexico became U. S. third largest trading partner after Japan and Canada. At the same time, the United States accounted for about 75 per cent of Mexico’s trade with 87 per cent of all exports and 74 per cent of all imports. For Mexico, trade with Canada was less important. However, while 70 percent of Canadian and Mexican trade was conducted with the United States, only 20 percent of U.S. trade was with Canada and only 9 percent with Mexico (see table Ch. III-14 and figure Ch. III-2).

Table Ch. III-14 Merchandise Imports by Country of Origin, 1980-1998 (percentages) TOTAL United Germany Japan France Canada Spain United Italy Brazil Argentina Switzerland Other States Kingdom 1980 1006755322222 1 18 1981 1006755332223 1 17 1982 1006466223232 1 17 1983 1006644432222 0 19 1984 1006844232222 1 18 1985 1006945222221 2 19 1986 1006866222221 1 18 1987 1006866331211 0 17 1988 1006966221212 1 18 1989 1006954221111 1 19 1990 10066652222221 111 1991 1007454211112 0 18 1992 1007145221122 0 19 1993 1007145222112 0 19 1994 10069462221120 111 1995 10071462221110 110 1996 1007645121111 0 19 1997 10075441211110 111 1998 10074421211110 012 source: "La Economía Mexicana en Cifras 1995", NAFINSA, p.333; and 1998, p. 463.



Figure Ch. III-2 Export Goods by Country of Destination, 1998

United Kingdom Germany 1% 1% Other Canada 8% France Japan Italy Brazil 1% 0% 1% 0% 0% Spain 1%

United States 87%

source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", NAFINSA, p.331, and 1998, p. 457.

Concerning the political context, and despite the desire to limit political opening, the economic reforms removed many of the tools by which Mexican authoritarianism sustained itself. Ironically, it was Mexican opposition party activists that encouraged the U.S. government to pressure Mexican government authorities to open the political system by airing Mexican domestic issues in the U.S. Once the Mexican Government opened the economy, it also gradually lost its tight control of the internal political process. As a result, the PRI had to adapt to a more competitive electoral game and share power with the opposition. The Mexican Congress, particularly the Chamber of Deputies, gained influence. However, as it will be mentioned in the preceding chapters, the transition did not take place without important developments that even affected investor confidence at the end of 1994: the Chiapas Zapatista Revolt, the assassination of the PRI presidential candidate and the murder of the Secretary General of the PRI.

2. NAFTA’s labour parallel agreement and complaints presented

In NAFTA’s preamble, the three signatories affirmed their commitment to promote «employment and economic growth in each country through the expansion of trade and investment opportunities and to enhance the competitiveness of North American firms in global markets». They also confirmed their resolution «to promote sustainable development, to protect, enhance and enforce workers’ rights and to improve working conditions in each country».58

However, after political pressure from trade unions, mainly the AFL-CIO, claiming that the good general intentions in the preamble were not enough, the Clinton administration agreed to negotiate separate labour and environment agreements with Mexico to protect U.S.  jobs. By mid-1993, two side agreements were added to NAFTA negotiations. The Mexican government publicly opposed the supplementary side agreements annexation to the already signed NAFTA since Salinas considered it as an obstacle to his trade liberalisation policies. However, since Clinton had made the opponents of NAFTA a campaign’s promise to include them in order to obtain their Congressional approval, Salinas had to comply.

Nevertheless, the Mexican government announced three conditions for its support:

1. issues settled in the main body of NAFTA must not be re-negotiated;

2. the side agreements must not constitute a hidden form of protectionism and no trade sanctions were to be included; and,

3. the agreements must not derogate from national sovereignty,

After several deliberations, an agreement was reached between the countries. The side agreements called for the establishment of two secretariats, one in Canada to handle environmental complaints, and the other in Washington to deal with labour issues. In this paper, only the labour side agreement or the North American Agreement on Labour Co- operation (NAALC) will be discussed.

Within the NAALC, the three countries resolved to ensure that its labour laws and regulations provide for high labour standards consistent with high quality and productivity workplaces. In addition, they agreed to promote high-skill, and high-productivity economic development by: investing in continuous human resource development; promoting employment security and career opportunities for all workers; strengthening labour management co-operation to promote greater dialogue between worker organisations and employers; promoting higher living standards as productivity increases; encouraging consultations and dialogue between labour, business and government; fostering investment with due regard of labour laws and principles; and, encouraging employers and employees in each country to comply with labour laws and to maintain a progressive, fair, safe and healthy environment.

To achieve the preceding economic and social goals, and in accordance with the International Labour Organisation standards, the three countries decided on the following objectives:

1. improving working conditions and living standards in each Party’s territory;

2. promoting to the maximum extent possible the following labour principles:

(a) respecting minimum employment standards such as the payment of minimum wages and over time;

(b) restricting the employment of children;

(c) preventing and compensating occupational accidents and sicknesses;

(d) providing equal wages to men and women;

(e) prohibiting forced labour;

(f) eliminating employment discrimination by race, religion, age, sex or other; 

(g) protecting migrant workers, providing them with the same legal protection as nationals in respect of working conditions;

(h) respecting workers’ right to organise and to collective bargaining; and their right to strike and defend their collective interests;59

3. encouraging co-operation to promote innovation and rising levels of productivity and quality;

4. encouraging publication and exchange of information, data development and co- ordination to enhance understanding of the laws and institutions governing labour;

5. pursuing co-operative labour-related activities on the basis of mutual benefit;

6. promoting compliance and effective enforcement by each Party of its labour law; and

7. fostering transparency in the administration of labour law.

In addition, the Commission on Labour Co-operation was composed of the following:

1. A Ministerial Council (MC) comprising the three labour ministers in charge of promoting legislation to unify standards on occupational health and safety, child labour, human resource development, work benefits, social programs for workers and their families, labour-management relations, formation and operation of unions, collective bargaining procedures and labour dispute resolution;

2. An International Co-ordinating Secretariat (ICS) providing technical and administrative support to the council to set up enforcement problems through an evaluation committee of experts (ECE). The ICS advises the three member nations on the enforcement of labour laws, and monitors conditions in labour markets, including unemployment, wages and productivity;

3. And three National Administrative Offices (NAO) in charge of providing information to the Secretariat and receiving and registering complaints on non-enforcement of labour laws.60

The mechanism to assure that all three countries enforce their existing labour laws and regulations was set to follow a five-stage process:

1. People or groups in each country with a legal recognised interest, as determined by domestic law, would be allowed to file complaints if one of the other countries fails to enforce its own laws. Complaints go to the NAO in each country;

2. The Ministerial Council (MC) with representatives from the three countries would then try to negotiate settlements;

3. If representatives of the MC cannot agree, and if the complaint asserts that the failure covers three prerequisites: is covered in the agreement; is persistent (or there is a systematic «pattern» of non-enforcement); and, provided only that such non- enforcement has significant trade-related consequences, any party may request the establishment of an ECE which issues a report to the Council. If the ECE rules against a country, the accused country has 60 days to develop a plan that enforces the law and satisfies the complaining country; 

4. If no settlement is reached in 60 days (and only in the case of minimum wages, workers’ health and safety and child labour issues), the Council refers the dispute to an arbitration panel of independent experts (consisting of five individuals appointed by the parties) that can impose a fine on the offending country of up to $20 million and require that an enforcement plan be drafted within 60 days;

5. In the last step of the enforcement mechanism, Canada demanded a special treatment. If Mexico or the United States refuses to pay the fine and correct the problem, the injured country can raise tariffs or cancel other trade concessions. If Canada refuses to obey, the panel should ask a Canadian court to order the government to do so. The court must comply with such requests and no appeal is allowed.61

NAALC also pretended to expand and improve trilateral information exchanges, visits and seminars, under co-operative programs between the Mexican Labour Secretariat (STPS) and its U.S. and Canadian counterparts (the U.S. Labour Department (USDOL) and Labour Canada (now Human Resource Development Canada). The goal was to help Mexico, the U.S. and Canada learn from each other’s experience to improve implementation and enforcement of labour laws.62 Enforcement of domestic labour law through on-site inspections, mandatory reporting and record-keeping, mediation, conciliation or arbitration was also included as part of the exchanges.

The labour side agreement is a beautiful piece of written art concerning the protection of workers’ standards. However the most criticised aspect of this side agreement has been that it only has a limited scope when it comes to its enforcement. In fact, it only addresses enforcement issues on questions of minimum wages, workers’ safety and health, and child labour. They are the only issues to be subject to fines and trade sanctions. These enforcement measures were, by the way, accepted after much opposition from the Mexican government who could impose that even if penalties were to be applied, the size of the fines was to be relatively small and the penalties could only be imposed after a lengthy bureaucratic process that could last several years.

The rest of the issues mentioned above (objectives 2d to 2j), notably those dealing with the rights of association, organising and bargaining, can only be subject to practical recommendations by the Ministerial Council. It is also recognised that trade sanctions or fines apply to total trade and are not necessarily directed against the specific firm or industry that is engaged in labour abuse. NAALC’s infractions are also subject to official consultations and a review by independent experts chosen by the parties in dispute, being difficult to assure that these experts will always be neutral.

Unfortunately, NAALC did not address, either, issues such as suppressed wages, labour stability or profit sharing. Besides, the references to reasonable wages and to a fair distribution of income that were in the preamble of the original U.S. draft were also completely left out in the approved version. Other criticisms made to the process of enforcement of labour law is that consultations among the NOAs and all subsequent stages of the process can only be initiated by national governments, and only persons with a «legally recognised interest, as determined by domestic law», will be entitled to challenge their governments regarding the enforcement of its laws and regulations. Moreover, affected individuals and concerned groups wishing to challenge non-enforcement in a NAFTA country other than their own are provided with no process by which they can seek to initiate a Labour Commission investigation of the matter.63 

The right to tri-national arbitration has, however, proven to be a powerful tool at least for investigations and hearings on charges of non-enforcement of labour laws, if not for their enforcement. In 1994, two U.S. unions and a group of NGO’s presented three separate «submissions» alleging multinational corporations violated, and the Mexican government failed to enforce legal protections of freedom of association and the right to organise and bargain collectively. The first one was against management at a General Electric (GE) plant in Ciudad Juarez, the second one was against Honeywell in Chihuahua city both involving allegations of firing of workers who tried to organise independent unions. The U.S. Labor Department’s National Administrative Office (NAO) for the NAALC accepted these «submissions» and held public hearings. However, NAO decided that the two submissions did not merit further consideration at a higher stage since it did not find evidence that the Mexican government had failed to comply with its labour laws.

The Mexican NAO received and accepted a similar submission early in 1995, involving U.S. company’s actions in the U.S. against Mexican-born workers. The Mexican telephone union (STRM) in co-operation with the U.S. Communication Workers of America (CWA) made a submission to the Mexican NAO accusing the U.S. Company Sprint of firing 235 Mexican workers in San Francisco for trying to organise a union. The submitting party argued that U.S. arbitration panels unjustly threw out the petition for reinstatement of workers.64

A priori, Mexico does not seem to be enforcing the labour side agreement until present. Complaints about workers being fired for engaging in independent union activities from the Confederation of Mexican Workers (CTM) have not resulted in workers' reinstallement. Besides, it seems that the fear of undermining competitiveness of businesses and obstructing the creation of a favourable environment for investment has pressured the labour side agreement arbitrators to favour businesses not only in Mexico, but also in the other two North American countries.

On the question of trade conflicts, by the end of 1995, NAFTA had not reduced the number of trade conflicts between Mexico and the U.S., nor had it prevented it from unfair trade practices. On the contrary, the number of trade disputes between the two countries has multiplied. Mexico is at present number four on the list of countries that resort to the application of tariff sanctions. Mexico has applied compensatory quotas to 12 import products from the U.S. entering the country by resorting to unfair trade practices.65

The Ministry of Commerce and Industrial Promotion (SECOFI) gave official information on the trade disputes within NAFTA between the U.S. and Mexico. In fact, commercial conflicts related to tuna, avocado, tomato, cement, steel and freight transportation had multiplied. By the end of 1995, there were several complaints such as the one made by the president of the Confederation of Industrial Chambers (CONCAMIN) who stated that the Mexican government should ask the U.S. government for a more respectful enforcement of NAFTA.66

The first complaint presented before NAFTA was in the case of countervailing duties filed by Mexico on imports of certain types of steel imports from the United States. A panel was convened in November 1994 that ruled that the complaint was not sustained. Until December 1995, there had also been other four disputes brought by Mexican exporters questioning the legality of U.S. imposed countervailing duties on imports of leather wear, porcelain-on-steel cookware, cement and oil tubes from Mexico.

U.S. imports of Mexican beef meat have also encountered some problems since several American associations are promoting non-tariff barriers to stop Mexican beef from coming in. 

On the other hand the rapid opening of Mexican borders to U.S. pork meat since it enters the market free of tariffs, has affected the Mexican meat market. Other products like pork, poultry and avocados are being restricted to enter the U.S. market, too. Mexican producers claimed in 1995 that they were suffering from trade constraints in the U.S. market and suspected that some sanitary and phytosanitary regulations were used as U.S. trade barriers in the imports of such farm products as avocados and poultry coming from Mexico. They protested saying that imports of these same products in the Mexican market had started displacing Mexican production.

By the end of 1995, a group of U.S. producers presented a safeguard demand to stop the entry of Mexican tomatoes, and peppers exports. The demand of safeguard claimed lack of competitiveness at an international level and ask for a period of certain years to protect their production. The Ministry of Commerce (SECOFI) declared that the intentions to prevent Mexican exports were not acceptable and were against NAFTA. After several bilateral negotiations, it was agreed to export them only during certain months of the year to some U.S. northern states.

At the end of 1995, the U.S. government also announced that it will not provide licences to Mexican cargo truck drivers to introduce merchandise in its territory claiming that the compatibility of technical and safety standards, under which Mexican trucks in the U.S. will be crossing the border, was still not clear. U.S. action violated NAFTA annex 1, which provided that:

‰ On December 18th. 1995, Mexican and U.S. trucking companies would have full access to and from each country’s border states;

‰ On January 1st. 1997, Mexican companies would be permitted to provide cross- border scheduled bus services;

‰ On January 1st. 2000, Mexican and U.S. truckers would have full access to each other’s countries.

The Minister of Commerce, Mr. Blanco, declared that the decision of the U.S. government was not consistent with the obligations contracted under the NAFTA and stated that technical and safety standards were compatible between the two countries. Since the conflict was not resolved, the leader of the National Federation of Transports, Mario Rojas Gallardo threatened to go on strike since it considered Mexican government’s attitude too “soft” before U.S. violation of NAFTA. The Mexican government requested the establishment of an arbitration panel, as provided by the NAFTA dispute resolution mechanism. A preliminary ruling issued in November 2000 found that the U.S. decision to avoid implementation of NAFTA provisions was a violation of its national treatment and most favored nation treatment obligations for services and investment. The panel’s ruling called for the U.S. to take the necessary steps to bring its practices in compliance with its obligations under NAFTA.

On the other hand, on May 1995, the first complaint over national treatment was brought by the U.S. Trade Representative to Mexican authorities complaining on Mexican government’s denial to provide express-delivery business with licenses. He argued that Mexican firms did not require such licences and could use large trucks to deliver their shipments and that the Mexican government was discriminating against them.



3. The New 1993 Foreign Investment Law and the December 1994 Crisis

As mentioned before, Mexico’s main interest in signing NAFTA’s agreement was not only to increase exports and attract modern technology to Mexico, but also to raise private foreign investment and attract national capital that had gone abroad. However, when signing NAFTA in December of 1992, there were still some constitutional rigidities in the foreign investment law.

Most of the constitutional restrictions were not going to be obstacles for long since on December 1993, a new Foreign Investment Law (LIE) was promulgated with the objective of increasing foreign participation in areas that had been considered strategic until then and that had been excluded from NAFTA negotiations: mining, fishing, financial services, petrochemical products, natural gas, electricity, communications, highways, railroads, ports, airports and maritime and air services. No longer was permission required for foreign investors to take over Mexican firms, and neither maquiladoras nor export companies would require official authorisation for their establishment. The new regulation allowed 100 per cent foreign ownership and effectively gave foreign capital access to areas from which it had been completely excluded or restricted before.

The petrochemical sector considered as the spinal column of national sovereignty was further privatised, as well, with an additional reclassification of 15 strategic petrochemicals to secondary status in 1993. In addition, new regulations opened the doors for the private sector in those sections of the basic petrochemicals sector that had not yet been opened to them through reclassification.67 The State reserved for itself only the production and marketing of six basic petrochemicals: ethane, propane, butane, pentane, heptane, hexane, naphta, and the raw materials for producing black carbon.

NAFTA also had the effect of attracting foreign investment from other parts of the world. Firstly, by sending signs of economic security for assets; secondly, by giving confidence in policy continuity or policy irreversibility, and; thirdly, by providing protection from a possible expropriation, as it had happened in the past. Indeed, since the announcement of NAFTA, there was a shift of both European and Asian companies’ production and investment from Asia to Mexico in order to meet local-content and other NAFTA requirements.

It is important to remember that foreign capital had played and continues to play a fundamental role in Mexico’s industrialisation. Transnational companies (TNC’s) produce more than one third of the country’s industrial output. This proportion has been as high as 40 per cent for the capital goods sector, and over 60 per cent for consumer durables. Multinational firms or TNC’s are among the most dynamic sources of industrial growth and technology transfers, even though they contribute heavily to the country’s external deficit.68

Foreign investment was badly needed for the development of the Mexican economy and the creation of jobs. But, there was also the fear of foreign investment increasing its political control of the country. It was believed that TNC’s power could restrict the liberty of the Mexican government to apply domestic policies favouring labour relations on income redistribution, development programs and social programs.

Foreigners’ participation in sectors, non-reserved for the government, increased. In addition, the amount of authorised foreign investment almost tripled in only two years. Foreign capital was permitted to invest in many areas that were prohibited until hitherto and firms were authorised to issue stock that could be sold to foreigners. Large inflows of investment entered the country. Although the economy experienced a substantial capital  inflow during 1989 and 1994 amounting to $101 billion dollars, the majority was directed towards the acquisition of stock shares and other portfolio investments, rather than to the development of new productive capacity. It was this growing importance of portfolio investment that would become a time bomb for the economy. Between 1989 and 1994, only a third of total foreign investment was considered direct investment. Portfolio or speculative investment in stocks and bonds represented 58 per cent of total during the same period (see table Ch. III-15 and figure Ch III-3).

Table Ch. III-15 Total Foreign Investment, Direct and Portfolio 1980-2000 (millions of current US dollars and percentages) YEAR TOTAL FOREIGN PORTFOLIO % of Direct FOREIGN DIRECT INVESTMENT Investment INVESTMENT INVESTMENT out of total f.i. 1980 2216 2156 60 97.3 1981 3831 2835 996 74.0 1982 2300 1655 645 72.0 1983 -58 461 -519 -794.8 1984 -45 390 -435 -866.7 1985 -104 491 -595 -472.1 1986 1006 1523 -517 151.4 1987 2244 3246 -1002 144.7 1988 3595 2594 1001 72.2 1989 3391 3037 354 89.6 1990 6003 2634 3369 43.9 1991 17483 4742 12741 27.1 1992 22434 4393 18041 19.6 1993 33308 4389 28919 13.2 1994 19154 10972 8182 57.3 1995 -189 9526 -9715 -5040.2 1996 22602 9185 13417 40.6 1997 17869 12831 5038 71.8 1998 10734 11312 -578 105.4 1999 22881 11915 10966 52.1 2000 11062 13286 -2224 120.1 source: Author's own calculations based on IMF: International Financial Statistics Yearbook 2001; and World Bank World Development Indicators Database The large size of portfolio inflows created a very delicate situation of vulnerability to changes in financial market perceptions. Salinas encouraged powerful investors to transform Mexico city’s stock exchange into a magnet for money from abroad. Yields on the Stock Market had to stay high, and when they declined or stagnated, as they did since mid-1992, interest rate differentials between the United States and Mexico had to rise to stabilise portfolio or speculative investment. Speculative investment came mainly in foreign purchases of existing Mexican assets. The Banco de México (Banxico) that had absorbed the liquidity generated by foreign exchange increased the monetary base, and transformed a big part of the treasury bills (Cetes) to dollar-index government bonds (Tesobonos) which, by the way, represented higher risks in case the government was confronted with the reality of paying its debt. That is exactly what happened.

Massive inflows of capital covered the current account deficit, and even added $7.8 billion to the country’s international reserves. The deregulation of foreign investment was considered as the means to alleviate a balance of payments that was otherwise unsustainable as a result of recent trade and exchange rate policies. The government saw the liberalisation of  the investment regime as mutually supportive to international trade. In addition, foreign investment was considered a necessary source of funds for servicing Mexico’s large foreign debt. However, attracting investors by showing them a healthy environment with low inflation, positive budgets and high real interest continued to represent a big obstacle to economic restructuring of domestic enterprises and restricted growth and formal employment.

Figure Ch. III-3 Total Foreign Investment, Direct and Portfolio, 1980-2000

35000

30000

25000

20000

15000

10000 DIRECT PORTFOLIO 5000

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-5000

-10000

-15000 source: Author's own calculations based on IMF: International Financial Statistics Yearbook 2001; and World Bank World Development Indicators Database Indeed, the large inflows of speculative foreign investment created uncertainty since they boosted the money supply and contributed to inflation. As Alarcón says, only 12 cents out of every dollar that entered the country, stayed and participated in the Mexican economy, and short-term, speculative foreign investment coming into the country could not be interpreted as a vote of confidence on the Mexican economy.69 Investors were entering to take advantage of favourable short-term conditions.

The “success” achieved in Mexico with the stabilisation of the economy was seen as a model to follow by many countries at the time. By 1994, GDP per capita had finally attained its 1981 levels. Unfortunately, the success story did not seem to be very solid since it was based mainly on portfolio investment. In addition, the balance of trade was suffering from the real appreciation of the currency that provoked negative outcomes. On December 1994, the country was going to realise that it was trapped in a wave of financial speculation, proving that investors’ intentions were not to create jobs and long-term growth of the economy and were not interested in improving Mexico’s productive apparatus

If the devaluation of the peso had previously protected Mexico’s manufacturing industry, during this stage of consolidation of trade liberalisation (the period 1989 to 1994), the monetary policy pegging the peso to the US dollar and tending towards a real appreciation of the national currency relative to the dollar had the opposite effect, leading to a sharp rise in imports. The trade balance showed a negative -18.4 billion dollars in 1994. Mexican merchandise imports rose sharply, almost tripling between 1989 and 1994 (from $34.7 to $79.3 billion). The current account reached the highest trade deficit recorded in Mexican  modern history (-$29.7) billion in 1994, representing 7 per cent of gross domestic product (see table previously mentioned Ch. III-6 and table Ch. III-16).

Table Ch. III-16 Balance of payments, 1980-1998 (billion dollars) 1980 1984 1987 1989 1991 1992 1994 1995 1997 1998 T O T A L 0.8 3.3 6.1 8.1 1.1 -18.8 9.6 10.5 2.1 Part I. CURRENT ACCOUNT -10.7 3.7 3.8 -6.1 -14.6 -24.4 -29.7 -1.6 -7.4 -16 REVENUES 22.8 33.6 31.4 38.1 58.1 61.7 78.3 97 131.5 140.5 Exports (Merchandise) 18.1 29.1 27.6 35.1 42.7 46.2 60.9 79.5 110.4 117.5 Oil Exports 9.9 16.3 8.6 7.8 8.2 8.3 7.4 8.4 11.3 7.1 Non-oil Exports 8.2 12.8 19 14.9 34.5 37.9 53.5 71.1 99.1 110.3 Agriculture 1.5 1.4 1.5 1.7 2.4 2.1 2.7 4 3.8 3.8 Mining 0.9 0.7 0.5 0.6 0.5 0.4 0.4 0.5 0.5 0.5 Manufacturing 3 5.5 9.7 12.6 31.6 35.4 50.4 66.6 94.8 106.1 Maquiladoras 2.5 4.9 7.1 12.3 15.8 18.7 26.3 31.1 45.2 53.1 National Manufacturing 15.5 29.1 20.4 22.8 15.8 27.5 24.1 35.5 49.6 53 Non-factor services 5.3 5.9 6.9 10.1 8.7 9.2 10.2 9.7 11.3 11.9 Tourists 1.6 1.9 2.2 2.9 4.3 4.5 4.9 4.7 5.7 6 One-day visitors 1.5 1.3 1.2 1.8 1.6 1.6 1.5 1.5 1.8 1.9 Other 1.3 1.5 1.8 2.3 2.8 3.1 3.8 3.5 3.8 4 Factor Services 1.2 2.3 2.2 3 3.6 2.9 3.4 3.8 4.6 5.1 Interest 1 2 1.8 2.5 2.9 2.2 2.7 3 3.8 4.1 Other 0.2 0.2 0.3 0.4 0.7 0.7 0.7 0.8 0.8 1 Transfers 0.7 1.2 1.6 2 3.1 3.4 3.8 4 5.2 6 Workers' remittances 0.6 1.1 1.4 2.2 2.7 3.1 3.5 3.7 4.9 5.6 Other 0.4 0.3 0.3 0.3 0.3 0.4 EXPENDITURES 33.5 29.8 27.6 44.2 72.7 86.1 108 98.6 138.9 156.5 Imports (Merchandise) 21.1 15.9 18.8 34.7 50 62.1 79.3 72.4 109.7 125.4 Maquiladoras 1.7 3.7 5.5 9.3 5.8 13.9 20.5 26.2 9.3 42.6 National Manufacturing 19.3 12.1 13.3 25.4 35.6 28.9 36 32.2 85.3 54.4 Consumer goods 2.4 0.8 0.7 3.4 11.8 7.7 9.5 5.3 36.3 11.1 Intermediate goods 11.7 8.7 9.9 17.1 23.8 42.8 56.5 58.4 49 97 Capital goods 5.1 2.5 2.6 4.7 8.6 11.6 13.3 8.7 15.1 17.3 Non-factor services 6.3 5.1 5 7.6 10.5 11.5 12.3 9 11.8 12.5 Freight and insurance 0.9 0.5 0.5 1.1 1.8 2.1 2.6 2 3.3 3.7 Tourists 1 0.6 0.7 1.5 2.1 2.5 2.4 1.2 1.8 2.1 One-day visitors 2 1.5 1.5 2.7 3.7 3.6 2.9 1.9 2.1 2.2 Other 2.3 2.4 2.1 2.2 2.9 3.3 4.4 3.9 4.6 4.5 Factor Services 7.8 12.5 9.2 11 12.2 12.5 16.4 17.2 17.4 18.6 Financial 11.8 12 15.7 16.7 16.9 18.1 Interest 6.1 11.7 8 9.2 9.2 9.6 11.8 13.6 12.5 12.4 Public sector 7.3 7.7 8 9.3 7.5 7.1 Domestic currency 0.8 1.8 2.4 1.9 0.5 0.5 Foreign currency 6.5 5.9 5.6 7.4 7 6.6 Private sector 1.9 1.9 3.8 4.3 5 5.3 Domestic currency 0 0 0 0 0 0 Foreign currency 1.9 1.9 3.8 4.3 5 5.3 Remitted profits 1.1 1.3 1.4 1.3 1.9 2.7 Reinvested profits 1.4 1 2.4 1.6 2.2 2.9 Commissions 0.1 0.1 0.1 0.2 0.3 0.1 Non-financial 0.4 0.5 0.7 0.5 0.5 0.5 Transfers 0 0 0 0 0 0 0 0 0 0 source: Banco de México "The Mexican Economy 1999", and NAFIN "La Economía Mexicana en Cifras 1995", p.311. note: National official statistics on exports and imports divided by sector did not include maquiladoras' trade until 1989 By December 1994, the large number of capital inflows had boosted the money supply so much that the Mexican markets were shaken at the centre of their heart. The process of adjustment that had stabilised the economy ended up being a mirage only. Mexico was going to go through its third and worst economic debacle. In almost 70 years, since the Great Depression of the late 1920’s, GDP had not registered such a tremendous collapse.

Only few days after the arrival of Ernesto Zedillo to the Presidency, the peso was drastically devalued. The situation led to an increase in inflation of 30 points, a sudden  decrease of prices on the Mexican stock exchange, capital flight and a drastic reduction of foreign investment.

cont…..Table Ch. III-16 Balance of payments, 1980-1998 (billion dollars) 1980 1984 1987 1989 1991 1992 1994 1995 1997 1998 Part II. CAPITAL ACCOUNT 11.3 1.3 -1.1 3.1 24.5 26.4 14.6 15.4 15.8 16.2 LIABILITIES 12.6 3.2 3.6 4.3 25.5 20.9 20.3 22.8 9.1 15.5 Loans and deposits 8.1 -1.6 1.1 23 -8.7 3.9 Public sector 3.1 1.6 2.7 -0.4 0.1 -3.5 -0.4 11.5 -6 1.5 Development banks 0.5 0.9 0.3 -0.3 1.7 1.2 1.3 1 -1 0.2 Non-bank public sector 3.1 1.6 2.7 -0.4 -1.6 4.7 -1.7 10.5 -5 1.3 Bank of Mexico -0.1 1.2 0.4 1.6 -0.2 -0.5 -1.2 13.3 -3.5 -1.1 Commercial Banks 3.1 -0.4 -0.04 4.2 5.8 0.3 1.5 -5 -2 -0.2 Non-bank private sector 3.7 -1.7 -2.6 1.1 2.4 2.1 1.2 3.2 2.8 3.7 Total foreign investment 2 1.5 2.6 3.6 17.4 22.5 19.2 -0.2 17.8 11.6 Direct investment 2 1.5 2.6 3.1 4.7 4.4 11 9.5 12.8 10.3 New investments 3.4 3 5.7 6.8 9.1 4.1 Reinvesments 1.4 1 2.4 1.6 2.2 2.9 Inter-company accounts -0.1 0.4 2.9 1.1 1.5 3.3 Portfolio investment 0 0 0 0.4 12.7 18.1 8.2 -9.7 5 1.3 Stock market 6.3 4.8 4.1 0.5 3.2 -0.7 Domestic currency securities 3.4 8.1 -2.2 -13.9 0.6 0.2 Public sector 3.4 8.1 -1.9 -13.8 0.5 0.3 Private sector 0 0 -0.3 -0.1 0.1 -0.1 Foreign currency securities 3 5.2 6.3 3.7 1.2 1.8 Public sector 1.7 1.6 4 3 -1.7 0.2 Private sector 1.3 3.6 2.3 0.7 2.9 1.6 ASSETS -1.2 1.9 -4.7 -1.1 -1 5.5 -5.7 -7.4 6.7 0.7 In foreign banks -0.8 -1.6 -3.8 -0.1 0.9 2.2 -3.7 -3.2 4.9 0.6 Credits to non-residents 0 0 -0.4 -0.8 0 0.1 0 0.3 -0.1 0.3 External debt guarantees 0 0 0 0 -0.6 1.2 -0.6 -0.7 -0.7 -0.8 Other -0.4 -0.2 -0.4 -0.03 -1.3 2 -1.4 -3.2 2.6 0.6 ERRORS AND OMISSIONS -0.1 -2.1 3 3 -2.2 -1 -3.3 -4.2 2.1 1.9 Value adjustments 0.05 0.2 -0.7 0.2 0.3 Net international reserves 1 3.2 6.9 0.2 7.4 1 -18.4 9.6 10.5 2.1 source: Banco de México "The Mexican Economy 1999", and NAFIN "La Economía Mexicana en Cifras 1995", p.311. The so claimed «economic miracle» was only a period of apparent short-term macroeconomic stability. Policy advisors had warned the government at least a year and a half in advance that its policy would create serious trouble in the near future. The economist, Jeff Faux from the Washington Post wrote in September 1993 and I quote: «Mexico will be in a crisis anyway when the financial bubble promoted by foreign speculation bursts».70 After the December 1994 crash there were complaints about the complete liberty given to investors to speculate with the Mexican economy and demands were presented to the government to regulate foreign investment henceforth.

Additional causes of the fall were the following:

1. Rising USA interest rates in 1994 that augmented foreign debt service;

2. Serious political events affecting investor confidence with wealthy Mexicans and foreigners beginning to withdraw their money from the country: the Chiapas Zapatista revolt from the beginning of 1994, the assassination of the candidate to the presidency Luis Donaldo Colosio and the murder of Ruiz Massieu, Secretary General of the political party (P.R.I.) in power since the early 1920’s;

3. The low level of foreign exchange reserves71. 

The December 1994 crisis proved that an unregulated liberalisation of capital inflows made the country too vulnerable and dependent on external markets. After the devaluation of December 20th, the peso fell dramatically and it was allowed to float freely. The new president announced an economic emergency plan whose priorities were to prevent inflation and to stabilise the exchange rate. The program contained a strong dose of fiscal and monetary restrain and another tripartite accord to limit wage and price escalation. It also comprised a restrictive fiscal policy cutting government spending by 1.3 per cent of GDP and a public sector reduction of 10.7 per cent in real terms, as well as the additional privatisation of sectors that were partly or entirely government-owned: railroads, satellites, ports, airports, telephones and electricity generation.

But, the initial plan did not seem to work since it was quite vague. It did not, for example, make clear how the government intended to stabilise the exchange rate. Prices were not frozen and there were no formal price controls, so immediately, gasoline price went up by 35 percent, electricity by 20 percent with an additional increase of 0.8 percent per month, while wages increased only by 10 per cent. As a result, inflation took over and speculation continued. The shocks on the peso were taking the country to a solvency crisis that would create declines in worldwide capital flows.

C. Economic Recovery and Trade Diversification until December, 2000

1. Another difficult adjustment process

To rescue the country from financial collapse, a 51 billion dollar financial assistance package was made available to Mexico by the U.S., the IMF and the Bank for International Settlements. Most probably, if NAFTA had not been signed, the U.S. would not have offered Mexico such a strong support with the purpose of minimising the effects of the newest crisis. However, the support was not given for free, the Mexican government was forced to pledge oil revenues as a guarantee for the loan and to comply with the IMF’s requirement of an even stricter programme of economic reform. This new package comprised a new round of privatisation and deregulation covering the areas of ports, railroads, telecommunications, airports, secondary petrochemicals and natural gas. While the Government still kept away from the package the possible participation of the private-sector in oil extraction, it decided to pursue a more aggressive privatisation of non-core PEMEX activities.

The austerity measures imposed as part of the bailout package had further devastating consequences on the Mexican labour force and market. Wage rises were kept tightly controlled. When labour leaders declared that the wage increase of 12 per cent was not acceptable since it did not compensate for inflation and uncontrolled prices had actually shown increases from 30 to 40 per cent, Mexican corporations responded against higher wage increases higher and threatened with massive layoffs. Trade unions complied with employers- demands. However, three hundred and fifty thousand workers registered at the Mexican Social Security Institute lost their jobs by the end of 1995, any way (see table Ch. III-17).

By the end of 1995 the currency had experienced a devaluation of 129 per cent and the country had suffered a fall in GDP of –6.2 per cent from the previous year (see table previously mentioned Ch. III-7). Besides, the majority of the funds provided under the bailout package were not used to stimulate domestic production, but instead to rescue a banking sector almost bankrupt, and to repay Mexican and foreign investors holding high-risk, high- return, Mexican dollar-indexed securities, tesobonos. The country faced repayment of 29  billion dollars worth of tesobonos in 1995. The result was the financial stabilisation of the bank system, but also a very significant increase of the public and private debt (see table mentioned in the previous chapter Ch. II-3).

Table Ch. III-17 Formal Employment by Economic Sector & Subsector, 1987-2000 (thousands) in blue all export-oriented economic sectors 1987 1988 1989 1990 1991 1994 1995 1996 1998 1999 2000 T O T A L 9446 9859 10384 10909 11352 11456 11102 11778 14209 12649 13157 AGRICULTURE 539 471 466 485 493 409 402 418 439 431 398 MINING 88 82 84 84 80 66 62 67 68 66 68 MANUFACTURING 2546 2714 2876 3021 3136 2957 2870 3209 3966 4243 4399 Non export-oriented Food, beverages and tobacco 462 482 507 535 557 551 536 573 670 695 683 Wood and wood products 98 109 113 118 123 113 102 118 144 149 154 Paper and paper products 131 143 156 169 180 175 163 173 203 213 219 Non-metal mineral products 132 133 138 144 147 131 116 119 139 146 144 Export-oriented Textiles, garments and leather 458 480 519 537 560 521 518 626 849 910 942 Chemicals, rubber and plastics 326 343 363 379 396 353 342 370 434 455 466 Basic metals 92 96 91 91 83 67 66 72 85 80 79 Metal products, machinery and 773 853 909 964 1003 970 939 1056 1325 1459 1568 Other manufacturing industries 73 74 80 82 86 86 88 102 115 134 143 CONSTRUCTION 151 173 188 229 259 291 228 258 852 896 912 ELECTRICITY 9184909599110113115137 139 143 COMMERCE 1354 1374 1471 1604 1703 1776 1676 1777 2128 2223 2374 Wholesale trade* 732 711 752 817 865 882 832 993 1089.9 1150 1240 Retail trade 622 663 719 787 838 894 843 784 1038 1073 1134 Hotels 133 143 154 164 166 166 163 174 205 218 224 Restaurants 187 198 219 251 273 291 273 285 346 369 399 SERVICES 2265 2524 2742 2968 3128 3231 3126 3287 3814 4065 4240 Transport, storage & communications 421 435 441 473 508 499 483 495 586 619 654 Finance, Insurance & Real Estate*** 571 665 697 761 809 870 844 928 1177 1256 1285 Community, Social & Personal Services 894 950 1034 1169 1251 1377 1383 1434 1494 1641 1766 Other 378 476 570 565 560 485 415 431 558 550 535 Public sector 2095 2098 2097 2012 2019 2150 2190 2188 2254 source: 1987-2000 data from the Ministry of Health (Secretaría de Salud) asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34 Public sector data comes from ISSSTE statistics. ISSSTE data not available for 1999 and 2000 note: Starting from 1989 manufacturing data includes maquiladora's employment. Starting from 1996 construction casual workers were also counted in IMSS statistics. For definitions of manufacturing sector subsectors, please see Appendix II. *Wholesale trade includes purchase and sale in shopping centres; purchase and sale of gasoline and oil related products; purchase and sale of raw material and other material; purchase and sale of machinery, equipment and instruments, apparatus, utensils, and other accesories; purchase and sale of transport equipment, utensils and accesories; and finally, the purchase and sale of buildings and diverse goods. **Transport, storage & communications comprises air, land and water tranportation, all transport-related services, and communications ***Finance, Insurance & Real Estate covers all financial and insurance services and related services, all real estate, and all professional and technical services. Two historical records were registered by the end of 1995: informal sector growth reached levels never seen before and real wages fell by an additional 20 per cent from its 1980 value. At the same time, the value-added tax imposed on all goods, went up from 10 to 15 percent with the purpose of increasing public income, but importantly decreasing the purchasing power of workers (see table Ch. III-18).

Table Ch. III-18 Index of Average Remuneration per Worker by Economic Sector, 1980-1996 (1980= 100) ECONOMIC SECTOR 1980 1981 1982 1985 1987 1988 1989 1992 1994 1995 1996 AGRICULTURE 100 106 95 75 70 60 57 49 51 38 36 MINING 100 102 91 72 61 58 57 59 55 39 34 MANUFACTURING 100 103 99 73 66 66 71 83 87 60 58 CONSTRUCTION 100 101 89 67 58 51 49 51 53 39 38 ELECTRICITY, GAS & WATER 100 102 105 64 61 51 51 59 65 50 49 WHOLESALE & RETAIL TRADE, HOTELS & REST. 100 101 91 69 58 59 64 75 81 59 56 TRANSPORT, STORAGE & COMMUNICATIONS 100 105 96 76 69 78 80 90 95 74 71 FINANCE, INSURANCE & REAL ESTATE 100 104 98 73 71 64 68 91 103 74 67 COMMUNITY, SOCIAL AND PERSONAL SERVICES 100 106 103 74 62 67 71 86 104 78 76 TOTAL AVERAGE 100 103 96 71 64 62 63 72 77 57 54 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1998" (NAFINSA), p.55; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. data were deflated by the consumer price index. note: data on wholesale and retail trade could not be segregated In blue all export oriented or export-related economic sectors The year 1995 saw the normally passive Mexicans reacting and going to the streets to protest against government’s policies. Feeling tired and always betrayed by their political leaders, the average Mexican emerged forming pressure groups and grass-roots organisations to demand for a halt to corruption, the repeated economic crises, and also demanding for democracy, justice or simply for a change on the traditional one-party rule. 

For the first time, the government promised to design programs to help small and micro businesses survive the credit tightening and called financial institutions to propose alternatives to help businesses meet their debt service without harming their productive activity. Also, it promised that although public spending would be cut, priority will be given to social spending and to the completion of investment projects already underway, especially those with a large employment creating capacity.

According to Anderson, Cavanagh, Hansen, Heredia and Purcell (1996), Mexican industry was operating at less than 40 percent capacity by the end of 1995 due to a sharp rise in interest rates and also to the sharp contraction of local demand. However, a third of the total of medium, small and micro businesses were not able to meet their debt obligations and went bankrupt in 1995.72 The rest were also declared in danger of succumbing. Since micro, small and medium enterprises were hiring 10 million workers, their fall and impact on employment levels was threatening to represent even bigger problems to the already precarious situation of the Mexican labour force.

By the end of 1995, Mexico’s public and foreign debt represented again 166 billion dollars, around 58 per cent of GDP. The Economic Commission for Latin America and the Caribbean asserted how dangerous it was for the Mexican economy to be so indebted again.73 GDP contracted by 7 percent in the first nine months of 1995. Real interest rates soared to 26 per cent and nominal rates to over 60 per cent. The housing sector weakened and vehicles sales and business investment grew very slowly.

The positive outcome was a balance of trade that adjusted rapidly in 1995. The deficit with the United States changed into a surplus of 7 billion dollars. However, the trade surplus was mainly attributed to higher revenues from oil exports and the heavy devaluation of the peso that went from 3.4 to 6.4 nuevos pesos to a dollar and to maquiladoras good performance and their special regime (explained later in the paper). If maquiladoras' trade were excluded, then the indicator would show a slight deficit.

Luckily, with U.S. economy expanding at a very healthy rate in 1995, and oil prices higher than previously expected, the Mexican economy recovered fairly quickly. In addition, the trade and services accounts’ deficit was also compensated for by strong remittance inflows from Mexicans living abroad. Another important factor is that the country moved to a floating exchange rate regime that permitted it to adapt its monetary policy in a more flexible way. Sustained economic growth followed during the rest of the decade. Export indicators reflected increasing participation of Mexico in world trade. Large deficits with the European Union, Japan and Asian newly industrialised countries were importantly reduced.

According to the WTO, International Trade Statistics of 2001, by the year 2000, Mexico was directing 89.5 per cent of its merchandise exports to the U.S. and 2.04 per cent of them to Canada, becoming no. 4 in the ranking of leading exporters to both countries. At the same time, the U.S. was exporting 14.2 per cent of its total share to Mexico and represented Mexico’s leading partner. The three NAFTA partners totalled that same year 56 per cent of world merchandise exports.74 Mexico became the 4th largest exporter of clothing worldwide, the 6th largest exporter of automotive goods, the 8th largest of machinery and transport equipment and the 11th largest exporter of travel services (see table Ch. III-19).

On the political scene, major developments were going to surprise the country on the year 2000. Mr. Vicente Fox, representing the Partido de Acción Nacional (PAN) defeated the PRI nominee, Mr. Francisco Labastida, in the presidential elections of July, 2000. This was the first time in more than 70 years that the PRI was removed from the control of the  presidency. The new president took office on December 1st 2000. Mexicans were very hopeful that this change will represent high positive growth rates and job creation. The new president promised a better debt management, an improvement in real wages and to channel additional revenue into health and education spending.

Table Ch. III-19 Mexico's ranking on list of worldwide leading exporters and importers, 2000 Share of U.S. imports Ranking of U.S. supplier Ranking of Canada's supplier Exporter Importer World merchandise trade 13th 11th 11.20% 4th 4th manufactures 13th 10th machinery and transport equip. 8th 9th office machine and telecom equip. 12th 12th 12.80% 2nd 4th automotive products 6th 9th textiles 8th clothing 4th 12th Commercial services 27th 24th travel services 11th Fuels 13th 13th 9.40% 13th Iron and steel 15th Chemicals 13th source: Author's own calculations based on WTO data "International Trade Statistics 2001", Geneva, note: By the year 2000 Mexico was the leading merchandise and commercial services exporter and importer in Latin America, ahead of Brazil 2. Trade and foreign investment agreements with the rest of the world

When signing NAFTA, Mexico knew that it was doing it in contradiction with the Latin American Integration Association Treaty (LAIA)75 terms, to which it was a signatory. The treaty that comprised Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela, prohibited it from offering trade privileges to no signatory countries like the United States and Canada. LAIA’s long-term objective had been the gradual and progressive establishment of a common market.

With Mexico’s signing of NAFTA, members of the LAIA were faced with the decision of either amending their treaty or expelling Mexico. At the end, most Latin American countries reacted favourably to Mexican negotiations within NAFTA demanding Mexico only for a reduction of tariffs as compensation. Their decision was seen as a wish that NAFTA would become in the near future a trade block for the whole Western Hemisphere. Mexico tried to soften the implications of its decision by starting trade preferential agreements with individual countries.

Bilateral agreements with other countries or regions would permit Mexico to diversify its trade policy and avoid a strong dependence on the U.S. economy’s fluctuations. According to the Mexican government, Mexico’s strategy for negotiating trade agreements was to insist in a wider coverage of products and a clear definition of rules (such as on rules of origin, safeguards, and dispute settlements) based on GATT principles where applicable.76

Indeed, during the presidency of Salinas de Gortari, Mexico signed several free trade accords: either renegotiations of previous agreements signed under LAIA, partial-scope agreements or economic complementary agreements. Probably, Salinas’s objective was to take a leadership role in the Caribbean and Central American region since Bush’s Enterprise for the Americas Initiative did not seem to go very far. Or, probably he thought on making Mexico the engine for free trade expansion in the Western Hemisphere region in the future. Whatever the reason was, these agreements were presented to public opinion as «offering a wide range of possibilities to Mexican enterprises of all types and sizes in terms of scale, technologies, markets niches, etc. Mexican producers squeezed out of the domestic market by imports from North America, could find new export possibilities in other Latin American countries».77 

Thus, since 1990 even before starting NAFTA negotiations, Mexico proliferated bilateral negotiations with the Presidents of several LAIA countries, as well as European and Asian countries with the purpose of diversifying its exports and promoting foreign investment. First, Mexico started by signing agreements on economic co-operation with countries such as Spain on January 1990; Switzerland on May 1991; Italy on July 1991 and France on February 1992.

Wilkie and Lazin mentioned that the U.S. government was concerned about the overlapping free trade agreements established by Mexico after the signing of NAFTA because of two reasons: the rules of origin, by which Mexico could introduce goods from other countries and then sent them to the U.S. as Mexican goods under NAFTA; and second, by the fact that Mexico’s trade agreements could force the U.S. to bring other countries into NAFTA, as well as increasing protectionism unintentionally with a multiplication of import regulations towards other nations.78

At the beginning of 1994, President Clinton, probably moved by Salinas perseverance and activity and afraid of letting Mexico the leadership of the movement of Western Hemisphere’s free trade, called for the Summit of the Americas in Miami. During the Summit, Clinton proposed to create a Free Trade Area for the Americas for the year 2005. Some months after, though, when the Mexican crisis of December 1994 exploded, the U.S. Congress sent red-sign signals towards the feasibility of achieving the project.

During the period covered, Mexico signed a variety of bilateral or regional free trade agreements incorporating investment doctrines in almost all of them. The following are comprised in the list:

(a) On October 1990, Mexico signed its first free trade agreement with Chile, which entered into force on January 1, 1992. Tariffs were to be reduced to 10 percent on the date of entrance of the treaty and then by 2.5 percentage points each year until they reached zero in 1996. For sensible duties such as textiles, poultry, eggs, wood and glass, the target date given for complete duty free trade was 1998. This treaty does not provide for an elimination of non-tariff barriers for particular products. Exempt from the agreement are such products as petroleum, cigarettes, tobacco and sugar. Later, Mexico took the initiative to propose the entry of Chile into NAFTA.

(b) On April 1991, the Mexican government signed a Framework Agreement with the European Community covering trade, investment, technology transfer, intellectual property rights and quality standards.

(c) On February 1992, Mexico signed a bilateral free trade pact with Costa Rica, effective on January 1, 1995. The target to eliminate all bilateral tariffs accorded was 10 years.

(d) On September 1994 Mexico signed a bilateral agreement with Bolivia, effective at the beginning of 1995, which would create an entirely duty free area 12 years later.

(e) After four years of intense negotiations, Mexico signed the Group of Three free trade agreement in 1994 with Colombia and Venezuela. It came into force, as of January 1995. By 2006, tariffs within the bloc would be completely eliminated. 

(f) A multilateral Framework Agreement for Trade Co-operation was signed in August 1992 with all Central American Republics (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama).

(g) A multilateral agreement for economic integration with the Association of Caribbean States (ACS) which comprises the Caribbean Community (14 members), plus Cuba, Colombia, Dominican Republic, Haiti, Venezuela and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, was also signed in 1994;

(h) Bilateral Agreements of trade, investment, and industrial co-operation with the Republic of Korea, Australia and New Zealand were negotiated.

(i) Special «Agreements of Promotion and Mutual Protection of Investment» (APPRI) with countries like Spain (1995), Switzerland (1995) and Argentina (1996). APPRI type of agreements were also later negotiated with the Netherlands, Germany, France, the United Kingdom, Italy and Austria.

(j) On June 1999, Mexico established a Free Trade Agreement with Guatemala, Honduras and El Salvador that was expected to become effective on January 1, 2001. Upon its entry into force, 30 per cent of agricultural products that Central American countries import from Mexico will be duty free; 12 per cent was to be liberalized in 2006 and 41 per cent between 5 and 11 years after the entry of the agreement.

(k) On February 1995, Mexico started negotiations with the European Union to create a bilateral EU-Mexico Free Trade Agreement. The Agreement entered into force in July 1, 2000. Mexico immediately eliminated about 47 per cent of import tariffs of goods originating in the 15 EU member States. Import tariffs would gradually disappear by 2007. At the same time, the EU granted duty less entry to 82 per cent of Mexican origin goods, reaching the totality of goods by 2003. The Agreement with the European Union was very progressive since it included complementary treaties on a variety of topics. Among the topics included were: elimination of poverty, ecosystems, consumer protection and parliamentary talks.79

(l) On the year 2000, Mexico signed a Free Trade Agreement with the European Free Trade Association (EFTA) that includes Switzerland, Liechtenstein, Norway and Iceland. With this FTA, Mexico secured itself a free-market access to all Western European countries.

During the same period, Mexico participated in negotiations for the progressive elimination of trade and investment barriers of a Free Trade Area of the Americas (ALCA), was admitted as full member of the Asia-Pacific Economic Cooperation grouping (APEC), and in 1994 became a member of the Organisation for Economic Co-operation and Development (OECD). By the end of 2000, Mexico had 10 Free Trade Agreements with 31 countries and was actively pursuing additional ones. 

IV. Effects on the Labour Force of the Trade Liberalization of Goods, Investment and Services

In this chapter, total employment and employment levels of formality and informality will be, as much as possible, linked to trade liberalisation during the period under review. As mentioned before, trade liberalisation and stabilization measures were so closely related and time-related that it was hard to distinguish their separate linkages with employment outcomes. It is important to consider that the search for competitiveness (through flexibility of labour relations, labour conditions, and especially through wages’ flexibility) of the economic apparatus comprised within the trade liberalization policies’ package was considered a strong linkage between employment levels and trade liberalization. It is also certain that trade liberalisation of goods affected employment levels through the reduction of imports’ tariffs often accompanied by a whole package of export incentives offered to a certain number of pampered economic subsectors. In addition, the liberalisation of foreign investment (direct and portfolio) also had an important role on the creation or destruction of jobs in certain sectors and subsectors. However, as previously mentioned, economic recessions had a strong dominance on the possible positive development of trade liberalization. As such, it will be impossible to clearly associate trade liberalization effects on employment in a cause and effect sense.

As mentioned in the introduction, this section will be presented dividing the information by economic sectors and subsectors, by occupation, by employment status and size of establishment and will be linked as much as possible with data on imports and exports of goods, investment and services’ trade growth. The data will be analysed as much as possible providing it a gender emphasis and considering the period covered as a transition period where only short to medium-term effects of trade liberalization could be assessed.

A comparison and analysis of export-oriented and foreign investment-related employment data will be made with non-export oriented and non foreign investment-related employment data. It will cover demand for and supply of labour in export-oriented sectors and subsectors comparing 1985 (or the closest year with data available) to the year 2000. While the report covers some information on all economic sectors indirectly related to the opening of the economy, the study concentrates on those sectors and subsectors that are either considered highly export-oriented or foreign investment-related.

The export-oriented and foreign investment-related sectors identified comprise mainly manufacturing within the broader industrial sector (mining and quarrying, manufacturing, construction, electricity, gas and water), and wholesale trade, transport, and communications, as well as financial, insurance, real estate, and restaurants and hotels within the wider commerce and services sector.

At the level of subsectors, the following 5 manufacturing subsectors were identified as export-oriented: textiles, garments and leather; chemicals, rubber and plastics; basic metals; metal products, machinery and equipment; and, other manufacturing industries. On the other hand, all those sectors in commerce and services receiving annually at least 700 million dollars of foreign direct investment from 1989 onwards were defined as foreign investment- related. The next 5 subsectors of the commerce and services sector fell into the category of foreign investment-related: wholesale trade; finance, insurance and real estate; transport,  storage and communications; hotels and restaurants. The latter subsector, restaurants, has an important percentage of its employment within the informal economy and certainly not belonging or not related to foreign investment (especially when data could not be separated from that existing on sale of food in public places), however the author decided to place it within the foreign investment-related category since it is increasingly receiving foreign investment flows.

Agriculture and mining were defined as non-export oriented for the purposes of this study since government policies have concentrated on increasing the importance of manufacturing trade and diminishing as much as possible the importance of these two mentioned sectors. Construction was also a sector that was identified as non foreign investment-related while it is certain that a large part of the growth in employment in this sector can be indirectly related to foreign investment flows.

To analyse the data, the first significant issue to mention is that the Mexican labour market is markedly dual: composed of a formal sector that represents around a third of total employment and of an informal sector comprised of the other two-thirds of the workers. As such, it was important to try to present comparisons of data before the trade opening, and after, concerning not only total employment (composed of formal and informal) divided by sector and subsector, but also of formal employment divided by sector and subsector, and of informal employment divided by sector and subsector. For this reason, the study will, as much as possible, make a difference between data on total employment levels, and between formal employment and informal employment separately to see how formality or informality augmented during the decade and a half studied in foreign investment-related and export- oriented sectors.

A. Total employment

National Employment Surveys (NES) of 1988, 1991, 1993 and 2000 were used to provide the necessary information on total employment levels (formal and informal). Total employment levels obtained from the World Bank Development Indicators Database were used to compare the period not covered by the national employment surveys, as well as INEGI’s (National Statistics, Geography and Informatics Institute) Sistema de Cuentas Nacionales de México. However, World Bank data only give totals, not sectoral or subsectoral information. If reference needed to be made to earlier periods, total employment data from the national census were included.

Ideally, if total employment data had existed broken down by sectors and subsectors, the following five different periods could have been compared:

1. the pre-trade opening under a floating exchange rate and economic growth: January 1980 to August 1982.

2. the pre-trade opening period under a floating exchange rate and a strong economic crisis: September 1982 to June 1985.

3. the post-trade opening period under a floating exchange rate and a shaky economy from July 1985 to December 1987 and then, under a fixed exchange rate allowed to fluctuate with daily depreciations until December 1988. 

4. the consolidation of trade period under a crawling peg system together with a “stabilization” of the economy: January 1989 to December 1994.

5. the diversification of trade period back to a floating exchange rate, slow economic growth and economic stability: January 1995 to December 2000.

However, to study the first three periods was difficult since the only data on total employment divided by sector and subsector was only available from the year 1980 (census), and then from 1988 on when the National Employment Surveys started capturing trends in the different sectors and other national sector-specific surveys were conducted. In between, these two dates, only total employment levels’ data as such were available from the World Bank, ILO or other data banks. As a result, the first comparable year in preceding tables will be either 1987 or 1988, but not 1985.

In fact, only the fourth period and fifth periods can be really studied divided by sector and subsector. As a result, to be able to capture and make a long-term comparison of sectoral and subsectoral employment trends, information from the 1980 census was considered as the period before the opening to trade liberalization. However, it should be mentioned here that 1980 was an above-average year for the Mexican economy since petroleum prices were exceptionally high.

Table Ch. IV-1 Total Employment (formal and informal) and Yearly Percentage Change, 1980-2000 (millions of persons) LABOUR FORCE YEARLY Average Average Average Average Average YEAR PERCENTAGE percentage percentage percentage percentage percentage change change change change change (millions) CHANGE 1980-1982 1983-1985 1986-1988 1989-1994 1995-2000 3.5 3.2 3.2 3.0 2.2 1980 22.247 4.0 1981 22.966 3.2 1982 23.708 3.2 1983 24.473 3.2 1984 25.264 3.2 1985 26.080 3.2 1986 26.907 3.2 1987 27.761 3.2 1988 28.641 3.2 1989 29.549 3.2 1990 30.486 3.2 1991 31.416 3.1 1992 32.374 3.0 1993 33.362 3.1 1994 34.281 2.8 1995 33.881 -1.2 1996 34.994 3.3 1997 36.291 3.7 1998 37.117 2.3 1999 38.069 2.6 2000 38.983 2.4 source: Author's own calculations based on World Bank; World Tables and Indicators Due to high population increases during the economic boom years averaging yearly 3.3 per cent from 1960 to the beginning of the 1980s, the Mexican economy required a yearly creation of jobs representing 1 to 1.3 million a year from 1985 to 2000. During the post-trade opening period, total employment (formal and informal) levels showed an increase of 3.2 per cent from 1985 to 1988; a rise of 3.0 per cent during the consolidation of trade period (from 1989 to 1994), and a decreasing, but still positive augmentation of 2.2 per cent during the recovery and diversification of trade period (from 1995 to the year 2000). The two periods preceding the trade opening had been more dynamic providing annual increases of the labour  force of 3.5 per cent from 1980 to 1982 and a 3.2 per cent increase from 1983 to 1985, respectively (see table Ch. IV-1).

According to data from INEGI’s National Employment Surveys, total employment levels started increasing rapidly in export-oriented and foreign investment-related sectors, while they stagnated or grew modestly in non-export-oriented or related sectors. While in 1988, 5.9 million jobs or 20.7 per cent of total employment was concentrated in export- oriented or foreign investment-related sectors, twelve years later, export-oriented were providing 27.5 per cent of total employment. Non export-oriented or foreign-investment related were decreasing its importance in total share from representing 79.5 per cent in 1988 to 71.3 per cent in the year 2000. However, above all, when considering numbers, non export- oriented or non foreign-investment related jobs still represented 28.3 out of a total of 38.9 million jobs by the year 2000, or 71.3 per cent of total employment (see table Ch. IV-2).

Table Ch. IV-2 Percentages of Total Employment (Formal and Informal) by Economic Sector

1980 1988 1993 2000 1988 1988 2000 2000 Non export- Export- Non export- Export- oriented or oriented oriented or oriented non foreign or foreign non foreign or foreign investment- investment- investment- investment- related related related related sectors sectors sectors sectors T O T A L 100 100 100 100 79.5 20.7 71.3 27.5 AGRICULTURE, CATTLE, FORESTRY & FISHING 25.8 23.5 26.9 18.1 23.5 18.1 MINING 2.3 0.9 0.5 0.4 0.9 0.4 MANUFACTURING 11.7 19.7 15.5 19.4 Non export-oriented Food, beverages and tobacco 3.8 3.6 4.0 3.8 4.0

Wood, wood prods; paper and paper prods.* 5.9 2.0 2.5 5.9 2.5 Non-metal mineral products** Export-oriented Textiles, garments and leather 3.5 3.8 4.8 3.5 4.8 Chemicals, rubber and plastics 1.6 2.3 2.6 1.6 2.6 Basic metals 1.0 0.2 0.3 1.0 0.3 Metal products, machinery & equip.*** 3.6 3.1 4.6 3.6 4.6 Other manufacturing industries 0.4 0.4 0.5 0.4 0.5 CONSTRUCTION 5.9 5.4 5.7 6.5 5.4 6.5 ELECTRICITY 0.5 0.5 0.3 0.5 0.5 0.5 COMMERCE, RESTAURANTS & HOTELS 7.9 19.3 21.0 22.3 Wholesale trade 1.6 2.2 2.8 1.6 2.8 Retail trade 13.9 14.9 14.8 13.9 14.8 Restaurants and hotels 3.9 2.6 3.4 3.9 3.4 Preparation, sale of food in public places 1.2 1.3 SERVICES 45.8 30.8 30.2 33.0 Transport, Storage & Communications 3.1 3.8 4.1 4.4 3.8 4.4 Finance, Insurance & Real Estate 1.9 1.4 3.3 4.0 1.4 4.0 Community, Social & Personal Services 11.1 16.5 15.2 17.5 16.5 17.5 Other Services* 21.6 4.8 3.7 2.6 4.8 2.6 Public administration and Defense 8.1 4.4 3.9 4.5 4.4 4.5 sources: 1970 and 1980 is Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) *1970 Other services data include community, social and personal services employment, as well as finance, insurance and real estate and public administration and defense 1980 Other services data include some community, social and personal services that were later separated in the NES note: in blue all export-oriented or foreign investment-related economic sectors or subsectors Concerning total employment levels divided by economic sector, they fluctuated as follows:

¾ Manufacturing’s total employment augmented by 2 million workers from 1988 to the year 2000. It had represented 2.5 million jobs before the opening to trade (1980) increased to 5.5 million from 1980 to 1988, and lastly rose to 7.5 million (19.4 per cent) by the year 2000. Three of its export oriented subsectors were providing the highest number of jobs, followed by a non-export oriented: 902 thousand in textiles, garments and leather, 812 thousand in metal products, machinery and equipment, 556 thousand in chemicals, rubber and plastics, and 484 thousand in food, beverages and tobacco. Manufacturing employed by the end of the century, slightly, half a million more workers than agriculture did (7 million), while in 1988 the contrary had been 

true with agriculture employing 1.1 million workers more than the manufacturing sector. It is certain that the manufacturing sector was the most benefited by the trade in goods’ opening and investment liberalization.

Table Ch. IV-3 Total (Formal and Informal) Employment by Economic Sector, 1980-2000 (thousands) 1980 1988 1993 2000 1988 1988 2000 2000 Total Difference Difference Non export- Export- Non export- Export- Difference Non export Export oriented or oriented oriented or oriented oriented or oriented or non foreign or foreign non foreign or foreign non foreign foreign investment- investment- investment- investment- investment investment related related related related related related sectors sectors sectors sectors 1988-2000 1988-2000 1988-2000 T O T A L 22066 28128 32833 38984 22317 5811 28265 10718 10856 5948 4907 AGRICULTURE 5701 6616 8843 7061 6616 7061 445 445 MINING 513 260 171 156 260 156 -104 -104 MANUFACTURING 2580 5548 5078 7547 1999 Non export-oriented Food, beverages and tobacco 1077 1181 1561 1077 1561 484 484 Wood, wood prods; paper and paper prods.* 1650 657 971 1650 971 -679 -679 Non-metal mineral products** Export-oriented Textiles, garments and leather 985 1256 1887 985 1887 902 902 Chemicals, rubber and plastics 454 766 1010 454 1010 556 556 Basic metals 277 72 105 277 105 -172 -172 Metal products, machinery & equip.*** 1000 1031 1812 1000 1812 812 812 Other manufacturing industries 105 115 201 105 201 96 96 CONSTRUCTION 1308 1528 1879 2528 1528 2528 1000 1000 ELECTRICITY 116 130 99 189 130 189 59 59 COMMERCE, RESTAURANTS & HOTELS 1751 5430 6894 8687 3257 Wholesale trade 448 735 1090 448 1090 642 642 Retail trade 3897 4883 5752 3897 5752 1855 1855 Restaurants and Hotels 1085 870 1322 1085 1322 237 237 Preparation, sale of food in public places 406 523 523 523 523 SERVICES 10096 8616 9868 12817 4201 Transport, Storage & Communications 684 1062 1362 1731 1062 1731 669 669 Finance, Insurance & Real Estate 412 395 1080 1561 395 1561 1166 1166 Community, Social & Personal Services 2451 4633 4976 6822 4633 6822 2189 2189 Other Services**** 4763 1294 1168 965 1294 965 -329 -329 Public administration and Defense 1786 1232 1283 1739 1232 1739 507 507 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's NES *Wood and wood products totals are grouped with paper and paper products total employment **NES do not provide any information as to where they place non-metal mineral products employment. If it is included in the wood and paper industries, then the totals increase ***NES group other manufacturing industries employment with metal products machinery and equipment employment; Since the metal products machinery and equipment industry is such an important export-oriented subsector, a division was made considering other manufacturing industries total to represent 10% of the NES given figure ****NES 1988 groups hotels and restaurants data together ****1970 Other services data include community, social and personal services employment, as well as finance, insurance and real estate and public administration and defense 1980 Other services data include some community, social and personal services that were later separated in the NES note: in blue all export-oriented or foreign investment-related economic sectors or subsectors ¾ Agriculture’s employment increased from 1988 to 1993 by 2.2 million new jobs but, then lost almost 1.8 million jobs by the year 2000. By the year 2000, agriculture provided employment only to 18.1 per cent of the economically active population while it had provided 25.8 per cent in 1980 and 23.5 per cent in 1988. The agricultural sector is the sector where the more direct and tangible relation of economic liberalization to employment can be determined. Unluckily, this direct relation is negative;

¾ Mining- As a result of policies aiming at diversifying the export base due to the vulnerability of the balance of payments to changes in oil prices, the sector lost in a period of 20 years (from 1980 to 2000), 360 thousand jobs. Only from 1988 to 2000, the sector lost 54 thousand jobs;

¾ Construction provided 1 million more jobs from 1988 to 2000. It had decreased its employment share from 5.9 per cent in 1980 to 5.4 per cent in 1988, only to recover to an employment share of 6.5 per cent by the year 2000 ;

¾ Electricity, a sector publicly owned that went through strong adjustment, gained only 14 thousand jobs from 1980 to 1988, lost 31 thousand of them by 1993, and then recovered to gain an extra 59 thousand jobs by the year 2000 (if compared to its 1988 levels). 

¾ Commerce, restaurants and hotels in total created 3.6 million jobs from 1980 to 1988 and 3.2 million jobs from 1988 to 2000. From 1988 to 2000, retail trade, a non-foreign investment related subsector, provided two thirds of these jobs (1.85 million), followed by the three export-oriented subsectors: wholesale trade (642 thousand), hotels and restaurants (237 thousand);

¾ Services lost 1.4 million jobs from 1980 to 1988, but was the sector that created the highest number of jobs between 1988 and 2000: 4.2 million. The largest number of jobs was created in a non-foreign investment related subsector: the community, social and personal services (2.2 million jobs). A subsector closely related to foreign investment liberalisation, the finance, insurance and real estate, followed providing almost 1.2 million more jobs in 2000 than in 1988. Transport, storage and communications, another foreign investment-related subsector created 670 thousand jobs during this 12-year period (see table Ch. IV-3).

B. Formal Employment

Since comparable data during a period of 15 years needed to be analysed for the purpose of this study and only data on social security registries were available, formal employment was defined as all employment covered by social security, and informal employment fell then on the opposite definition. Social security registries (detailed data for the period 1987 to 2000, and totals from 1980 to 1986) were considered representative enough and were used to follow the evolution of formal employment. Social security registries in Mexico (IMSS, ISSSTE, PEMEX, FF.CC, SDN and SM) are the most important indicators of formal employment. However, it should be mentioned that while only a small percentage of the labour force benefits from it, large private enterprises like VITRO and FEMSA provide their own private social security system. In addition, most enterprise private systems comprise only accident and medical services, not pension or other benefits included in the traditional social security system. According to the National Survey on Employment and Social Security, by the year 2000 only 1.1 million persons (out of a labour force of 39 million) in the whole country had a private medical insurance.

In an utopian situation, all of these of jobs should have been absorbed by the formal, protected sector. While this was not the case, still a large number of the formal jobs created were in export-oriented or foreign investment-related subsectors. The same trend identified in relation to total employment fluctuations, could be seen in the case of formality levels: formality continued increasing in export-oriented and related sectors, while it stagnated or regressed in non-export oriented and related sectors. As a result, a positive correlation seems to be developing between foreign investment-related sectors and formality levels.

As can be seen in table Ch. IV-4 and figure Ch. IV-1, formal employment levels (considering only IMSS registered workers)80 increased from representing 7.3 million in 1987 to 13.1 million in the year 2000: 5.8 million formal jobs were created in a period of 13 years. Export-oriented or foreign investment related sectors created the majority of them: 3.2 million or 55 per cent of them. Thirteen year earlier, formality levels of export-oriented or foreign investment-related sectors had represented 51 per cent of total formal employment. During the mentioned period, only 2.8 million were created in non-export oriented or foreign investment-related sectors: 45 per cent. 

Table Ch. IV-4 Formal Employment (only IMSS) by Economic Sector & Subsector, 1982-2000 (thousands) in blue all export-oriented economic sectors (thousands) 1982 1985 1987 2000 1987 1987 2000 2000 Total Difference Difference Non export- Export- Non export- Export- Difference Non export Export oriented or oriented oriented or oriented oriented or oriented or non foreign or foreign non foreign or foreign non foreign foreign investment- investment- investment- investment- investment investment related related related related related related sectors sectors sectors sectors 1987-2000 1987-2000 1987-2000 T O T A L 5794 6700 7353 13157 3906 3766 6779 7001 5803 2873 3235 AGRICULTURE 546 526 539 398 539 398 -141 -141 MINING 80 85 88 68 88 68 -20 -20 MANUFACTURING 2072 2387 2546 4399 1853 Non export-oriented Food, beverages and tobacco 462 683 462 683 221 221 Wood and wood products 98 154 98 154 56 56 Paper and paper products 131 219 131 219 88 88 Non-metal mineral products 132 144 132 144 12 12 Export-oriented Textiles, garments and leather 458 942 458 942 484 484 Chemicals, rubber and plastics 326 466 326 466 140 140 Basic metals 92 79 92 79 -13 -13 Metal products, machinery and 773 1568 773 1568 796 795 Other manufacturing industries 73 143 73 143 70 70 CONSTRUCTION 108 126 151 912 151 912 762 762 ELECTRICITY, GAS & WATER 83 88 91 143 91 143 52 52 COMMERCE 1112 1248 1674 2997 1324 Wholesale trade* 732 1240 732 1240 508 508 Retail trade 942 1757 942 1757 816 815 Hotels 133 224 133 224 92 91 Restaurants 187 399 187 399 212 212 SERVICES 1541 1940 2265 4240 1975 Transport, storage & communications** 421 654 421 654 233 233 Finance, Insurance & Real Estate*** 571 1285 571 1285 714 714 Community, Social & Personal Services 894 1766 894 1766 871 871 Other 252 300 378 535 378 535 157 157 source: Author's own calculations based on 1987-2000 data from the Ministry of Health (Secretaría de Salud) asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34; Public sector data comes from ISSSTE statistics. ISSSTE data not available for 1999 and 2000 note: there is a big difference between 1989 and 1990 manufacturing data since starting from 1989 maquiladora workers are included. Starting from 1996 construction casual workers were also counted in IMSS statistics. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors The manufacturing sector showed to be the most dynamic since most of the new formal jobs belonged to this sector. Those manufacturing export-oriented sectors enjoying from protective measures were the ones creating the largest number of formal jobs. The metal products, machinery and equipment was the sector creating the largest number of formal jobs with 795 thousand new jobs appearing during this 13 year period. This subsector was followed by the textiles, garments and leather, with 484 thousand new formal jobs belonging to this subsector.

In the case of the commerce sector, almost the same number of jobs was created in foreign investment-related as in non-foreign investment related subsectors: 811 thousand and 815 thousand, respectively. A very similar trend was seen in services where non foreign investment-related services were slightly more dynamic in creating a larger number of formal jobs than foreign investment-related subsectors: 1.02 million new formal jobs compared to 947 thousand, respectively.

On the other hand, in the case of agriculture, mining and other light manufactures that are here referred to as non export-oriented or foreign investment-related a large number of formal jobs were lost, showing a deficit from 1987 to the year 2000. 

Figure IV- 1 Total Formal Employment 1987-2000

5000

4500 AGRICULTURE, CATTLE, FORESTRY & FISHING MINING 4000

MANUFACTURING 3500 CONSTRUCTION* 3000 ELECTRICITY, GAS & WATER 2500 WHOLESALE TRADE

RETAIL TRADE 2000

HOTELS 1500 RESTAURANTS

1000 TRANSPORT, STORAGE & COMMUNICATIONS 500 FINANCE, INSURANCE AND REAL ESTATE COMMUNITY, SOCIAL & 0 PERSONAL SERVICES 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

source: Author's own calculations based on 1987-2000 data from the Ministry of Health (Secretaría de Salud) asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34; Public sector data from ISSSTE statistics. As can be seen in table Ch. IV- 5, agriculture’s formal employment share went down from representing 7.3 per cent in 1987 to only 3 per cent in 2000. This trend was in large measure attributed (as it will be seen in chapter VII) to the important reduction of the total number of imports subject to import-licensing requirements that went down from representing 95.8 per cent in 1985 to 42.4 per cent in 1988, and to less than 10 per cent by 1991, and also to the elimination or reduction of protective measures such as credit for production, credit for irrigation facilities, and subsidies. Mining followed the same trend going from 1.2 per cent in 1987 to 0.5 per cent by the year 2000.

If this longer period of time is compared, the Commerce sector share in formal employment remained stable at 22.8 per cent from 1987 to the year 2000, and the Services sector slightly increased its share by 1.4 percentage points: raising its share from 30.8 per cent to 32.2 per cent from 1987 to 2000. Manufacturing’s formal employment in export-oriented subsectors, increased from 64.7 per cent in 1987 to 72.5 per cent in the year 2000. In the case of non export-oriented subsectors, the decrease recorded during the same period was of 5 percentage points: from 32.3 down to 27.3 per cent.



Table Ch. IV-5 Formal Employment Distribution by Economic Sector & subdivided by Subsector, 1982-2000

1982 1985 1987 1989 1992 1994 1995 1998 2000 T O T A L 100 100 100 100 100 100 100 100 100 AGRICULTURE, CATTLE, FORESTRY & F 9.4 7.9 7.3 5.6 4.7 4.4 4.5 3.7 3.0 MINING 1.4 1.3 1.2 1.0 0.8 0.7 0.7 0.6 0.5 MANUFACTURING 35.8 35.6 34.6 34.7 32.6 31.8 32.2 33.2 33.4 Non-export oriented 32.3 31.8 33.1 32.8 31.9 29.2 27.3 Food, beverages and tobacco 18.1 17.6 18.7 18.6 18.7 16.9 15.5 Wood and wood products 3.8 3.9 3.8 3.8 3.6 3.6 3.5 Paper and paper products 5.1 5.4 6.0 5.9 5.7 5.1 5.0 Non-metal mineral products 5.2 4.8 4.6 4.4 4.0 3.5 3.3 Export-oriented 64.7 65.4 66.9 67.4 67.8 70.8 72.5 Textiles, garments and leather 18.0 18.0 17.9 17.6 18.0 21.4 21.4 Chemicals, rubber and plastics 12.8 12.6 12.3 11.9 11.9 11.0 10.6 Basic metals 3.6 3.2 2.2 2.2 2.3 2.1 1.8 Metal products, machinery & equip. 30.3 31.6 31.7 32.8 32.7 33.4 35.7 Other manufacturing industries 0.0 0.0 2.9 2.8 2.8 2.9 3.1 CONSTRUCTION* 1.9 1.9 2.0 2.3 3.0 3.1 2.6 7.1 6.9 ELECTRICITY, GAS & WATER 1.4 1.3 1.2 1.1 1.1 1.2 1.3 1.1 1.1 COMMERCE 19.2 18.6 22.8 22.2 23.7 24.0 23.7 22.4 22.8 Wholesale trade 43.7 40.8 39.9 39.5 39.4 40.7 41.4 Retail trade 37.2 39.0 39.5 40.0 39.9 38.8 37.8 Hotels 7.9 8.3 7.5 7.4 7.7 7.6 7.5 Restaurants 11.2 11.9 13.0 13.0 12.9 12.9 13.3 SERVICES 26.6 29.0 30.8 33.1 34.1 34.8 35.1 31.9 32.2 Transport, storage & communications 18.6 16.1 15.9 15.5 15.5 15.4 15.4 Finance, Insurance & Real Estate 25.2 25.4 25.7 26.9 27.0 30.9 30.3 Community, Social & Personal Services 39.5 37.7 42.1 42.6 44.3 39.2 41.6 Other 4.3 4.5 16.7 20.8 16.3 15.0 13.3 14.6 12.6

source: Author's own calculations based on Ministry of Health (Secretaría de Salud) asegurados al IMSS por división y grupo de actividad económica; and, La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34 note: there is a big difference between 1989 and 1990 manufacturing data since starting from 1990 maquiladora workers are included. Starting from 1996 construction casual workers were also counted in IMSS statistics. Public sector data comes from ISSSTE statistics. ISSSTE data not available for 1999 and 2000 note: in blue all export-oriented or foreign investment-related economic sectors or subsectors It is also true that before the trade opening the manufacturing sector had traditionally been recognised as having high levels of formality. If we consider that in 1980, 80 per cent of manufacturing workers were covered by social security, and that twenty years later this percentage only represented 58.3, then over a longer period, a negative trend was recorded. As a whole, total formality levels of the manufacturing industry evidently decreased during the recession years: from 1980 to 1984. During this period, the manufacturing industry wiped out almost a third of its formal jobs. However, since the trade opening, formality levels in the manufacturing sector improved and at present represent almost two-thirds of total manufacturing employment (see table Ch. IV-6). 

Table Ch. IV-6 Comparison Formal and Total (Formal and Informal) Manufacturing Employment 1980-2000 Formal Total (Formal Manufacturing and Informal) Employment Manufacturing % Formality Employment 1980 2065 2580 80.0 1981 2248 2951 76.2 1982 2072 3322 62.4 1983 2089 3693 56.6 1984 2263 4064 55.7 1985 2387 4435 53.8 1986 2371 4806 49.3 1987 2546 5177 49.2 1988 2741 5548 49.4 1989 2876 5454 52.7 1990 3021 5360 56.4 1991 3136 5266 59.6 1992 3019 5172 58.4 1993 2885 5078 56.8 1994 2957 5431 54.4 1995 2870 5783 49.6 1996 3209 6136 52.3 1997 3655 6489 56.3 1998 3966 6842 58.0 1999 4243 7194 59.0 2000 4399 7547 58.3 source: INEGI; Sistema de Cuentas Nacionales de México compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; Censo Nacional de 1980; and Encuestas Nacionales de Empleo (NES) 1988, 1993, 2000. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors Despite this negative long-term trend, as it was underlined at the beginning of this subsection, formality levels in manufacturing employment increased after the trade opening in 1985 and kept on rising. If an index is applied, from 1985 to 2000 formal employment totals rapidly rose in almost all export-oriented subsectors largely benefiting from the support provided by the Government in form of export-incentive programmes, with the exception of the basic metals that was going through a strong restructuring and privatisation (see table Ch. IV-7).

It should also be mentioned here that unfair export-incentive measures continued protecting these large-scale manufacturing enterprises that were creating jobs at least until 1993. Some of them, as it will be explained in the next chapter, have continued permanently profiting from these protective measures until present. The Government continues considering that these industries are essential to the economy and that they require additional incentives, while providing very small support or none to the rest of the economic sectors and subsectors.



Table Ch. IV-7 Index of Manufacturing Formal Employment Divided by Subsector, 1980-2000 (1980=100) Non-export oriented Export-oriented TOTAL Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal Other beverages wooden editorial mineral garments substances metals products manufacturing & tobacco products & printing products & leather rubber machinery & industries & plastics equipment 1980 100 100 100 100 100 100 100 100 100 100 1985 99.9 109.2 82.5 99.6 105.9 96.4 114.4 100.6 87.8 103.7 1987 99.9 73.8 64.4 102.9 80.6 99.3 113.7 85.6 135.2 142.8 1988 99.8 72.1 67.1 105.2 76.2 97.7 112.1 83.8 140.0 135.6 1989 99.9 71.7 65.5 108.3 74.6 99.6 111.8 75.0 140.7 138.6 1990 99.9 72.0 65.3 111.9 74.1 98.2 111.3 70.6 142.1 135.2 1991 99.8 72.2 65.0 114.2 72.9 98.6 112.2 62.0 142.5 136.1 1992 99.9 76.1 64.3 119.6 71.7 98.6 109.0 51.9 141.1 141.8 1993 99.9 77.1 64.9 120.4 71.9 96.5 108.2 50.4 141.9 143.0 1994 100.2 75.8 63.7 118.3 68.6 97.3 106.0 53.3 146.1 144.6 1995 99.9 76.0 59.4 113.7 62.6 99.6 105.7 54.8 145.7 152.8 1996 99.9 72.6 61.2 108.0 57.9 107.8 102.3 52.8 146.6 157.9 1997 99.9 71.2 60.1 105.5 56.0 112.0 98.4 50.5 149.1 151.7 1998 100.0 68.8 60.9 102.2 54.6 118.3 97.2 50.7 148.9 144.6 1999 99.9 66.7 58.9 100.6 53.6 118.5 95.2 44.6 153.1 157.8 2000 99.9 63.2 58.5 99.5 51.0 118.2 94.0 42.7 158.8 162.4 source: INEGI; Sistema de Cuentas Nacionales de México compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica. note: there is a big difference between 1989 and 1990 manufacturing sector data since starting from1990 maquiladora employment is included. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors As a result while formality levels continued increasing in export-oriented sectors and a positive correlation could be identified in that sense between trade liberalization and employment, the search for competitiveness within the trade liberalization process together with the lack of support provided by the government and the private sector to non-export oriented sectors, especially to its medium, small and micro enterprises had a very negative impact and indirectly increased informality levels and decreased employment levels in non- export oriented, especially non-competitive sectors.

The rapid formalization of export-oriented manufacturing subsectors can be seen even more clearly if a comparison is made between social security registries and the 1988 and 2000 national employment surveys. Formality levels in manufacturing augmented from 43.8 per cent to 58.3 per cent. In fact, it should also be recognised that formal employment levels in general grew more in export-oriented manufacturing subsectors than in non-export oriented. For example, the metal products, machinery and equipment increased its formality levels from 47.9 per cent of total employment in that subsector in 1988 to 86.6 per cent in 2000. This achievement can be compared to the growing, but non-export oriented subsector food, beverages and tobacco that has been diminishing its formality levels from 61.5 per cent in 1988 to 43.8 per cent in 2000. Most manufacturing export-oriented subsectors doubled or almost tripled their formal employment levels from 1980 to the year 2000. The only exception to the rule was the chemicals, rubber and plastics subsector (see table Ch. IV-8).



Table Ch. IV-8 Formality Percentage in Employment by Economic Sector & Subsector, 1988-2000 (thousands)

SSS-1988 NES-1988 Formality SSS-1991 NES-1991 Formality SSS-1993 NES- 1993 Formality SSS-2000 NES-2000 Formality T O T A L 7574 28128 26.9% 9116 30534 29.9% 9585 32833 29.2% 13780 38984 35.3% AGRICULTURE, CATTLE, FORESTRY & FISHING 358 6616 5.4% 438 8190 5.3% 420 8843 4.7% 398 7061 5.6% MINING 88 260 33.8% 79 218 36.2% 61 171 35.7% 68 156 43.6% MANUFACTURING 2432 5548 43.8% 2500 4806 52.0% 2885 5078 56.8% 4399 7547 58.3% Non export-oriented 3735 8264 45.2% 3852 7743 49.7% 4722 8204 57.6% 7454 12361 60.3% Food, beverages and tobacco 662 1077 61.5% 673 1137 59.2% 547 1181 46.3% 683 1561 43.8% Wood, wood prods; paper, paper prods* 241 1650 14.6% 241 620 38.9% 286 657 43.5% 373 971 38.4% Non-metal mineral products** 165 176 134 144 Export-oriented 1302 2716 47.9% 1343 2937 45.7% 1836 3126 58.7% 3055 4814 63.5% Textiles, garments and leather 401 985 40.7% 399 1040 38.4% 504 1256 40.1% 942 1887 49.9% Chemicals, rubber and plastics 333 454 73.3% 342 809 42.3% 352 766 45.9% 466 1010 46.1% Basic metals 89 277 32.1% 83 76 109.2% 61 72 84.8% 79 105 75.4% Metal products, machinery & equip.*** 479 1000 47.9% 519 1012 51.3% 919 1031 89.1% 1568 1812 86.6% Other manufacturing industries 63 105 60.0% 76 112 67.9% 83 115 72.3% 143 201 71.2% CONSTRUCTION 198 1528 13.0% 293 1872 15.7% 284 1879 15.1% 912 2528 36.1% ELECTRICITY, GAS & WATER 91 130 70.0% 98 151 64.9% 105 169 62.1% 143 189 75.8% COMMERCE 1715 5929 28.9% 2142 6449 33.2% 2178 4296 50.7% 2997 8885 33.7% Wholesale trade 711 948 75.0% 865 924 93.6% 860 952 90.3% 1240 1289 96.2% Hotels and Restaurants 341 1084 31.5% 439 768 57.2% 449 507 88.6% 623 1322 47.1% Retail trade 663 3897 17.0% 838 4758 17.6% 869 2837 30.6% 1134 6275 18.1% SERVICES 2865 8916 32.1% 3566 9148 39.0% 3652 9869 37.0% 4863 12817 37.9% Transport, storage & communications 435 1062 41.0% 508 1142 44.5% 491 1362 36.0% 654 1731 37.8% Finance, Insurance & Real Estate**** 665 695 95.7% 809 945 85.6% 835 1080 77.3% 1285 1561 82.3% Community, Social & Personal Services 1214 4633 26.2% 1689 4568 37.0% 1816 4976 36.5% 2389 6822 35.0% Other services***** 378 1016 37.2% 560 1013 55.3% 510 945 54.0% 535 805 66.5% Public administration & defense 1232 1295 1283 1739 Worker in the U.S. 192 163 207 Not specified 86 23 16 160 source: Author's own calculations based on SSS (Social Security Statistics) Ministry of Health (Secretaría de Salud) asegurados al IMSS; La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34; NES (National Employment Surveys) and INEGI's Encuesta Nacional de Empleo 1988, 1991, 1993, 2000 note: Only IMSS workers are considered to calculate formality levels in this table since ISSTE and other government social security data is not available divided by economic sector and subsector. Since ISSTE and other government insured workers are not concentrated in what can be considered "trade-related or foreign investment related sectors" with the exception of oil exports, the author considered this acceptable. *Wood and wood products totals are grouped with paper and paper products employment **NES does not provide any information as to where they place non-metal mineral products employment. If it is included in the wood and paper industries, then the levels of formality will be much higher ***NES groups other manufacturing industries employment with metal products machinery and equipment employment; Since the metal products machinery and equipment industry is such an important export-oriented subsector, a division was made considering other manufacturing industries total to represent 10% of the NES given figure ****1988 Finance, Insurance and Real Estate NES data left out professional services that were included in the next NES *****1988 Other services data include community, social and personal services employment. A separation was made considering that in 1991 other services represented 18% of the sum of the two. In blue all foreign investment-related and export-oriented sectors and subsectors It is clear from the above-mentioned table that a sector like agriculture that was until the middle of the 1970’s the one that exported the largest share of its production has kept very low levels of formality: 5 per cent on average. Others like construction that has never participated in trade directly have also been recording very low levels of formality. In the agricultural sector, the most common informal units identified have been subsistence farms where a large number of agricultural workers combine seasonal and uncertain agricultural employment with a variety of sporadic jobs in urban areas. Agricultural workers not only have the highest rates of non-registration of workers in the social security system, but they also account for 50 percent of all non-remunerated workers (see table Ch. IV-9).

Table Ch. IV-9 Distribution of Total Employment (Formal and Informal) by Economic Sector and Employment Status, 1988-2000

TOTALS Employers Self-employed Waged or Salaried Piece-work Non-paid workers Other workers 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 100 100 100 100 100 100 100 100 100 100 100 100 100 102 AGRICULTURE, CATTLE, FORESTRY & 24 18 51 10 31 29 2 9 45 14 54 51 4 53 MINING 1100002 1000000 MANUFACTURING 20199171812232316231912413 CONSTRUCTION* 56915258 7651100 ELECTRICITY 0000001 1000000 WHOLESALE TRADE***** 2422052 2240710 RETAIL TRADE 14 14 11 19 24 20 10 10 7 16 18 20 0 5 RESTAURANTS & HOTELS 4538654 4114700 TRANSPORT, STORAGE & COMMUNICA 4425344 392300712 FINANCE, INSURANCE & REAL ESTATE 1426122 5130106 COMMUNITY, SOCIAL, PERSONAL & OT 202011171418312412104380 PUBLIC ADMINISTRATION & DEFENSE 440000108000000 WORKER IN THE U.S. 1000000 01000480 NOT SPECIFIED 0000000 100002614 source: INEGI's Encuestas Nacionales de Empleo 1988, 1991, 1993, 2000 note: the majority of contract workers are considered temporary and are not covered by social security. Piece-work workers or "trabajadores a destajo": persons that work for a remuneration that is exclusively determined for the quantity of work, number of services, worked pieces or finished tasks. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors C. Informal Employment

It is important to consider that despite these positive developments in formal employment, as a whole, most of the jobs created were absorbed by the informal, unprotected sector. By the year 2000, out of a labour force of 38 million, only a third (13.1 million) had a remunerated, full-time, formal job that provided them with the necessary social  security coverage and social benefits. The rest were either working under a flexible work arrangement, were concentrated in the informal sector, or were underemployed or unemployed. Between 1982 and the year 2000, two out of every three new jobs generated belonged to the informal sector. As a result, by the year 2000 only a third of the employed population in Mexico could be defined as having what the ILO calls a “decent job”, a good quality job with fair remuneration, good working and contractual conditions, basic safety and health protection, as well as social security coverage against loss of livelihood, sickness, accident or old age (see table Ch. IV-10).

Table Ch. IV-10 Estimates of Total Formal (Social Security Insured) and Informal Employment 1980-2000 TOTAL FORMAL & INFORMAL EMPLOYMENT FORMAL* INFORMAL EMPLOYMENT EMPLOYMENT 1980 22.247 45.0% 55.0% 1981 23.014 46.0% 54.0% 1982 23.781 44.4% 55.6% 1983 24.547 42.1% 57.9% 1984 25.314 42.8% 57.2% 1985 26.081 42.3% 57.7% 1986 26.962 38.4% 61.6% 1987 27.843 34.7% 65.3% 1988 28.724 34.4% 65.6% 1989 29.606 35.1% 64.9% 1990 30.487 35.8% 64.2% 1991 31.475 36.1% 63.9% 1992 32.463 34.9% 65.1% 1993 33.362 33.7% 66.3% 1994 34.281 33.4% 66.6% 1995 33.881 32.8% 67.2% 1996 34.994 33.7% 66.3% 1997 36.291 37.0% 63.0% 1998 37.117 38.3% 61.7% 1999 38.069 39.5% 60.5% 2000 38.983 40.2% 59.8% source: Author's own calculations based on The World Bank: "World Tables 1994"; the 1980 National Census and Mexico's Ministry of Health (Secretaría de Salud) Social Security Statistics; and La Economía Mexicana en Cifras 1990, p.30 and La Economía Mexicana en Cifras 1998 p.38. INEGI, Mexican Bulletin of Statistical Information various years, and Encuesta Nacional de Empleo 1988, 1991, 1993, 2000. notes: 1999 and 2000 social security coverage only includes IMSS insured workers/employees, self-employed or employers *fixed and casual workers/employees, self-employed and employers insured by social security An important issue to mention at this point is that informal employment did not appear in Mexico as a consequence of trade liberalization policies. While the government took strong measures since the beginning of the 1970s to formalize (provide not only social security protection, but a contract-based formal labour relation specifying decent working and contractual conditions) most of the labour force, certain economic sectors like agriculture and construction remained highly informalised throughout. Other economic sectors always reacted in a very flexible and dualistic way to the different economic downturns or upsurges. Immediately after the 1976 economic crisis and right after the 1982 debt crisis, for example, the labour market reacted by a lack of creation of jobs and a reduction of existing ones in the formal sector. Indeed, whenever formal employment could not provide enough jobs to the large number of workers either entering the labour market every year, being laid off or having to close down formal enterprises, the ranks of informal employment increased. 

While it is true that informality did not appear with trade liberalisation, it is also certain that trade liberalisation policies within the framework of a recessive economy and later with the real exchange rate appreciation, instead of promoting a dynamic restructuring of the non- competitive largest share of the Mexican economy, contributed to the stagnation of large numbers of medium, small and micro industry or to their disappearance from the formal sector. The lack of access to affordable credit made it almost impossible for domestic owners of medium and small enterprises to invest in new technology and machinery. Some additional reasons contributing to the increase in informality levels could be that the government having to make important cuts in public spending made no provisions for assisting the millions of displaced workers or did little to enhance their education and skills. As a result, these workers found a refuge and a last and only option in informal employment.

A variety of definitions of formal and informal employment comprising income level, payment or non-payment of wages, contract situation, size of establishment, fiscal situation, enterprise registry, accounting registry, employment status, investment level, technology level, lack of access to resources and credit, and others have been used.

The first estimate of informal employment in Mexico was made in 1976 within the framework of the Employment Planning Project of the joint United Nations Development Program and the International Labour Organisation (UNDP/ILO) in cooperation with the Mexican Ministry of Labour and Social Welfare (STPS) and in conjunction with ILO’s Regional Employment Program for Latin America and the Caribbean (PREALC). Using data from the 1970 Population Census, the report estimated informal employment in urban areas in Mexico as representing 25.1 per cent of the total employed population (see table Ch. IV-11).

At that moment, informal sector was defined as a) unpaid family labour, the self- employed, and owners and workers in micro enterprises of, usually fewer than 5 workers; b) employment associated with kinship ties, with business practices rarely guided by formal contractual agreements, and c) conditions of work usually rudimentary with only the most basic tools and inadequate infrastructure; d) trade unions and social security protection rarely found; e) often related to the evasion of formal registration for fiscal means or the coverage of social security benefits or both; and, e) falling outside the reach of government regulation and supervision.81 This definition excluded agricultural workers and domestic services.

In 1984, just before the opening of the economy to international trade, an updated estimate of the size of informal employment was made in Mexico. This time also rural agricultural areas were included in the report prepared by the Employment Planning and Policies Project of the UNDP/ILO and STPS. The updated estimate used the same 1970 definition at the national level and calculated that informal employment represented 35.3 per cent of the total employed population. The same project calculated informal employment size four years later (1988) through a matrix method as representing 36.8 per cent of total employment.82



Table Ch. IV-11 Informal Employment Share of Total Employment in Trade-related Economic Sectors, 1970-2000

ILO'S INEGI's % of total TRADE-RELATED ECONOMIC SECTORS definition definition employment MANUFACTURING WHOLESALE TRANSPORT, FINANCE, divided by Gender not covered by export-oriented TRADE, HOTELS STORAGE & INSURANCE TOTAL TOTAL Men Women social security sectors & RESTAURANTS COMMUNICATIONS & REAL ESTATE 1970* 25.1 35 45.5 23% 16.5% 2.5% 1980 55.0% 5.4% 1981 54.0% 1982 55.6% 1983 57.9% 1984 35.3 57.2% 1985 57.7% 1986 61.6% 1987 65.3% 1988 36.8 65.6% 52.1% 46.8% 59.0% 0.0% 1989 64.9% 1990 49.9 64.2% 1991 50.3 30.9 29.5 33.1 63.9% 54.3% 24.6% 55.5% 14.4% 1992 50.5 30.7 32.6 27.7 65.1% 1993 51.5 30.1 31.8 27.5 66.3% 41.3% 10.6% 64.0% 22.7% 1994 51.6 29.7 30.7 28.2 66.6% 1995 54.0 34.8 36.3 32.4 67.2% 1996 54.8 33.9 35.8 30.9 66.3% 1997 53.8 33.2 35 30.3 63.0% 1998 63.9 61.7% 1999 60.5% 2000 61.8 59.8% 36.5% 28.0% 62.2% 17.7% sources: Author's own calculations with ILO's PREALC/PNUD data, Bases para una política de empleo hacial el sector informal o marginal urbano en México ; INEGI: Encuestas Nacionales de Empleo 1988, 1991, 1993, 2000 ; STPS-USADOL:The Informal Sector in Mexico ; Mexico's Ministry of Health, Social Security statistics; ILO's Regional Office for the Americas, Lima, ILO: Women and Men in the Informal Economy, a Statistical Picture , 2002, p.38; INEGI: Negrete, Rodrigo, Mexican Household Survey System contribution in estimating the informal sector's GDP share. ILO/UNDP/STPS definition 1970 Measurement is based in two criteria: a) persons employed in non-agricultural activities with incomes under the legal minimum b) non-salaried employees within the same income level for all branches except insufficiently specified ones and domestic services where all status categories are included ILO/UNDP/STPS's definition 1984-1988: a marginal sector with incomes equal to or under the established minimum wage and with little or no resources or social benefits. ILO's definition 1990-1997: All own-account workers (excluding administrative, professionals and technicians) and unpaid family workers, and employers and employees working in establishments with less than 5 to 10 persons. Agricultural informal workers and paid domestic workers are excluded. INEGI's definition 1991-1997: The informal sector is composed of household enterprise units in market production of goods and services not constituted as separate legal entities and with no complete set of accounts available which would distinguish production activities from other owners' activities, neither would they be able to identify any income or capital flows separately from the enterprise and the owner. It includes all own-account workers and employers working on a small scale remunerated or not. The micro-scale operation comprises less than 5 persons in the commercial and services sector and up to 15 in the manufacturing sector. INEGI's definition 1998-2000 following ILO's Decent Work and the Informal Economy Report VI , from the International Labour Conference, 90th Session, Geneva 2002. a) contributing family workers with no contract of employment and no legal or social protection arising from the job in formal enterprises or informal enterprises b) employees who have informal jobs whether employed by formal enterprises or informal enterprises; c) own-account workers and employers who have their own informal enterprises; d) members of informal producers' cooperatives; e) and paid domestic workers employed by households in informal jobs. That same year, INEGI made a thorough examination of the informal sector in urban municipalities over 100,000 inhabitants. The result of the study concluded that women, children and older workers were highly participating in the urban informal sector compared to formal activities in urban areas or even to agricultural activities in rural areas. It also underlined that six out 10 informal sector workers had low educational levels and that 10 per cent had no schooling at all.83 INEGI’s National Employment Survey also identified the following economic activities as having the highest informality: a) domestic services: 99.4 per cent; b) cornmeal mills and processing and sale of tortillas: 83.9 per cent; c) repair services: 77.2 per cent; d) rentals, funeral parlours, photography shops, building maintenance: 76.2 per cent; e) retail trade: 73.3 per cent; f) cleaning services: 70.9 per cent; g) hotels and restaurants; 62.9 per cent; h) passenger transportation services: 57.4 per cent; and i) manufacture of furniture, mattresses and doors: 54.3 per cent.84

Self employment into low-scale manufacturing, low-paid consumer services or personal services, retail distribution and street vending of all types of goods were identified as the common labour units of this informalization. For example, the number of street vendors and other retail sales were recorded as having increased from 1982 to 1994 by 1500 per cent. Informal street vendors’ sales accounted for a full 60 per cent of all commercial activity by 1994.85

Concerning income levels, not all informal workers belonged to the category of low- income earners. But, low-income informal sector labour force participation was growing rapidly, especially the participation of workers receiving below legal minimum wages. INEGI’s 1988 results concluded that unpaid workers accounted for 13.2 per cent of all workers in the informal sector, 14.5 per cent earned up to half the minimum wage and 20.8  per cent earned from half to less than one minimum wage. Compared to the formal sector, in general, working conditions and pay were identified as being worse in the informal sector irrespective of the human capital that the worker brought to the job.86

Just right after the consolidation of trade liberalisation policies, the ILO calculated informal employment in urban areas alone to have grown from 49.9 per cent in 1990 to 53.8 per cent of the total employed population by 1997. While this definition comprised all own- account workers (excluding administrative, professionals and technicians) and unpaid family workers, as well as employers and employees working in establishments with less than 5 to 10 persons, it still did not include the large number of agricultural informal sector workers. Neither did it cover the large number of paid domestic workers. The ILO considered that adding these two categories would raise the percentage by at least 10 points.

On the other hand, while Mexico’s INEGI had been calculating total informal sector levels to represent only around 30 per cent of total employment between 1991 and 1997, the ILO proposed in 1998 a new measurement of informality following a matrix created by Hussmann.87 The new “Informal Economy” concept referred to the total number of informal jobs, whether carried out in formal sector enterprises, informal sector enterprises, or households, or to the total number of persons engaged in informal jobs during a given reference period. The new definition utilised for the measurement of informal employment in several countries for the “International Labour Conference 2002 Informal Economy General Discussion’s Report” comprised:

1. own-account workers and employers who have their own informal sector enterprises:

2. contributing family workers, irrespective of whether they work in formal or informal sector enterprises;

3. employees who have informal jobs, whether employed by formal sector enterprises, informal sector enterprises, or as paid domestic workers by households;

4. members of informal producers’ cooperatives; and

5. persons engaged in the own-account production of goods for own final use by their household (e.g. subsistence farming, do-it-yourself construction of own dwellings).88

INEGI came up with new calculations out of a reprocessing of the National Micro Business Surveys of 1998 and 2000, as well as the National Employment Surveys covering both of those years. The new measurement provided a more realistic view of the ongoing process of informalization of labour relationships in the country. Under the new concept of “informal employment”, Mexico’s INEGI calculated that informal employment had grown up to 63.9 per cent of total employment by 1998 and to 61.8 per cent by the year 2000.89 For the first time, Mexico’s official statistics recognised that twenty-four million either employees (40.7 per cent), own-account workers (36.5 per cent), contributing family workers (14.8 per cent), or employers (8 per cent) out of a total of 38 million employed in the country belonged to the unprotected ranks of the economy: an impressing two-thirds of total employment.

Some of the micro enterprises within the informal sector do not even exchange the national currency when doing business, but try surviving by bartering among themselves. Indeed, as the Economist Intelligence Unit Country Profile on Mexico (1996-1997) states: “a large section of the Mexican economic active population remains outside the money economy”.90 

New estimates were made, at the same time of the significance of the participation of the informal sector in GDP. From 1993 to 1999, it was calculated that the informal sector was providing from 12 to 13.5 per cent of total output (see table Ch. IV-12).

Table Ch. IV-12 Informal Sector's percentage of GDP, 1993-1999 old new estimate estimate 1993 10.2 13.4 1994 10 13.3 1995 8.5 11.8 1996 8.4 12 1997 8.6 12.5 1998 9.8 12.7 1999 9.9 old estimate source: INEGI: Cuentas por Sectores Institucionales, Cuenta Satélite del Subsector Informal de los Hogares 1993-1999 , p.9. new estimate source: INEGI: Rodrigo Negrete "Mexican Household Survey System contribution in estimating the informal sector's GDP share ", p.15 ILO’s report “Women and Men in the Informal Economy: A Statistical Picture” stated that a significant share of informal employment in Mexico consisted of a) disguised employee status whereby paid workers work off site on work supplied by firms/employers under sub- contracts; or b) temporary worker status whereby there was a mutual agreement between employees and employers where contracts were renewed every two to three months, thus becoming “permanent” temporary workers and not accumulating enough months to qualify for benefits. Under both arrangements, the employee/worker was entitled to either very few or no labour benefits at all.91

The continuous economic crisis further intensified with the debt-strangulation of the economy and combined with a lack of access to cheap credit wiped out a large number of domestic medium, small and micro industries from the formal sector. These industries were usually not competitive enough and were lacking the necessary human resources capital or the financial capital. The decline of Mexican domestic industry was also attributed in large part to technological backwardness and lack of capability to restructure rapidly. Whatever the reason, these enterprises disappeared from the formal sector where they were obliged to pay taxes, social security registry and other administrative charges, just to reappear almost immediately in the informal sector. The Mexican labour market was rapidly moving from formality to informality levels and vice-versa as the economic situation improved or worsened: informality levels were then inversely related to GDP growth. This seems to be one of the main features of flexibility in the country. Instead of attaining full employment levels, the labour market aimed at attaining full formality levels. Formality seemed to be the best indicator of economic healthiness.

According to the author’s calculations comparing social security registries with the NES (National Employment Surveys), informal employment percentages while already high in 1980 (55 per cent), increased to attain 57.7 per cent in 1985. Again, there was a further rise recorded in 1989 with 64.9 per cent, and finally resulting in its highest peak in 1995 with 67.2 per cent. Since then, there has been a decrease ending up by representing 59.8 per cent in 2000. The author’s calculations coincide closely with the latest INEGI’s data. This means that not all jobs created since 1985 by trade, investment and services liberalization in Mexico can be considered under ILO standards as “decent work92”. In fact, in the manufacturing sector, informality has been identified mainly in the basic consumer goods industries such as the food, beverages, clothing, shoes, and furniture subsectors due to the low capital needed to organise effectively in small units. In 1988, one out of five informal sector workers worked directly in an industrial process as a craftsman, small craftsman, repairer or manufacturer.93 

However, it should be recognised that foreign investment related sectors formalised after 1988 their labour markets at a higher speed than non-foreign investment related sectors. In foreign investment-related sectors, informality that had been very low in the 1970s and beginning of 1980s, by 1988 (one of the worst debt-crisis years) had attained levels of more than 50 per cent, but was importantly decreasing by 1993 when the economy started positively growing. The wholesale trade, hotels and restaurants informality levels also went down from 1988 to 2000. The only exceptions to this rule are transport, storage and communications and finance insurance and real estate where informality levels have been increasing (see table previously mentioned Ch. IV-11).

Following the latest ILO definition of informal employment, in the case of Mexico most informality can be identified in the following modalities:

• as subcontracted workers with no contract of employment and no legal or social protection arising from the job in formal enterprises or informal enterprises;

• as workers/employees in totally unregistered informal jobs (no bill or tax declaration ever appears on their name) whether employed by formal enterprises of informal enterprises;

• as own-account, independent or self-employed workers and employers who have their own informal “enterprises” or kind of business that can vary from home vendors, to an established business at home, street-vending and many other modalities;

• or as unpaid family workers.

Initially, only poor employers, as well as uneducated employees and workers, were recorded by the different surveys as belonging to informal employment. After the 1982 crisis and even more after the 1987 crisis, educated as well as middle-income employers and workers found in informal employment a strategy to survive by evading fiscal payments, registration costs, and social security costs. However, modern and large firms have also been taking advantage of this labour force, lowering production costs and gaining competitive advantage by drawing on this pool of workers through more flexible work arrangements, subcontracting, or simply hiring them for many basic support services like cleaning, food preparation, machinery repair, data processing, printing, photocopying, etc. While the growth of informal employment cannot be blamed on export-oriented industrialisation and the liberalisation of the economy, large and medium-scale firms involved in the production of exports and those commercialising imports have benefited from the growing pattern of informal employment development, as much as smaller sizes of national non-export oriented establishments with less resources.

The labour crisis together with the modernization process of the 1980’s and 1990s manifested themselves in the commerce and services sector even more significantly than in the manufacturing sector. While the commerce and services sector has been the more apt to provide most of the jobs since the middle of the 1970’s, a big part of them have been in the informal sector. By 1988, only 3.8 million commerce and services jobs were registered in social security registries out of a total of 14 million (27 per cent) appearing in the NES. Twelve years later, the situation had slightly improved: 6.5 million jobs were considered formal out of a total of 21.5 million (30.2 per cent). The highest informal occupations in the commerce and services sector are in retail trade: street and home vendors distributing and  commercialising imported goods, maintenance and repair services, security and property surveillance, domestic work, cleaning, and other personal services.

Again, it is important to mention that the levels of formality in foreign investment-related sectors are much higher than in those not participating in any way in the new liberalization trend like in the case of wholesale trade. Wholesale trade rapidly increased its formality levels from 75 per cent in 1988 to 96 per cent in 2000. Especially in the case of sectors like finance, insurance and real estate, requiring highly qualified workers, formality levels were as high as 100 per cent in 1988, and went down to 82.3 per cent by the year 2000. In the case of transport, storage and communications, formality levels kept low and went even down by 3 percentage points during the period studied. Still, when compared to other subsectors like community, social and personal services comprised in the commerce and services sector, foreign investment-related subsectors showed more positive levels of formality than the others (see table Ch. IV-8 already mentioned before).

Table Ch. IV-13 FORMAL EMPLOYMENT INDEX BY ECONOMIC SECTOR & SUBSECTOR, 1987-2000 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 T O T A L 100 99.5 107.8 113.3 118.3 122.3 120.7 122.8 117.7 126.7 147.9 157.9 167.1 173.8 AGRICULTURE, CATTLE, FORESTRY & FISHING 100 101.1 106.8 114.7 123.7 121.7 118.6 115.5 113.5 118.1 118.8 124.1 121.7 112.5 MINING 100 101.1 102.3 101.1 90.8 80.9 70.1 75.6 71.3 77.2 80.8 77.6 75.7 77.9 MANUFACTURING 100 100.1 102.6 103.2 102.9 124.2 118.7 121.7 118.1 132.1 150.4 163.2 174.6 181.0 CONSTRUCTION* 100 108.2 115.8 138.3 160.1 154.6 155.2 159.2 124.6 141.0 381.3 465.7 489.3 498.5 ELECTRICITY, GAS & WATER 100 101.1 98.9 105.6 108.9 115.6 116.7 122.3 125.2 127.8 146.9 152.3 154.7 158.8 WHOLESALE & RETAIL TRADE, REST.& HOTELS 100 97.0 105.2 115.4 124.4 120.7 119.8 123.1 116.1 123.1 133.0 147.5 154.0 164.5 TRANSPORT, STORAGE & COMM. 100 105.2 108.6 115.2 125.2 119.4 116.8 118.9 115.0 117.8 132.4 139.4 147.3 155.8 FINANCE, INSURANCE & REAL ESTATE 100 101.9 156.6 185.4 228.0 258.3 264.6 274.1 266.7 291.3 343.8 365.6 390.1 399.3 COMMUNITY, SOCIAL & PERSONAL SERVICES 100 99.6 111.0 113.0 110.0 99.4 101.6 102.7 102.0 105.8 116.8 113.4 123.7 133.2 OTHER 100 92.7 95.2 96.1 103.2 92.0 90.9 86.4 74.0 76.8 98.3 99.4 98.0 95.4 source: Ministry of Health (Secretaría de Salud) asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1990, p.54; 1992, p.19; 1995, p.34 note: there is a big difference between 1991 and 1992 manufacturing data since starting from 1992 maquiladora workers are included. However, if we do an index comparing 1988 to 2000, it is important to underline that the levels of formality in foreign investment-related subsectors (with the exception of construction where formality levels have skyrocketed) are much higher than in those not participating in any way in the new liberalization trend. The rapid formalization recorded in the construction sector was probably due to an indirect rise in the demand of construction workers. The demand created by the large inflows of foreign investment probably forced the sector to provide at least social security protection to attract enough workers that had been either migrating to the U.S. or trying to avoid this dangerous and low-paid sector. Concerning formality levels in the case of subsectors like finance, insurance and real estate, requiring highly qualified workers, they rose from 100 per cent in 1987 to 399.3 per cent by the year 2000. Manufacturing followed the finance, insurance and real state sector by providing during the same period positive levels of formality representing 181 per cent by the year 2000. In the case of transport, storage and communications, formality levels increased at a slower rate though, going from 100 per cent in 1987 to 156 per cent by the year 2000. Still, when compared to other subsectors like agriculture and community, social and personal services, foreign investment-related subsectors showed more positive levels of formality (see table Ch. IV-13).

According to INEGI’s Cuenta Satélite del Subsector Informal de los Hogares, data on informal sector’s output by economic sector (1999) showed that the commerce, restaurants and hotels, as well as communal, social and personal services were participating in average with more than 30 per cent of the share in informal employment. The manufacturing sector followed with an almost 20 per cent of the share, and transport, storage and communications with 9.5 per cent (see table Ch. IV-14). 

Table Ch. IV-14 Informal Sector's Output by Economic Sector. 1980-1999 (percentages) 1980 1993 1994 1995 1996 1997 1998 1999

Manufacturing 18 20.9 21.9 24.1 24.7 22.7 20.6 19.9 Construction 10 2.1 1.8 1.9 2.1 4.2 6.5 6.8 Commerce, restaurants & hotels 35.1 53.2 53.3 48.7 46.3 39.3 31.8 31.5 Transport, storage & communications 11.5 3.4 2.9 3.5 4.1 6.6 9.3 9.5 Communal, Social & Personal Services 25.4 20.4 20.1 21.7 22.9 27.2 31.7 32.3 TOTAL 100 100 100 99.9 100.1 100 99.9 100 source: INEGI: Cuentas por Sectores Institucionales, Cuenta Satélite del Subsector Informal de los Hogares 1993-1999 , p.9. According to Gutierrez Garza, considering the number of young persons coming into the labour market or becoming part of the economic population each year, the informal sector will continue increasing mainly in micro-scale enterprises.94 Sernau believes that workers in the informal sector have very few possibilities of obtaining in the future an amelioration of their status since their informality is related to scarce skills, reduced capital, limited access to credit and use of technology. He says: «few informal activities allow for the accumulation of the capital, credit, credentials or skills necessary to serve as stepping-stones into more secure, productive, and remunerative employment».95 Mesa Lago states that to force the informal employer to fulfil higher obligations to social insurance would substantially reduce his/her small profit and potentially provoke more shutdowns of micro enterprises and consequently more poverty.96

Signs of rapid formalisation of the labour force as a whole appeared from 1998 to the year 2000 when economic indicators started showing positive results. However, as the economy shows high growth rates, educational levels of the labour force should quickly improve in order to provide workers with larger opportunities to obtain a better-protected job. During ILO’s 2002 International Labour Conference General Discussion on the Informal Economy, the Mexican workers’ delegate, mentioned that the Federation of Non-Salaried Workers had negotiated with the CROC (Confederación Revolucionaria de Obreros y Campesinos) the right to provide social security registry with a pension scheme and low- income housing to 700,000 informal workers. This is the first agreement of its kind to be signed in the country.

While it is clear that formalisation or informalisation employment trends follow the economic downturns or upturns, it is also evident that with the trade opening they became closely linked to employment and wage flexibility levels as part of the modernization package towards achieving international competitiveness. However, as will be seen in the latter chapters, in the search for competitiveness large sections of the labour market were completely forgotten, mainly through the lack of support policies concerning education, training and a good information system between the demand and the supply of jobs in the labour market. In turn, this lack of support might have highly contributed towards an increase in informalisation and a fall in employment levels in non-export oriented sectors.

D. Employment flexibility levels

It is not only the lack of absorption of newcomers, the lack of possibilities to formalise the labour force further and the loss of existing formal jobs that are worth pointing out during this period. In Mexico, the employment situation (directly and indirectly related to the trade liberalization process) expressed itself also in different forms of what was later called employment flexibility. Employment flexibility was directly embedded in the process of trade  liberalization through its constant search for competitiveness, accompanied by a lack of government and private sector’s support of non-competitive sectors.

Employment stability, worker protection and labour security are guaranteed by Mexican law for all workers without making a difference between those having an indeterminate or determinate contract. These rights are not being either partially or wholly respected, though, in the case of the growing number of informal workers, piece-work workers, part-time, home workers (work done at home), non-remunerated, casual, in the case of the category of “personal de confianza”, subcontracted workers, or those paid on an hourly basis.

After the 1982 crisis and more importantly during the consolidation of trade period a lot of the achievements obtained in 1917 under Mexico’s Constitutional Article 123, and later with the Federal Labour Code of 1970, on issues of work protection, employment stability and labour security were gradually circumvented or lost (see chapter IV B for more details). While employment flexibility was presented by the government as part of the package of healing policies to respond to economic recessions, and get the economic machinery going, it was also a very important part of international economic trends within the so-called “modernization process of the labour market” of developing countries requested in WTO, WB and IMF fora. In fact, this trend to achieve high growth of the economy seems to be largely based on the reduction of labour protection, as if the exploitation of workers will be one of the main components to obtain better macroeconomic results.

For example, as it will be seen in chapter IV B, an important employment indicator on the rise is the percentage of salaried professionals not receiving social benefits in the formal sector. From 1987 to the year 2000, the percentages increased from 19.6 per cent to one- fourth of total formal employment. Some of these salaried professionals are either subcontracted or contracted as casual and temporary workers.

While reducing workers’ labour protection, the modernization of the labour market was a way of augmenting Mexican enterprises’ competitiveness before the process of trade liberalization and of promoting export sectors. Since trade liberalization reforms required a new adjustment demand on firms by opening the economy, even if the labour code was not reformed, a larger labour flexibility was requested by employers’ organisations as the answer to reduce labour costs. Employers obtained more liberty to hire workers under flexible conditions and started making the adjustments they considered necessary whenever they believed these adjustments were suitable and required by a free labour market. Deregulatory measures concerning such important issues as working conditions, type of contracts, modification of wage patterns according to productivity and work schedules and their capacity to hire and dismiss workers according to immediate production needs became largely “in vogue”. This trend in practice in Mexico after the trade opening, and in fashion worldwide, could be guiding us to say that the increased flexibilization is heading towards the low levels of protection suffered between the first industrial revolution and the beginning of the 20th century when the ILO was called to start promoting progressive international labour standards and decent living conditions for working people.

1. Unemployment, underemployment and other indicators

Data available on some of the employment indicators that could provide key information during the trade liberalization period studied exist only from 1987 onwards. The year 1987, though, was a year of high recession and debt-strangulation of the economy. As such, 1987  cannot be considered as the model year to compare the years that followed. Anyhow, it is important to provide information on developments from then on and underline that the following trends could be identified in export-oriented, as well as non-export oriented sectors:

1. a growing number of underemployed;

2 an important number of workers with a second full-time job;

3. an increasing number of workers not receiving any social benefits in the formal sector;

4. a growing number of workers with a labour week of more than 50 hours (see table Ch. IV-15);

5. a large number of non-paid workers, especially in agriculture;

6. the increasing participation in the Economic Active Population (EAP) of women and children (to be discussed in a subsequent section of this same chapter);

7. a significant reduction of real wages and a significant number of workers earning less than two minimum wages (to be discussed in chapter VII)

8. more migration to the urban centres in the country and to the United States (to be explained in chapter IX) ; and

9. more flexible types of employment in the formal sector.

Table Ch. IV-15 Significant Employment Indicators to be Considered, 1984-2000 UNDER ALL SECTORS AGRICULTURAL WORKERS EARNING WORKERS EARNING WORKERS SALARIED PROFESSIONALS WORKERS WITH A EMPLOYMENT AVERAGE NON- NON-PAID LESS THAN ONE BETWEEN ONE WITH A NOT RECEIVING LABOUR JOURNEY (TOPD2) PAID WORKERS WORKERS MINIMUM WAGE AND TWO SECOND FULL- SOCIAL BENEFITS* IN OF MORE THAN (%) (%) MINIMUM WAGES TIME JOB (%) THE FORMAL SECTOR (%) 50 HOURS 1984 25.4 1987 23.3 19.6 1988 23.2 14 34 23.5 48.4 12.5 19.8 1989 21.0 20.8 27.2 1990 20.5 20.5 1991 20.8 12.9 27.4 18.2 35.7 13.1 20.3 1992 21.8 20.7 28.8 1993 23.0 13.9 33.8 18.9 28.4 12.1 21.5 1994 22.5 22.5 28.2 1995 25.9 24.9 1996 25.2 26.0 1997 25.2 23.3 1998 25.8 1999 22.3 2000 23.7 9.1 25.7 16.0 28.5 5.6 24.8 27.7 note: these are percentages out of economic active population totals TOPD2 includes those persons involuntarily unemployed or unvoluntarily working between 2 to 34 hours a week. *Social benefits might include Christmas bonus and/or vacation, social security, house credit, allowance or other sources: Author's own calculations based on National Employment Surveys 1988, 1991, 1993, 2000 INEGI; STPS, "Principales Indicadores de Empleo, Desempleo y Subempleo", 1994; Mexico Social 1992-1993, Banamex; inegi; Mexican Bulletin of Statistical Information 1992, 1993, 1994, 1995, 1996, 2000 INEGI; Income-Expenditure Surveys 1984, 1989, 1992, 1994; United Nations Statistical Yearbook 1993, 2000; OIT Informa América Latina y el Caribe, Panorama Laboral 95, no.2. The Mexican Ministry of labour has published stable levels of open unemployment97: fluctuating from a minimum of 2.7 per cent in 1991 to a maximum of 6.3 per cent in 1995. This percentage counts as unemployed all those persons who have worked less than two hours a week or not at all. In other words, anyone working two hours and a half a week or more are count as employed. Those persons that have a promise of work for the next month are also included in the category of employed. However, the author does not consider that a 3.8 per cent average unemployment rate during the period reflects any significant reality of the Mexican labour market since Mexico does not comprise an unemployment insurance scheme like the one in place in most industrialized countries (see table Ch. IV-16). 

Table Ch. IV-16 Unemployment rates, 1980-1995

UNEMPLOYMENT TOTAL MALE FEMALE 1980 4.3 1981 3.9 1982 4.1 1983 6.1 1984 6.4 5.3 7.6 1985 4.6 3.5 5.7 1986 4.5 3.7 5.3 1987 4.1 3.4 4.8 1988 3.8 3.0 4.7 1989 3.2 2.6 3.8 1990 2.8 2.6 3.1 1991 2.7 2.5 3.0 1992 2.9 2.7 3.2 1993 3.5 3.2 3.9 1994 3.7 3.6 3.9 1995 6.3 6.1 6.5 source: INEGI: Mexican Bulletin of Statistical Information 1992, 1993, 1994, 1995, 1996, Open unemployment levels have not risen in the country for an additional very important reason: the strong and rapid real wage adjustment downward did not permit workers to save. As a consequence, very few workers could afford being unemployed. Indeed, the Mexican social security system does not comprise an unemployment insurance or benefit. The closest to it is what is called “cesantía en edad avanzada”. This benefit represents, in fact, an anticipated pension covering only workers older than 60 years old.

This benefit was provided before 1997 to all 60 years old unemployed workers who had contributed with a minimum of 9 years and a half to the social security system. It represented for 60 years old workers, 75 per cent of the total amount to be obtained at the age of 65, increasing by 5 per cent each year during the 5 remaining years when the worker was then entitled to its full pension. After the social security law was modified in 1997, the number of contributions required to obtain this benefit was expanded. Sixty year-old workers had to contribute for at least 24 years to the social security system to qualify.

For workers younger than 60 years old, in case of lay-off, the only available benefit they received according to the 1973 social security law was a lump sum equal to 3 months’ pay plus 12 additional days’ pay for each year of services. Its reformed 1997 version increased the indemnity by requiring employers to pay 20 days’ pay for each year of service.

The real problem in Mexico can be better understood if the rates of underemployment are considered. The Mexican Ministry of labour (STPS) considers as underemployed all those persons that work involuntarily less hours per week (2 to 34 hours) than they would wish to in other circumstances and that earn an insufficient pay (less than one minimum salary). However, there is a big problem with this measurement. It does not separate the two: the number of persons involuntarily working fewer hours per week and that of workers earning an insufficient pay. Even if the measurement is not providing clear information on these different trends, it was important to include it. The percentages of underemployed fluctuated from 1987 to 2000 between 20.5 per cent and 23.7 per cent of the total economic active population. 

No single criterion for the definition of underemployment is generally accepted. The ILO gives the definition of underemployment as those persons earning an insufficient pay to cover the basic needs of a whole family. Another definition of underemployment used is the following: overqualified persons found involuntarily working in occupations that demand poor qualifications from them.

In Mexico, there is a high under utilization of human resources. Indeed, while a lot of employers complain about the lack of qualified personnel for certain posts, a growing number of university graduates do not easily find a job and end up working in the informal sector in jobs requiring very little qualifications from them. There seems to be a preoccupying lack of information exchange in the Mexican labour market. There are, for example, large numbers of lawyers working as street vendors or doctors working as taxi drivers. Human capital investment does not seem to be channelled or linked to the needs of enterprises. There does not seem to be enough information flows between educational requirements in the labour market and educational attainment. As Sernau says and I quote: “Human capital investment is critical in Mexico, but it must be linked to its means of application or it will only result in creating overeducated underemployed workers and will be dismissed by the poor as an unnecessary investment”.98

A National Employment Service (SNE) exists in the country since 1978 and had 139 Employment Services’ offices distributed in the country by the year 2002. The SNE has the following basic functions: a) To orient job searchers towards job vacancies; b) To help enterprises to cover their personnel skilled needs; c) To provide guidance and training to the unemployed labour force in order to increase their possibilities of finding a productive job.

Employment Services are in charge of implementing the Employment Support Programme (Programa de Apoyo al Empleo) comprised of five subprogrammes:

1. Job Training System (Sistema de Capacitación para el Trabajo);

2. Productive Investment Projects (Proyectos de Inversión Productiva);

3. Economic Support to Job Searchers (Apoyos Económicos a Buscadores de Empleo);

4. Internal Labour Mobility Support (Apoyos a la Movilidad Laboral Interna); and,

5. External Labour Mobility Support (Apoyos a la Movilidad Laboral al Exterior).

Employment Services (SE) have a significant role to play in providing linkages in the labour market between labour demand and supply, in providing vocational training and in assisting displaced workers. However, SEs have always lacked funding and support, especially during recessions or harsh economic downturns. In fact, they have been able to provide only limited assistance and services. While the author could not obtain detailed data on the number of workers during the period studied that received support from the SEs, limited data provided by the INEGI showed that in 1985 it provided services (training, retraining, scholarships, orientation to find a new job) to 137 thousand laid off workers. By 1994 the SEs provided, at the national level, the same type of services to 306 thousand workers. While SEs’ work has been significant, their provision of support to 306 thousand workers (out of a total labour force of 34.2 million) is very low (not even 1%). Only around 9 per cent (on average between 1980 and 2000) of all informal and displaced workers had received any type of SEs support. 

Meanwhile, other significant trends could be identified. For example, while the number of workers that involuntarily work less than 39 hours per week was increasing (especially those that work less than 29 hours a week), the percentage of workers that labour more than 50 hours a week also increased from 1984 to 2000. There, if a comparison is made between export-oriented or not, it is interesting to see that export-oriented or foreign investment- related establishments were requiring to almost a third of their labour force to labour more than 50 hours a week. While the percentage of workers required lengthy working weeks went down in agriculture (non export-oriented) from 27.5% in 1984 to 18.9% in 2000; four of the five export-oriented or foreign investment related sectors increased importantly the percentage of their employees required to labour more than 50 hours during the week. Manufacturing establishments were requiring, by the year 2000, to 10.9 per cent of their personnel working weeks of 60 to 69 hours. Commerce, as well as restaurants and hotels were requesting to 40 per cent of their personnel working weeks of 50 to 70 and more hours. An incredible twenty-two per cent of all transport, storage and communications workers were required to labour 70 and more hours a week. And, whenever the totals were averaged for this same sector, almost two-thirds of all workers were required to work between 50 and 70 hours or more a week (see table Ch. IV-17).

Table Ch. IV-17 Employed Persons by Number of Hours Worked per Week by Economic Sector, 1984-2000 (percentages) TOTAL 1 to 15 16 to 20 21 to 29 30 to 39 40 to 49 50 to 59 60 to 69 70 & more More than 50 hours TOTAL 1984 100 4.6 3.4 7.3 11.2 48.1 10.9 6.3 8.2 25.4 AGRICULTURE 100 3.8 3.1 6.5 14.3 44.8 10.3 7.4 9.8 27.5 MANUFACTURING 100 4.3 2.8 5.2 6.0 62.7 10.7 4.2 4.1 19.0 COMMERCE 100 6.4 4.7 7.4 10.3 36.2 14.7 7.7 12.6 35.0 RESTAURANTS & HOTELS 100 5.3 1.2 10.6 7.4 32.0 11.5 11.9 20.1 43.4 TRANSPORT, COMMUNICATIONS 100 2.8 2.1 3.2 6.3 47.4 13.6 6.4 18.1 38.1 FINANCIAL & PRIVATE SERVICES 100 3.5 1.1 1.9 11.8 65.6 8.7 2.9 4.4 16.0

TOTAL 2000 100 7.7 4.0 6.4 11.0 43.2 11.7 9.6 6.4 27.7 AGRICULTURE 100 14.3 5.3 10.8 15.2 35.4 8.7 7.0 3.2 18.9 MANUFACTURING 100 5.5 2.9 4.6 5.2 58.9 10.9 8.6 3.5 22.9 COMMERCE 100 8.4 3.9 4.3 8.4 34.9 16.1 10.9 13.1 40.1 RESTAURANTS & HOTELS 100 7.3 5.9 7.3 7.0 33.1 10.1 12.2 17.0 39.3 TRANSPORT, COMMUNICATIONS 100 2.0 1.1 2.1 7.0 30.2 14.0 21.1 22.3 57.4 FINANCIAL & PRIVATE SERVICES 100 10.2 4.8 5.7 14.7 40.9 10.9 9.6 3.1 23.7

source: Author's own calculations based on INEGI; Income-Expenditure Household Survey 1984 (p.14), 2000 (p.32-33). It is impossible to know with the data available if those workers labouring more than 40 hours a week were obtaining the correct compensation in the form of extra hours paid. It is probably not the case, since the remuneration levels are not following an increasing trend. Most probably, these workers are required to labour for the same wage as if they were working only the required 40 hours a week. It is also true that when considering this data, it is important to remember that the agricultural sector was losing a large part of its workers to the manufacturing sector and others. As such, the growing number of workers required lengthy working weeks in export-oriented sectors also represent a larger concentration of workers in these sectors.

It is very usual for Mexican workers of all occupational levels to labor 12 hours a day and to work from Monday morning to Sunday mid-day, if not the whole day. The fact that both parents are working this long number of hours means that children hardly see their parents during the week and are lucky to see them if they do not work on Saturdays and Sundays. Since very few child-care centres exist, the persons taking care of these children are either the grandmother (if she does not need to work herself) or a domestic worker (who herself leaves her family unattended). What this working time requirements mean for the social development of these kids will be felt soon.

According to the national employment surveys of 1988 to 1993, the number of those workers having two full-time jobs ranged between 12.1 per cent and 13.1 per cent during this  period. During the harsh years of the 1980s and beginning of the 1990s, having two full-time jobs were very frequent among public sector professionals. Since working schedules are shorter in certain public sector occupations than in the private (e.g. teaching, nursing, other medical and administrative positions), all of those professionals needing to increase their daily income performed a second full-time job a week. The last (2000) national employment survey, though, showed a reduction of almost half of that percentage. This is most probably a very positive reflection of a rapid amelioration of the economic situation in the country during the 4 latter years of the 1990s (see table Ch. IV-15 previously mentioned).

Another important employment indicator on the rise is the percentage of salaried professionals not receiving social benefits in the formal sector. From 1987 to the year 2000, the percentages increased from 19.6 per cent to one-fourth of total formal employment. Some of these salaried professionals can be either subcontracted or contracted as casual and temporary workers (again, see table Ch. IV-15 previously mentioned).

A significant aspect that increased the growth of these employment indicators is that public sector’s formal employment stagnated and decreased as of 1982, after having been an important buffer for unemployment and informalization for more than two decades. While total public sector employment from 1985 to 2000 increased by almost 600 thousand persons, the number of those with a fixed-term contract was reduced by more than half. A special category of workers came to be very frequent: the “personal de confianza”. The term literally means trustworthy personnel. This “personal de confianza” is composed of executive, managerial and professional-level personnel that does not belong to any trade union and can be hired or fired according to budgetary needs. The contract is negotiated directly with the professional not covered by any collective agreement. In case of lay-off, they are not provided  with severance payment. Most of them receive, though, basic social security (accident and sickness) coverage (see table Ch. IV-18).

2. Levels of employment flexibility in trade-related sectors

Flexibility, especially after the opening to international trade, had as a goal the improvement of labour force productivity. It was also a consequence of the internationalisation of production processes which moved the country towards new ways of combining labour and capital in order to achieve greater competitiveness.99 It was implemented not only by those firms that were "modernising" their industrial apparatus and introducing competitive products at national and international levels, but also by those firms that were seeking to stay in the national market and were being negatively affected by the rapid opening of the economy.

As a result, there was an increasing prevalence of precarious forms of employment, although their growth seemed to be less marked than in other countries going through trade liberalization processes, most probably because of the reduction of real wages. Minimum compulsory benefits offered to the majority of workers in the manufacturing sector, before, were largely withdrawn. Most employers did not feel obliged anymore to provide workers with a written contract including sickness and accident insurance, retirement benefits, or paid vacations. Instead, bonuses and other social benefits, were offered according to workers' educational qualifications or attainment, level of training and productivity. Mexican workers began to be hired and to work under conditions that had not previously been considered beneficial for workers or legal.

Employment status flexibility varied from contract to contract since employers started practising an individual way of hiring workers. From one worker to the other, contract conditions could differ as the night and day. For example, fixed contracts were replaced by task-based contracts. Temporary and other forms of flexible employment started to become more common. Collective contracts were also made more flexible depending on the establishment’s needs.

Even if working conditions were generally considered to be better in large corporations under more control and pressure to obey labour laws, increasing flexible forms of labour contracts were being used by the middle of the 1990s in large-scale establishments, as well as in other size of establishments. The “modernisation process” as a response to the opening of the economy and the increase in competitiveness, not only brought with it changes, in practice, but also modified collective labour agreements and the administration of labour laws that diminished the relative privileges of workers in the formal sector.

A frequent form of employment status flexibility that developed was labour subcontracting. Subcontracting permits the shifting of employment towards the more informal, or underground segments of the economic system, thereby providing a way to escape state regulations on production and market transactions, union contracts, taxes and fringe benefits. Subcontracting provides for a great deal of flexibility in expanding and contracting productive capacity especially in the small-business sector. So, the most positive aspect of subcontracting is that it stimulates the development of small businesses.100

In the case of the manufacturing sector two types of subcontracting were identified: one in which production was contracted out, but raw materials were not provided, and another in  which raw materials and other inputs were provided. The first was called horizontal subcontracting and involved goods regularly produced and sold by a firm to a variety of clients. The second was called vertical subcontracting or domestic maquila and it consisted of processing work for a firm under very specific contract arrangements, including exact specifications regarding design and other products’ characteristics. Vertical subcontracting resulted from a fragmentation of the production process in such a way that different parts could be carried out by a variety of firms. Some of the subcontracting arrangements were the result of a need to replace imports with domestic lower-cost produced goods. 101

However, subcontracted workers normally receive a lower pay than permanent or fixed- contract workers. Most of the subcontracting is “illegal” according to the labour code since firms did not provide subcontracted workers with the social security benefits required by law (seniority, accident and sickness insurance, pension and other).102 According to the ENESTyC survey, subcontracted workers were concentrated in unskilled (49 per cent in 1992) and semi- skilled occupations (18 per cent of total in 1989 and 15 per cent in 1992). Those industries with the highest inflows of foreign investment were the ones that requested, more often, a subcontracted labour force in order to reduce labour costs.

In the services sector the highest number of workers subcontracted were concentrated on cleaning, maintenance, repairing of equipment, fabrication of parts or pieces of the final product, and its commercialisation and distribution. The main reasons stated by employers for subcontracting personnel were the following:

1. lowering of fixed costs;

2. avoidance of problems associated with fluctuations of production; and,

3. avoidance of labour conflicts and unionisation.103

It was difficult to obtain data from the surveys studied on the linkages between level of subcontracting and employment in export-oriented or foreign investment-related sectors. Only where formal enterprises declared at least one bill or a contract payment for services rendered did the enterprises recorded in their administration registries some of those linkages and the surveys could detect them. In the case of subcontracted workers, for example, data registered in formal manufacturing enterprises in 1992 indicated that only 1.9 per cent of all personnel were considered as subcontracted.104

Seven years later, on average, formal manufacturing enterprises were subcontracting three and a half as many workers: 6.6 per cent of their total labour force. Large enterprises were subcontracting even a larger per cent than medium and small. This means that 9.1 per cent of total output was produced by personnel not legally bound to the enterprise, not covered by social security, nor receiving any type of social benefits. Commerce and services formal enterprises were subcontracting an even larger percentage of their personnel: on average, 5.7 per cent in commerce and 8.8 per cent in services (see table IV-19). 

Table Ch. IV-19 Percentage of Employment Subcontracted in the Manufacturing, Commerce and Services sectors, 1999 MANUFACTURING No. of establishments % Employed % Subcontracted % Total 344118 100 4232322 93.4 280273 6.6

Micro 317360 92.2 873896 97.7 19797 2.3 Small 19487 5.7 705703 95.1 34682 4.9 Medium 4027 1.2 596822 93.4 39613 6.6 Large 3244 0.9 2055901 90.9 186181 9.1 COMMERCE No. of establishments % Employed % Subcontracted % Total 1443676 100 3784869 94.3 214421 5.7

Micro 1419415 98.3 2646074 96.7 86153 3.3 Small 21689 1.5 642280 88.7 72462 11.3 Medium 2004 0.1 281318 88.2 33177 11.8 Large 568 0.0 215197 89.5 22629 10.5 SERVICES No. of establishments % Employed % Subcontracted % Total 938572 100 3920600 91.2 345060 8.8

Micro 907509 96.7 2090850 95.4 95519 4.6 Small 27486 2.9 796352 86.1 111036 13.9 Medium 2375 0.3 318029 85.8 45078 14.2 Large 1202 0.1 715361 86.9 93427 13.1 source: Author's own calculations based on INEGI: Micro, pequeña, mediana y gran empresa, censos económicos 1999 note: micro enterprises comprise 1 to 15 workers; small 16 to 100; medium 101 to 250; and large enterprises 251 and more Subcontracting is defined as personnel not depending legally on the establishments. The ILO defines subcontracting as a system whereby an employer sublets part of the work to other employers. In manufacturing establishments, there was a trend towards the reduction of employment categories. According to Pozas (1996), for workers, this policy often meant more responsibilities and work for the same pay.105 Mexican employers, especially from export-oriented sectors, seemed to be following the international trend of adapting workers' employment status in order to minimise costs and raise productivity. Furthermore, manufacturing establishments required workers to show more adaptability on the job to new production demands.

Another category that is becoming very popular is piece-work or “trabajadores a destajo”. Piece-work workers are persons that work with or without a contract for a remuneration that is exclusively determined for the quantity of work, number of services, worked pieces or finished tasks. The number of piece-work workers increased in manufacturing from representing 501 thousand in 1988 to 567 thousand in 2000. Piece-work almost doubled in foreign investment-related subsectors such as wholesale trade, and transport, storage and communications. It also multiplied by 4.5 times in finance, insurance and real estate from 1988 to 2000 (see table Ch. IV-20).



Table Ch. IV-20 Total Employment (Formal and Informal) by Economic Sector and Employment Status 1988-2000 (thousands) TOTALS Employers Self-employed Waged or Salaried Piece-work Non-paid workers Other workers 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000

T O T A L 28128 38984 1690 1652 6291 9171 12798 22129 3062 2464 4057 3556 228 11

AGRICULTURE, CATTLE, FORESTRY & 6616 7061 855 167 1924 2669 280 2063 1364 337 2182 1818 10 6 MINING 260 223 4 4 6 7 242 207 3 4 5 1 0 0 MANUFACTURING 5547 7479 146.1 273 1116.8 1067 2998 5157 501 567 773 413 9 1 Non export-oriented Food, beverages and tobacco 1077 1561 399 208 622 104 101 2 Wood & prods; paper & prods* 1650 971 42 516 400 99 592 1 Non-metal mineral products Export-oriented Textiles, garments and leather 985 1887 19 270 482 153 59 2 Chemicals, rubber and plastics*** 454 1010 993824850 Basic metals 277 105 4132421124 Metal prods., machinery & equip. 1000 1812 30 10 8.7 8.6 1.5 0 Other manufacturing industries** 105 201 3 91 784 77.4 13.5 0.3 CONSTRUCTION 1528 2528 146 247 136 471 1019 1644 198 127 28 39 0 0 ELECTRICITY 130 189 0 0 0 1 128 186 3 1 0 1 0 0 WHOLESALE TRADE***** 448 1388 27 35 27 462 315 551 62 108 13 232 3 0 RETAIL TRADE 3897 5452 179 319 1534 1849 1245 2203 215 383 723 697 1 1 RESTAURANTS & HOTELS 1085 1844 58 131 360 466 472 988 29 27 166 233 1 0 TRANSPORT, STORAGE & COMM. 1062 1731 42 87 204 323 531 750 261 556 8 14 16 1.3 FINANCE, INSURANCE & REAL ESTATE 395 1561 40 107 60 215 271 1143 17 76 6 18 1 1 COMMUNITY, SOCIAL & PERSONAL**** 5649 7627 190 278 906 1629 4015 5372 374 257 146 90 18 0 PUBLIC ADMINISTRATION & DEFENSE 1232 1739 0 0 0 0 1222 1729 9 8 1 2 0 0 WORKER IN THE U.S. 192 2 4 48 28 0.2 109 NOT SPECIFIED 86 160 0 2 11 11 11 132 0 12 5 0 59 1.5 source: Author's own calculations based on INEGI's Encuestas Nacionales de Empleo 1988, p.66 and 2000, p. 138 notes: NES 2000 does not provide a division of the manufacturing sector by subsectors. The majority of contract workers are considered temporary and are not covered by social security. Piece-work workers or "trabajadores a destajo" are persons that work for a remuneration that is exclusively determined for the quantity of work, number of services, worked pieces or finished tasks. *Wood and wood products totals are grouped with paper and paper products total employment **NES includes metal products machinery and equipment employment in other manufacturing industries totals. Since the metal products machinery and equipment industry is such an important export-oriented subsector, a division was made considering other manufacturing industries total to represent 10% of the NES given figure ***Chemicals, rubber and plastics totals comprise non-metals mineral products employment ****NES data include community, social and personal services employment in other services' data *****Wholesale and retail trade data is not divided in NES 2000. Since it represented 10% of the total of the two in 1988, the author made the calculations for 2000 note: in blue all export-oriented or foreign investment-related economic sectors or subsectors Non-remunerated labour is a type of employment status flexibility found to be very important in the Mexican agricultural sector and in small-scale units of production in the manufacturing sector. The National Employment Surveys recorded a very positive reduction of non-remunerated or non-paid workers from the harsh year of 1988 to the year 2000. On average, the percentage of non-paid workers out of total employment went down from 14 to 9.1 per cent. The agricultural sector, in particular, registered a rapid descent of unpaid labour since the opening of the economy, going from 34 percent in 1988 to 25.7 per cent in 2000. In the commerce and services sector, an important foreign investment-related subsector (transport, storage and communications, plus restaurants and hotels) recorded a downtrend.

Table Ch. IV-21 Percentages of Total Employment (Formal and Informal) by Economic Sector and Employment Status 1988-2000 TOTALS Employers Self-employed Waged or Salaried Piece-work Non-paid workers Other workers 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 100 100 6 4 22 24 45 57 11 6 14 9 1 0 AGRICULTURE, CATTLE, FOREST 100 100 13 2 29 38 4 29 21 5 33 26 0 0 MINING 10010022239393122000 MANUFACTURING 100 100 3 4 20 14 54 69 9 8 14 6 0 0 CONSTRUCTION* 100 100 10 10 9 19 67 65 13 5 2 2 0 0 ELECTRICITY 10110000009899210000 WHOLESALE TRADE***** 10010063633704014831710 RETAIL TRADE 100 100 5 6 39 34 32 40 6 7 19 13 0 0 RESTAURANTS & HOTELS 100 100 5 7 33 25 43 54 3 1 15 13 0 0 TRANSPORT, STORAGE & COMM 100 100 4 5 19 19 50 43 25 32 1 1 2 0 FINANCE, INSURANCE & REAL ES 10010010715146973452100 COMMUNITY, SOCIAL, PERSONA 100 100 3 4 16 21 71 70 7 3 3 1 0 0 PUBLIC ADMINISTRATION & DEFE 10010000009999100000 WORKER IN THE U.S. 100 1 2 25 15 0 57 NOT SPECIFIED 100990113713830860681 source: INEGI's Encuestas Nacionales de Empleo 1988, 1991, 1993, 2000 note: the majority of contract workers are considered temporary and are not covered by social security. Piece-work workers or "trabajadores a destajo": persons that work for a remuneration that is exclusively determined for the quantity of work, number of services, worked pieces or finished tasks. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors However, another important foreign investment-related sector, wholesale trade recorded a very rapid growth of non-paid workers (from 3 per cent to 17 per cent) during the same period. This trend can be related to the migration of rural to urban areas, and could be probably explained as a transfer of non-remunerated work from agriculture to the lowest ranks or unskilled jobs in wholesale trade in the cities. In fact, non-remunerated employment in wholesale trade has grown at a higher pace than remunerated. The number, though, of non- remunerated workers in wholesale trade was still lower than in other sectors like agriculture  where it still represented 1.8 million persons, in manufacturing 413 thousand, and in retail trade 697 thousand workers in the year 2000 (see tables Ch. IV-20, Ch. IV-21, and Ch. IV-15 previously mentioned before).

The manufacturing sector registered a positive trend according to the National Employment survey: moving from having 14 per cent of its total labour force non- remunerated in 1988 to only 6 per cent in 2000. In manufacturing the 413 thousand non- remunerated workers (in the year 2000) are most probably family members of self-employed micro businesses subcontracted. With the purpose of surviving in the market, these micro establishments require the work of family members.

Table Ch. IV-22 Manufacturing Employment by Ocupational Level and Employment Status 1990 and 1999 T O T A L Fixed Casual Non-remunerated

1990 1999 1990 1999 1990 1999 1990 1999

T O T A L 100 100 85.7 84.2 11.9 11.2 2.4 4.6

Management 100 100 70.0 66.9 0.7 0.9 29.4 32.2

Employees 100 100 96.1 91.0 3.4 7.2 0.7 1.8

Workers 100 100 83.1 83.8 15.4 13.9 1.5 2.3

source: Author's own calculations based on INEGI: Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Sector Manufacturero (ENESTyC), 1992 y 1995 According to the ENESTyC survey, however, total non-remunerated work increased from 2.2 in 1990 to 4.6 per cent in 1999. If a division by occupation is made, non- remunerated workers were largely concentrated in managerial posts (32.2 per cent of total). (see table Ch. IV-22) Most of them were self-employed as owners of their own businesses.

The majority were also found in micro establishments where they represented a 15 per cent of total employment in 1990 and 17 per cent in 1999 (see table Ch. IV-23). In 1999, non- export oriented manufacturing industries belonging to the formal sector had a larger number of non-remunerated workers than export-oriented. The only export-oriented subsector with a large percentage of non-remunerated workers (8.7 per cent of total) was the “other manufacturing industries”.

Table Ch. IV-23 Manufacturing Employment by Occupational Level and Establishment Size, 1990 and 1999 T O T A L Fixed Casual Non-remunerated

1990 1999 1990 1999 1990 1999 1990 1999

T O T A L 100 100 86 84 12 11 2 5

Large 100 100 87 87 13 13 0 0

Medium 100 100 86 86 14 14 0 0

Small 100 100 89 90 11 10 0 1

Micro 100 100 77 74 8 8 15 17

source: Author's own calculations based on INEGI: Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Sector Manufacturero (ENESTyC), 1992 y 1995 By distribution of industry, in 1999, the largest percentage of non-wage labour was in the paper and paper products (11 per cent of total formal employment), followed by the wood and  wood products (9.7 per cent), then other manufacturing industries, and lastly, food, beverages and tobacco (6.3 per cent) (see table Ch. IV-24).

Casual or temporary labour is paid staff with or without a written contract, working full- time or part-time for a “temporary” period of time in the workplace or establishment that requests their labour. In most cases, casual labour are not covered by life insurance, vacations, and retirement pension benefits. They normally also receive lower wages than fixed or permanent workers. Right after the 1982 crisis, Mexican establishments started relying more on casual labour, than permanent or fixed jobs, in order to reduce labour costs. Casual labour is, in fact, a very common form of employment status flexibility in Mexico. Some manufacturing establishments have even fired permanent workers, just to hire them several days later as casuals.106 According to the ENESTyC, though, from 1990 to 1999, the percentage of casual labour in total manufacturing employment slightly decreased from 11.9 per cent to 11.1 per cent. Two export-oriented and two non export-oriented subsectors had more than 10 per cent of their workers with this type of contracts in 1999: metal products, machinery and equipment (13.1 per cent), other manufacturing industries (10.3 per cent), food, beverages and tobacco (12 per cent), wood and wooden products (15.3 per cent) (see table previously mentioned Ch. IV-24).

Most agricultural workers coming from southern regions to work in big-scale farms in the north are hired under this type of contract. In the agricultural sector, the large supply of the labour force, provides the margin to offer workers meagre conditions of work. The large migration of unskilled peasants from the south to the more advanced farms of the north intensifies the flexibility of labour relations. If they do not accept the offered conditions, others do. It is mainly women and children from ethnic groups of the south who come to join the labour force and accept to work under very precarious conditions. Agricultural workers in Mexico accept to work in all the phases of the productive chain, doing tasks with very different characteristics, and in discontinuous sequences and are willing to be exploited.107

Table Ch. IV-24 Manufacturing Employment by Employment Status 1990 and 1999

EMPLOYMENT STATUS TOTAL Fixed CasualNon-remunerated Part-time Subcontracted Rem. by the hour

1990 1999 1990 1999 1990 1999 1990 1999 1990 1999 1990 1999 1990 1999

Food, beverages & tobacco 100 100 79.3 81.1 15.3 12.0 4.3 6.3 0.4 0.2 0.8 0.3 0.0 0.1

Wood and wooden products 100 100 79.3 73.4 15.2 15.3 3.9 9.7 1.1 0.7 0.7 0.5 0.0 0.6

Paper and paper products 100 100 80.4 78.8 11.9 8.8 6.1 11.0 0.5 0.4 1.3 0.5 0.0 0.6

Non-metal mineral prod. 100 100 85.8 89.7 9.9 9.5 0.2 0.5 0.2 0.3 3.8 0.1 0.1 0.0

Textiles, garments & leather 100 100 87.4 85.7 9.6 9.2 1.7 4.4 0.2 0.4 1.0 0.2 0.1 0.1

Chemical subst, rubber & plast 100 100 85.3 87.7 10.7 8.0 0.9 2.7 1.8 0.2 1.6 0.7 0.0 0.7

Basic metals 100 100 89.9 91.4 6.7 8.2 0.1 0.2 0.6 0.1 2.7 0.1 0.1 0.0

Metal prod., machinery & equip 100 100 85.1 82.8 11.5 13.1 1.2 2.3 0.4 0.8 1.9 0.7 0.0 0.4

Other manufacturing ind. 100 100 84.1 81.0 13.4 10.3 2.1 8.7 0.0 0.0 0.4 0.0 0.0 0.0

TOTAL 100 100 83.9 83.3 11.9 11.1 2.2 4.6 0.5 0.4 1.6 0.4 0.0 0.2 source: Author's own calculations based on INEGI: Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Sector Manufacturero (ENESTyC), 1992, 1995, 1999 note: In blue all export-oriented sectors In the manufacturing industry ENESTyC survey in 1992, most workers with a casual status were unskilled workers (75 per cent) and semi-skilled workers (13 per cent). There were almost none managerial workers working as casuals: the higher the occupational level, the lower the percentage of casual workers. There was also a higher probability of  concentration of casual workers in large and medium-size firms (12 to 13 per cent). The distribution of casual workers by industry in 1992 was high in the industry of food and tobacco, and in the metal products, machinery and equipment. The main reasons given by employers for hiring casual workers were «variation in production and/or demand», then «bigger productivity» and «temporary replacement of workers».

Table Ch. IV-25 Total (Formal and Informal) Employment by Type of Contract, 2000 WAGED O R A L OTHER OR Fixed or D e t e r m i n a t e C o n t r a c t C O N T R A C T TYPE SALARIED indeterminate less than From 2 to More than Not OF WORKERS contract 2 months 6 months 6 months specified CONTRACT T O T A L 100 49 2 2 3 0 44 0 AGRICULTURE, CATTLE, FORESTRY & FISHING 100 7 0 1 1 0 91 0 MINING 99 68 1 2 2 2 24 0 OIL EXTRACTION 100 75 14 7 3 0 0 0 MANUFACTURING 100 63 2 3 3 0 28 0 ELECTRICITY 100 87 2 5 3 1 2 0 CONSTRUCTION 100 15 2 3 3 0 76 0 COMMERCE, RESTAURANTS & HOTELS Wholesale and Retail trade 99 48 2 2 3 0 44 0 Hotels & Restaurants and sale of food in public places 100 42 2 2 3 0 52 0 SERVICES Transport, Storage 100 41 1 1 30 54 0 Communications 99 81 2 3 3 0 10 0 Finance , Insurance and Real Estate 100 62 3 4 4 0 26 0 Other Services* 100 49 1 2 30 450 Public administration and Defense 100 81 1 4 71 6 0 Not specified 99 43 2 3 2 1 49 1 sources: Author's own calculations based on National Employment Survey 2000, p.360 note: in blue all export-oriented or export-related economic sectors or subsectors By the year 2000, only 49 per cent of all waged or salaried workers had a written fixed or indeterminate contract. Seven per cent of all workers had also a written contract, but determinate: 2 per cent of them had a contract of a duration of less than 2 months, the same percentage from 2 to 6 months and 3 per cent longer than 6 months’ contracts. In general, 44 per cent of the labour force had an informal or “verbal” contract. In foreign investment-related commerce and services sectors, transport, storage and communication had the highest percentage of workers under a verbal agreement (54 per cent), hotels and restaurants were hiring 52 per cent of their personnel under this type of contracts, and wholesale and retail trade had also 44 per cent of its personnel working under a verbal agreement. Manufacturing reported having 28 per cent of its personnel working under verbal agreements (see table Ch. IV-25).

In an analysis of trends in collective bargaining agreements in Mexico, García (1993), found that the principal modifications made in the negotiations of collective contracts in the country were increasing the authority of employers to flexibilize labour relations, even without changing the labour law, concerning the:

 assignation of tasks, shift, post, location, workdays, hour-based payments, and rest periods;

 duration of contracts, termination of employment, simplification of layoff procedures, compensation payments, and social security coverage;

 organisation of work, supervision and work programs;

 reduction of differences in job responsibilities and the number of work categories of the same job;

 expansion of the decision capacity of the establishment to select personnel, increase the utilisation of casual workers and to hire mid and high-level professionals;

 subcontract of third parties in basic jobs, service and maintenance, and in work less frequently utilised; 

 introduction of new technological and organizational changes, and other changes to incorporate measures to raise productivity;

 introduction of the notion of «compromise» between trade unions and the establishment to resolve rapidly those problems that could affect production for exports; imposition of penalties in case of unlawful strikes; existence of more flexibility in procedures resolving strikes and more control over strike activity, voluntary union affiliation, and an ending of closed-shop provisions;

 promotion on ability rather than seniority;

 stimulation of productivity by deciding profit sharing on the basis of individual productivity and that remuneration should be based on productivity;

 provision of fewer vacation days and public holidays;

 legal regulation of unions;

 reform of the subsidised housing programs.108



V. Manufacturing Goods and Foreign Investment as a Substitution to Agricultural Goods and Oil’s Income?

A. Imports-exports of goods and services’ growth

While the trade liberalization process has been successful, Mexico’s current account, or total trade balance comprising goods and factor and non-factor services, has been recording heavy drains. During the import-substitution period the trade balance registered deficits mainly due to merchandise trade until 1976. From 1977 to 1981 factor services represented large strains on the economy. At the same time, goods and non-factor services attained high red numbers: 3.8 and 3.5 billion dollars, respectively. In 1982, the merchandise trade balance achieved a large surplus due mainly to the strong devaluation of the peso that increased the price of imports and turned Mexican exports more competitive. However, this large surplus in the trade balance could not cover for non-factor and factor services deficits. The years 1983 and 1984 (before the trade opening) and later the year 1987 (after the trade opening, but under the debt-tightness of the economy) were the only three years when merchandise trade could compensate and compensate for the deficits registered in the services’ trade balance. During the “consolidation of trade” period, the country registered heavy and increasing deficits not only in merchandise trade, but also in factor and non-factor services. Only after the 1994 crisis did the merchandise trade balance could cover around half of factor services’ deficits. However, after 1998 total trade balance has registered again large deficits similar to those attained during the “consolidation of trade” period (see table Ch. V-1).



Between 1980 and 2000, merchandise non-maquiladora exports grew considerably from representing 15.5 billion dollars to 86.9 billion dollars. One very important factor explaining the explosive increase in exports is Mexico’s reduction of its labour costs that are now similar to those in South Asian countries. However, while maquiladora goods were recording a trade balance surplus, the growth of non-maquiladora exports did not keep pace with that of imports, and after the consolidation of trade liberalization policies, from 1989 to 1994, the merchandise non-maquiladora trade balance registered high deficits (see table Ch. V-2).

While, oil exports used to represent in 1980, 67.1 per cent of total exports, after the 1982 crisis, its relative significance diminished very rapidly and by the year 2000 oil exports only represented 8 per cent of total exports. While it is important to consider that its relative importance is going down (in large part due to the diminishing international price of oil), it is also important to mention that oil exports continue until present largely subsidising the manufacturing trade deficit (see table Ch. V-3).

For example, in 1990 the difference between mining exports and imports represented 9.1 billion dollars. At the same time, the difference between manufacturing exports and imports represented –13.6 billion dollars. By the year 2000, manufacturing trade’s deficit showed an - 18.6 billion dollar deficit, while mining’s surplus showed a positive surplus of 8 billion dollars. Mining’s surplus covering in large part manufacturing’s deficit has been a constant trend. In addition, the agricultural sector, that used to be such an important export-oriented sector, has also become an import-competing sector and its recording deficits. The agricultural trade balance deficits, though, have never been such an important drainage to the economy as the manufacturing sector (see tables Ch. V-3 and V-4).



Table Ch. V-3 Imports and Exports of Goods by Economic Sector, Trade Balance & percentage of Exports out of Imports, 1980-2000 (millions of dollars and percentages) AGRICULTURE % MINING % MANUFACTURES % YEAR IM EX EX-IM EX/IM IM EX EX-IM EX/IM IM EX EX-IM EX/IM 1980 2025 1528 -497 75.5 257 10410 10153 97.5 16852 3571 -13281 21.2 1982 1100 1233 133 112.1 221 16602 16381 98.7 13570 3386 -10184 25.0 1983 1701 1189 -512 69.9 144 15667 15523 99.1 7119 5448 -1671 76.5 1985 1607 1409 -198 87.7 213 13819 13606 98.5 12582 6428 -6154 51.1 1986 938 2098 1160 223.7 188 6090 5902 96.9 11203 7909 -3294 70.6 1987 1109 1543 434 139.1 256 8453 8197 97.0 11854 10427 -1427 88.0 1989 2003 1754 -249 87.6 387 7897 7510 95.1 22831 13091 -9740 57.3 1990 2071 2162 91 104.4 389 9538 9149 95.9 28523 14861 -13662 52.1 1991 2130 2373 243 111.4 386 7812 7426 95.1 46967 32307 -14660 68.8 1992 2858 2112 -746 73.9 520 7776 7256 93.3 58237 36168 -22069 62.1 1993 2633 2505 -128 95.1 390 6764 6374 94.2 61568 42500 -19068 69.0 1994 3371 2678 -693 79.4 438 6994 6556 93.7 74426 51075 -23351 68.6 1995 2644 4016 1372 151.9 600 7975 7375 92.5 67500 67383 -117 99.8 1996 4671 3592 -1079 76.9 649 11192 10543 94.2 81137 81013 -124 99.8 1997 4173 3828 -345 91.7 854 10840 9986 92.1 101586 95565 -6021 94.1 1998 4772 3796 -976 79.5 916 6865 5949 86.7 116431 106550 -9881 91.5 1999 4479 3925 -554 87.6 894 9401 5971 87.0 133182 122819 -10363 92.2 2000 4798 4217 -581 87.9 1325 15427 8076 85.9 165135 146497 -18638 88.7 SERVICES % YEAR IM EX EX-IM EX/IM IM EX EX-IM %EX/IM 1980 207 3 -204 1.4 19341 15512 -3829 80.2 1982 145 8 -137 5.5 15036 21229 6193 141.2 1983 62 9 -53 14.5 9026 22313 13287 247.2 1985 131 8 -123 6.1 14533 21664 7131 149.1 1986 105 61 -44 58.1 12434 16158 3724 130.0 1987 87 72 -15 82.8 13306 20495 7189 154.0 1989 216 100 -116 46.3 25437 22842 -2595 89.8 1990 289 278 -11 96.2 31272 26839 -4433 85.8 1991 482 196 -286 40.7 49965 42688 -7277 85.4 1992 516 139 -377 26.9 62131 46195 -15936 74.4 1993 7765 118 -7647 1.5 72356 51887 -20469 71.7 1994 1112 134 -978 12.1 79347 60881 -18466 76.7 1995 1709 168 -1541 9.8 72453 79541 7088 109.8 1996 3011 202 -2809 6.7 89469 96000 6531 107.3 1997 3194 198 -2996 6.2 109807 110431 624 100.6 1998 3252 247 -3005 7.6 125373 117500 -7873 93.7 1999 3419 244 -3175 7.1 141974 136391 -5583 96.1 2000 3197 313 -2884 9.8 174457 166454 -8003 95.4 source: Author's own calculations based on NAFINSA: "La Economía Mexicana en Cifras 1995" p.321-322, 326-327, and 1998, p. 455 and 461

Table Ch. V-4 Merchandise Imports and Exports by Economic Sector, and Trade Balance 1980-1998 (millions of dollars) 1980 1984 1987 1989 1992 1994 1998

TOTAL EXPORTS 15512 24195 20495 22842 46195 60881 116224 TOTAL IMPORTS 19341 12168 13306 25437 62131 79347 122004 DIFFERENCE EX-IM -3829 12027 7189 -2595 -15936 -18466 -5780 AGRICULTURE EX 1528 1461 1543 1754 2112 2678 5296 IM 2025 1880 1109 2003 2858 3371 4698 DIFFERENCE EX-IM -497 -419 434 -249 -746 -693 598 MINING EX 10410 15735 8453 7897 7776 6994 7338 IM 257 194 256 387 520 438 916 DIFFERENCE EX-IM 10153 15541 8197 7510 7256 6556 6422 MANUFACTURES EX 3571 6985 10427 13091 36168 51075 103150 IM 16852 10035 11854 22831 58237 74426 113348 DIFFERENCE EX-IM -13281 -3050 -1427 -9740 -22069 -23351 -10198 SERVICES EX 3 14 72 100 139 134 390 IM 2907 59 87 216 516 1112 1726 DIFFERENCE EX-IM -2904 -45 -15 -116 -377 -978 -1336 note: total exports and imports divided by economic sector did not include maquiladora trade until the year 1990. source: Author's own calculations based on NAFINSA, "La Economía Mexicana en Cifras 1995" p.321-322, 326-327, and 1998, p.455 and 461. 

In addition, the following graphs provide an interesting view of the development of export and import goods by economic sector of origin and the shift from oil to non-oil, mainly manufacturing exports: figure Ch. V-1, figure Ch.V-2, and figure Ch.V-3.

Figure Ch. V-1 Manufacturing Exports by Economic Sector of Origin, 1985

AGRICULTURE SERVICES & OTHER PROD. 7% 0% MANUFACTURING 30%

MINING 63%

source: Author's own calculations based on NAFINSA:"La Economía Mexicana en Cifras 1995", p.323-324, and 1998, pp.

Figure Ch. V-2 Import Goods by Economic Sector of Destination, 1980-1998

100.0

90.0

80.0

70.0 AGRICULTURE 60.0 MINING MANUFACTURING SERVICES 50.0

40.0

30.0

20.0

10.0

0.0 1980 1984 1985 1989 1992 1994 1995 1998 source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", p.329-330, and 1998, p.462 

Figure Ch. V-3 Merchandise Exports by Economic Sector, 1980-1998

100

90

80

70

60

AGRICULTURE 50 MINING MANUFACTURING 40 SERVICES & OTHER PROD.

30

20

10

0 1980 1982 1984 1985 1989 1992 1994 1995 1998

source: Author's own calculations based on NAFINSA:"La Economía Mexicana en Cifras 1995", p.323-324, and 1998, pp. 456.

According to the ENESTyC survey between 1989 and 1998, the average percentage of manufacturing output exported was the following:

¾ Metal products, machinery and equipment: 34.8 per cent;

¾ Basic metals: 21.8 per cent;

¾ Other manufacturing industries: 16.1 per cent;

¾ Textiles, garments and leather: 15.8 per cent;

¾ Chemicals, rubber and plastics: 13.1 per cent;

¾ Non-metal mineral products: 11.0 per cent;

¾ Wood and wood products: 7.0 per cent.

¾ Food, beverages and tobacco: 5.8 per cent;

¾ Paper and paper products: 3.9 per cent (see table Ch. V-5).

As a result of all the subsidies received during the import-substitution period and the support received with the export-promotion programs later, the main items exported by Mexico by the year 2000 belonged to the manufacturing sector (motor vehicles, machinery, and organic chemicals). These export goods were only followed by oil and fresh vegetables in the same order of importance. The other manufacturing subsectors that had not received such a support took longer to restructure and only four years after the entering of NAFTA started exporting a significant share of their output. It is clear that NAFTA has also represented an opportunity to attract investment to a variety of sectors that were not interesting to investors before. As a result, the forgotten manufacturing subsectors have started responded very  positively enlarging their markets and increasing their exports. The only subsector that has lagged behind is the paper and paper products.

Table Ch. V-5 Percentage of Manufacturing Output Exported, 1989-1998 1989 1991 1994 1998 Average 1989-1998 Non-export oriented Food, beverages and tobacco 4.7 3.7 5.8 8.8 5.8 Wood and wood products 6.5 3.4 1.8 16.2 7.0 Paper and paper products 3.8 2.2 8.2 1.5 3.9 Non-metal mineral products 10.5 7.5 7.7 18.4 11.0 Export-oriented Textiles, garments and leather 15.7 16.3 7.4 23.6 15.8 Chemicals, rubber and plastics 11.1 10.5 14.4 16.5 13.1 Basic metals 21.3 19.3 21.2 25.3 21.8 Metal products, machinery and equipment 35.1 31.7 30.6 41.7 34.8 Other manufacturing industries 11.3 9.2 10.8 33.2 16.1 source: Author's own calculations based on INEGI. Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Manufacturero (ENESTyC) 1992, p. 89-92; 1995, p.35-36; 1999, table 1.20 However, manufacturing, and in particular, the metal products, machinery and equipment subsector and the chemicals, rubber and plastics subsectors, and to a less extent the basic metals, while increasing considerably its exports share from 1985 onwards, also recorded high levels of imports. Other less export-oriented or import-competing manufacturing industries also recorded deficits, but not as high, and very often only during some periods. The non- metal mineral industry was the only one that showed a slight surplus during the whole period. An import-competing manufacturing subsector with consistent large deficits was the paper editorial and printing (see table Ch. V-6).

Table Ch. V-6 Manufacturing Imports and Exports of Goods and Trade Balance by Subsector, 1980-1998 (millions of current dollars) (QQF DGXGTCIGU  VQDCEEQ 6GZVKNGU ICTOGPVU  NGCVJGT 9QQF  YQQFGP RTQF 2CRGT GFKVQTKCN  RTKPVKPI %JGOKECNU TWDDGT  RNCUVKEU +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ 1980 1170 772 -398 268 185 -83 83 55 -28 639 79 -560 2709 955 -1754 1981 1078 679 -399 404 181 -223 87 59 -28 705 81 -624 3127 1224 -1903 1982 691 707 16 270 150 -120 52 52 0 471 78 -393 2329 845 -1484 1983 527 725 198 47 191 144 23 82 59 292 75 -217 1597 1546 -51 1984 500 822 322 99 275 176 37 98 61 377 97 -280 2291 2226 -65 1985 508 751 243 144 195 51 49 72 23 415 87 -328 2936 2173 -763 1986 490 937 447 136 333 197 48 101 53 431 138 -293 2400 1634 -766 1987 460 1313 853 172 566 394 43 135 92 608 222 -386 2668 1958 -710 1988 1233 1363 130 452 620 168 81 182 101 797 323 -475 3518 2369 -1149 1989 2014 1268 -746 812 623 -189 111 197 86 934 269 -665 4450 2300 -2150 1990 2679 1095 -1584 1048 632 -416 174 168 -6 1061 203 -858 4943 2987 -1956 1991 2635 1421 -1214 2237 2014 -223 428 444 16 1812 622 -1190 8043 3719 -4324 1992 3336 1365 -1971 3023 2317 -706 550 499 -51 2189 655 -1534 9536 3979 -5557 1993 3356 1590 -1766 3525 2770 -755 571 574 3 2366 662 -1704 10226 4282 -5944 1994 3989 1896 -2093 4167 3256 -911 695 586 -109 3039 562 -2477 11824 4627 -7197 1995 2616 2529 -87.5 3618 4899 1281 350 619 269 2899 872 -2027 11840 6183 -5657 1996 3116 2930 -185.7 4603 6339 1736 390 861 471 2887 896 -1991 14727 6339 -8388 1997 3587 3324 -263 6145 8815 2670 461 1047 586 3280 1063 -2217 18428 7071 -11357 1998 3666 3482 -184 7076 9204 2128 506 1103 597 3584 1084 -2500 6918 7196 278 0QPOGVCN OKPGTCN RTQF $CUKE OGVCNU /GVCN RTQF OCEJ  GSWKR 1VJGT KPF TOTAL TOTAL TOTAL ;'#4 +/ EX EX-IM IM EX EX-IM IM EX EX-IM IM EX EX-IM IMPORTS EXPORTS EX-IM 1980 164 128 -36 2325 568 -1757 9392 786 -8606 103 44 -59 16853 3572 -13281 1981 202 125 -77 2823 806 -2017 13479 894 -12585 136 50 -86 22041 4099 -17942 1982 117 140 23 1355 491 -864 8209 888 -7321 76 36 -40 13570 3387 -10183 1983 41 210 169 541 881 340 4031 1663 -2368 19 75 56 7118 5448 -1670 1984 73 289 216 1005 888 -117 5615 2216 -3399 39 75 36 10036 6986 -3050 1985 103 313 210 1118 641 -477 7242 2129 -5113 65 68 3 12580 6429 -6151 1986 93 375 282 823 917 94 6732 3410 -3322 50 64 14 11203 7909 -3294 1987 110 447 337 861 1260 399 6872 4457 -2415 60 68 8 11854 10426 -1428 1988 161 521 360 1498 1567 69 10249 5237 -5012 132 90 -42 18121 12272 -5850 1989 228 567 339 1776 1900 124 12250 5859 -6391 254 108 -146 22829 13091 -9738 1990 311 525 214 2020 1884 -136 15963 7241 -8722 325 127 -198 28524 14862 -13662 1991 568 836 268 3786 2088 -1698 26903 20463 -6440 555 701 146 46967 32308 -14659 1992 716 919 203 4509 2074 -2435 33731 23712 -10019 644 649 5 58234 36169 -22065 1993 820 1125 305 8789 2423 -6366 35675 28352 -7323 750 840 90 66078 42618 -23460 1994 1010 1215 205 5126 2620 -2506 43490 35324 -8166 1112 989 -123 74452 51075 -23377 1995 910 1405 495 4897 4889 -8 39709 44681 4972 1709 1306 -403 68548 67383 -1166 1996 1264 1718 454 5949 7875 1926 47462 55736 8274 3011 1406 -1605 83409 84100 691 1997 1462 2025 563 7283 5358 -1925 59792 65166 5374 3194 1696 -1498 103632 95565 -8067 1998 1512 2162 650 8592 5202 -3390 67370 72070 4700 3044 1780 -1264 102268 103283 1015 source:Author's own calculations based on NAFINSA "La Economía Mexicana en Cifras" 1995 and 1998"; note: As of 1990, total manufacturing trade data includes maquiladoras Figures Ch. V-4, Ch. V-5 and Ch. V-6 can give a clearer view of the evolution during the period studied of manufacturing merchandise exports and imports by subsector of origin.



What is very evident from data on imports divided by consumer, intermediate or capital goods, is that the country was spending before the opening large part of its income on capital goods (30.4 per cent in 1981) for the development of gross fixed capital formation and intermediate goods (around 60 per cent). From 1980 to 1989, consumer goods were the only items generating a surplus in the trade balance, while intermediate and capital goods were continuously registering deficits (see table Ch. V-7).

Figure Ch. V-4 Merchandise Exports by Economic Sector of Origin, 1998

SERVICES & OTHER PROD. 0% AGRICULTURE MINING 5% 6%

MANUFACTURING 89%

source: Author's own calculations based on NAFINSA:"La Economía Mexicana en Cifras 1995", p.323-324, and 1998,

Figure Ch. V-5 Manufacturing Exports by Subsector of Origin, 1980-1998

70.0

60.0

50.0 Food, beverages & tobacco Wood and wooden prod. 40.0 Paper and paper prod. Non-metal mineral prod. Textiles, garments & leather 30.0 Chemical subst., rubber & plastics Basic metals industry Metal prod. machinery & equip. Other manufacturing ind. 20.0

10.0

0.0 1980 1984 1985 1989 1992 1994 1995 1998

source Author's own calculations based on NAFINSA:"La Economía Mexicana en Cifras 1995", p.323-324, and 1998, pp.



Table Ch. V-6 Merchandise Imports by Economic Sector of Destination, 1998

SERVICES AGRICULTURE MINING 2% 4% 1%

MANUFACTURING 93%

s ource: Author's own calculations based on "La Economía Mexicana en Cifras 1995", p.329-330, and 1998, p.462

After the opening and even more so after the consolidation of trade liberalisation in 1989, capital goods’ share quickly started going down. Imports of intermediate goods were dominant before the opening, but even gained more importance and by 1995 represented 80 per cent of total imports. Consumer imported goods share has been very high during the periods of real exchange rate appreciation before and after the opening. But, adapt quickly to the economic situation and represented between the harsh periods of 1983-1987 and 1995- 1998, on average, half of what they did during the “good times” between 1989 and 1994. On the other hand, consumer goods accounted by 1997 to almost a third of all exports. Intermediate goods’ importance as a share of total exports was being gradually reduced, and the capital goods exports were gaining importance (see table Ch. V-8). 

Table Ch. V-7 Imports and Exports of the Metal Products, Machinery & Equipment Subsector and Trade Balance by Type of Good, 1980-1989 (millions of dollars) 1980 1982 1984 1985 1987 1989

TOTAL Imports 8826 7610 4702 5921 5789 7417 Exports 938 888 2217 2129 4618 4393 difference ex-im -7888 -6722 -2485 -3792 -1171 -3024 Consumer goods Imports 368 196 61 118 146 455 Exports 134 94 168 160 1405 1408 difference ex-im -234 -102 107 42 1259 953 Intermediate goods Imports 3542 3025 2189 2894 3172 3824 Exports 580 569 1611 1594 2510 2055 difference ex-im -2962 -2456 -578 -1300 -662 -1769 Capital goods Imports 4916 4389 2452 2908 2472 3137 Exports 224 225 437 375 704 929 difference ex-im -4692 -4164 -2015 -2533 -1768 -2208 Agriculture & livestock mach. & equip. Imports 380 204 199 318 110 99 Exports 9 12 10 9 10 16 difference ex-im -371 -192 -189 -309 -100 -83 Railways mach. & equip. Imports 313 221 168 126 66 77 Exports 8 n.a. 1 1 4 5 difference ex-im -305 n.a. -167 -125 -62 -72 Other transport & communication Imports 2365 1757 1236 1397 1696 1795 Exports 425 533 1580 1572 3349 3011 difference ex-im -1940 -1224 344 175 1653 1216 Machinery & special equip. Imports 4189 3875 1946 2533 2430 3269 Exports 231 229 363 329 724 843 difference ex-im -3958 -3646 -1583 -2204 -1706 -2426 Professional & scientific equip. Imports 300 327 231 340 317 310 Exports155 9183218 difference ex-im -285 -322 -222 -322 -285 -292 Electric & electronic equip. & material Imports 1098 1088 841 1090 1048 1706 Exports 244 91 227 176 435 451 difference ex-im -854 -997 -614 -914 -613 -1255 Photographic & watchmaker equip. Imports 181 138 81 116 121 157 Exports 6 17 26 23 64 47 difference ex-im -175 -121 -55 -93 -57 -110 source: "La Economía Mexicana en Cifras 1990", p.693, 698-699 Almost the totality of capital goods imported by Mexico was destined to the manufacturing sector’s metal products, machinery and equipment subsector. The highest demand of capital goods from 1992 to 1998 was recorded from the non-electrical machinery and equipment industrial branch where the automobile and computer industries are located. During the same period, around half of all intermediate goods were being imported by the same manufacturing subsector and industrial branches. Mexican and U.S. intra-firm and intra- industry trade seem to have become very complementary, and the majority of these intermediate goods must be imported for their assembly in Mexico as part of the larger production chain of a big number of U.S. goods (see tables Ch. V-9 and Ch. V-10).



Table Ch. V-8 Merchandise Imports and Exports divided by Type of Good (Consumer, Intermediate or Capital), 1980-1998 IMPORTS EXPORTS TOTAL Consumer Intermediate Capital TOTAL Consumer Intermediate Capital 1980 100 12.7 60.6 26.8 1981 100 11.3 58.4 30.4 1982 100 10.1 60.0 29.9 1983 100 6.8 68.9 24.3 1984 100 7.0 71.9 21.2 1985 100 7.4 70.8 21.8 1986 100 6.8 69.4 23.8 1987 100 5.8 74.5 19.8 1988 100 9.5 70.7 19.9 1989 100 13.8 67.5 18.8 1990 100 12.3 71.4 16.3 1991 100 11.7 71.1 17.2 1992 100 12.5 68.9 18.6 100 24.8 62.7 12.4 1993 100 12.0 71.1 16.9 100 27.5 59.0 13.5 1994 100 12.0 71.2 16.8 100 28.4 57.1 14.6 1995 100 7.3 80.7 12.0 100 29.2 55.5 15.2 1996 100 7.5 80.3 12.2 100 29.6 53.3 17.1 1997 100 8.5 77.8 13.8 100 29.4 52.6 18.0 1998 100 8.9 77.4 13.8 note: consumer goods include food & live animals (meat, dairy prod., fish, vegetables, cereals, sugar, coffee, tea, etc), beverages & tobacco, precious & semi-precious stones, motorcycles, cycles & parts, road vehicles other than motor vehicles, clothing, miscellaneous manufactured articles (sanitary, plumbing, heating equip & parts, furniture, travel goods, footwear, watches, clocks); intermediate goods contain oil seeds, nuts & kernels, agricultural raw materials (hides, skins, furs, & crude crude rubber, wood, lumber and cork, pulp & paper, textile fibres, etc.) crude fertilizers & minerals, metal/ores scrap, coal crude oil, refined petroleum, miscellaneous petroleum products, gas fuels, electric current, animal/vegetable fats/oils, chemicals (pharmaceuticals, synthetic rubber, artificial fibres, etc.), manufactures by materials (like leather, fur skins, rubber, wood and cork, paper, non-metallic mineral and metals), textiles/yarns/fabrics, iron & steel, non-ferrous base metals, precious metals and weapons; capital goods comprise non-electrical machinery, electronics (office machines & telecommunications apparatus & thermionic valves and tubes, transistors, etc., electrical machinery apparatus & appliances, automobiles & parts, transport equipment & material, railway vehicles & trains/aircrafts/ships. source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", p.325, and 1998, p. 459, 460 From 1994-1995 onwards, the country has started recording very positive trade balances on some of its main exports. The office machines (computers) and telecommunications equipment has considerably increased its exports lately. The automotive, as well as the machinery and transport equipment industries, have been showing very positive growth signs lately, too. The other industry that has been recording a positive outcome is the garments’ sector. The only two main tradables that have not been to contribute to this positive outcome are the production of iron and steel, and textiles (see table Ch. V-11).

Table Ch. V-9 Intermediate Goods Imported by Economic Sector, 1992-1998

1992 1993 1994 1995 1996 1997 1998

T O T A L 100 100 100 101 100 100 98 Agriculture 6554644 Mining 1111111 Manufacturing 92 93 92 92 89 91 91 Non-export oriented 0000000 Food, beverages & tobacco 3 2 2 2 2 1 1 Wood and wooden prod. 1 1 1 1 1 1 1 Paper and paper prod. 4 4 4 4 4 3 1 Non-metal mineral prod. 1 2 2 1 2 2 2 Export-oriented 0000000 Textiles, garments & leather 4 5 5 5 6 6 6 Chemical subst., rubber & plastics 19 19 18 18 19 19 19 Basic metals industry 10998889 Metal prod. machinery & equip. 48 50 50 53 49 50 50 Other manufacturing ind. 1111111 Non-classified goods 1223443 source: Author's own calculations based on "La Economía Mexicana en Cifras 1998" data, p.460 Definition of intermediate goods according to ING Barings, COMTRADE. intermediate goods: oil seeds, nuts & kernels; agricultural raw materials (hides, skins, fur skins, & crude rubber, wood, lumber & cork, pulp & paper, textile fibres not manufactured), & crude animal and vegetable materials; crude fertilizers & minerals; metal/ores, metal scrap; coal, coke & briquettes; crude oil & partly refined; refined petroleum products (excluding mineral jelly and waxes); miscellaneous petroleum products like jelly & waxes; gas natural & manufactured; electric current; animal/vegetable fats and oils; chemicals (fertilizers, pharmaceuticals, synthetic rubber, rubber substitutes, and reclaimed rubber & waste, resins, synthetic and regenerated artificial fibres, etc.), manufactures by materials (like leather, fur skins, rubber manufactures, wood and cork manufactures (excluding furniture), paper, paperboard, non-metallic mineral manufactures and manufactures of metals), textiles/yarns/fabrics, iron & steel, non-ferrous base metals, precious metals (silver and platinum) and weapons. 

The rest of the export increases are mostly concentrated in several heavy intermediate goods (petrochemicals, cement) with national capital. Some of these industries have even advanced deeply into the U.S. market, taking over American firms. Examples of this internationalisation are Vitro glass conglomerate which bought the biggest glass American company (Anchor Glass) in 1989, Cemex, a cement conglomerate which bought Blue Circle cement properties in the US in 1990, becoming the fourth largest producer in the world, and others like Alfa, Pliana, Grupo Pulsas and Grupo Chihuahua.109

Table Ch. V-10 Capital Goods Imported by Economic Sector, 1992-1998

1992 1993 1994 1995 1996 1997 1998

T O T A L 100 100 100 100 100 100 100 Agriculture 1110011 Manufacturing 99 99 99 100 100 99 99 Metal prod. machinery & equip. 96 96 96 96 96 96 96 Agricultural machinery 1 2 2 1 2 2 2 Train Transport Machinery 1 0 1 1 0 0 0 Other Transport machinery & equipment 11 8 9 4 5 9 11 Non-electrical machinery & equipment 56 56 54 61 59 55 55 Professional & Scientific equipment 9 9 8 10 10 9 8 Electrical equipment & apparatus 16 19 19 16 18 19 18 Photographic apparatus 2332222 Basic metals industry 2222323 Other manufacturing ind. 1111111 Non-classified goods 0000000 source: Author's own calculations based on "La Economía Mexicana en Cifras 1998" data, p.460 Definition of capital goods according to ING Barings, COMTRADE. capital goods comprise non-electrical machinery other than electric excluding internal combustion engines and office machines; electronics (office machines & telecommunications apparatus & thermionic valves and tubes, transistors, etc; electrical machinery and apparatus & appliances, telecommunications apparatus, transport equipment, railway vehicles & trains/aircrafts/ships and boats. Two preoccupations since 1999 are that the exchange rate has been appreciating and imports have started growing faster than exports. This artificially unsustainable situation of the free-floating peso is attributed to the great external, international economic performance of the Mexican economy. Record levels of direct foreign investment, financial market inputs, oil income and maquiladora revenues that are keeping the demand/supply currency market forces at that rate.110

Table Ch. V-11 Imports and Exports of Selected Products, 1980-2000

1980 1989 1990 1992 1993 1994 1995 1998 1999 2000

Automotive products (million dollars) exports 390 3398 4708 6873 8420 10188 14258 21772 26039 30645 imports 2348 673 5268 8125 8581 3365 4400 11703 13873 18816 exports - imports -1958 2725 -560 -1252 -161 6823 9858 10069 12166 11829 Office machines & telecom equip. (million dollars) exports 4535 5750 6796 9471 11616 21682 26485 32988 imports 4640 6668 7595 9355 9563 16897 21234 27053 exports - imports -105 -918 -799 116 2053 4785 5251 5935 Machinery and transport equipment (million dollars) exports 16152 41577 68041 81305 99369 imports 19233 31290 59961 70462 88755 exports - imports -3081 10287 8080 10843 10614 Iron and steel* (million dollars) exports 54 816 840 1041 865 1032 2480 imports 752 964 2236 1614 2795 exports - imports 64 -124 -1195 -749 -1763 Textiles (million dollars) exports 86 713 860 870 937 1281 2030 2302 2551 imports 132 992 1532 1900 2148 1768 3435 4338 6097 exports - imports -46 -279 -672 -1030 -1211 -487 -1405 -2036 -3546 Clothing (million dollars) exports 47 587 967 1185 1700 2731 6603 7772 8696 imports 123 573 1122 1303 1824 1912 3750 3627 3405 exports - imports -76 14 -155 -118 -124 819 2853 4145 5291 source: Author's own calculations based on GATT; "International Trade 1993 Statistics", p.48-72; WTO, "International Trade Trends and Statistics 1995", p.86-126; WTO, "Annual Report 1996", volume II, p.81-113; WTO, International Trade Statistics 2001 *information from Cámara Nacional de la Industria del Hierro y del Acero (Canacero), Diez Años de Estadística Siderúrgica. On the other hand, imports of goods and services as a percentage of GDP have increased from representing 13 per cent in 1980 to 33 per cent in the year 2000. To the extent that  present imports of capital and other industrial goods can contribute to future expansion of exports, this period of adjustment of the economy should be seen as transitional. By the year 2000, gross fixed capital formation had almost doubled since 1985 (see table Ch. V-12). However, gross fixed capital formation and gross capital formation as percentage of GDP had both gone down (see table Ch. V-13).

B. Direct foreign investment absorption

Even before the wide opening of the economy to foreign capital flows, the manufacturing sector, as a whole, absorbed the largest share of total direct (productive) foreign investments. While the data before 1989 were not divided among the different industrial industries, it was not possible to find out if all foreign investment to the industrial sector was directed to manufacturing. Notwithstanding, oil and electricity industries were large parastatals where no-foreign investment was permitted at the beginning of the 1980s. As such, it is possible to deduce that most of it was benefiting the manufacturing sector: national as well as maquiladora manufacturing. As of 1985, the services sector started obtaining significant shares of these investment flows. From 1989 onwards, the commerce (wholesale trade, hotels and restaurants) obtained per year between 4 to 21 per cent of all investment flows.

As a whole, the services and national manufacturing sector, from 1989 onwards were being the largest winners. Before the entrance of NAFTA, the services and commerce sector was obtaining a slightly larger share than manufacturing. After NAFTA’s coming into force, the majority of this investment got concentrated in manufacturing. Notwithstanding the reforms made, the agricultural sector has not been able to attract foreign investment and its share does not even account to 1 percent of total (see table Ch. V-14 and figure Ch. V-7). 

Table Ch. V-13 Other GDP Indicators, 1980-2000

Gross Gross Fixed Imports of Trade Trade GDP Capital Capital Goods and in Goods Growth Formation Formation Services Annual % of GDP % of GDP (% of GDP) (% of GDP) (% of GDP) (%) 1980 27 25 13 24 18 9 1981 27 26 13 23 17 9 1982 23 23 10 26 21 -1 1983 21 18 9 28 26 -4 1984 20 18 10 27 26 4 1985 21 19 10 26 25 3 1986 19 19 13 31 30 -4 1987 19 18 13 33 34 2 1988 23 19 19 38 33 1 1989 23 17 19 38 32 4 1990 23 18 20 38 32 5 1991 23 19 19 36 30 4 1992 23 20 20 36 31 4 1993 21 19 19 34 30 2 1994 22 19 22 38 34 4 1995 20 16 28 58 54 -6 1996 23 18 30 62 57 5 1997 26 20 30 61 56 7 1998 24 21 33 64 60 5 1999 23 21 32 63 59 4 2000 23 21 33 64 61 7 source: World Bank; World Development Indicators Database, 2001

Table Ch. V-14 Direct Foreign Investment by Economic Sector, 1980-1997 (millions of dollars) TOTAL DIRECT INDUSTRY* SERVICES** COMMERCE MINING AGRICULTURE FOREIGN INV. National Maquiladoras Transport & Finance Wholesale Trade Manufacturing Communications Hotels & Restaurants 1980 1623 1286 131 118 87 0.9 1981 1701 1406 320 170 -189 -5.4 1982 627 381 236 1 71.8 1983 684 597 13 59 15 0.2 1984 1430 1270 122 32 60.8 1985 1729 1166 435 110 18 0.4 1986 2424 1919 323 151 31 0.2 1987 3877 2401 1434 -21 49 15.2 1988 3157 1020 1877 247 25 -12.0 1989 2500 982 1102 386 10 19.3 1990 3722 1193 2203 171 94 61.1 1991 3565 977 2124 388 31 45.0 1992 3600 1161 1640 751 9 39.3 1993 4901 2321 1730 760 55 34.5 1994 10338 273 5143 777 1139 710 951 1249 88 8.0 1995 7946 225 3279 1099 379 861 1063 952 79 9.1 1996 6686 24 2933 948 439 404 1186 642 83 28.4 1997 8982 94 4435 1122 404 586 661 1609 66 6.2 source: Author's own calculations based on "Inversión Extranjera y Empleo en México", STPS-SECOFI, table 8. "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994", SECOFI, table 4. and La Economía Mexicana en Cifras 1995, p.348 and 1998, p.473. *Starting from 1994, industry includes only electricity, water and construction ** Starting from 1994, Services comprise other than transport and communications and financial note: in blue all export-oriented or foreign investment-related sectors Within manufacturing, from 1989 to 1997, productive foreign investment was mainly concentrated in export-oriented competitive industries characterised by efficient technology and access to international marketing: automobiles and chemicals, and other electronics. The only non-export oriented industry that was receiving large investment inflows was the food, beverages and tobacco. 

Figure Ch. V-7 Foreign Investment by Economic Sector, 1980-1997

100

INDUSTRY 80

SERVICES 60

WHOLESALE & HOTELS & 40 RESTAURANTS

MINING 20

AGRICULTURE 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

-20 source: Author's own calculations based on "Inversión Extranjera y Empleo en México", STPS-SECOFI, table 8; "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994", SECOFI, table 4. Other industries rarely benefited from these investment flows. In fact, those industries that had few export-oriented industrial branches or none, and that were in need of substantial industrial restructuring in order to be able to compete with foreign products, like the paper and wood industries received did not attract foreign investors. By 1997, the textiles, garments and leather industry was the only export-oriented industry without important investment shares (see table Ch. V-15 and figure Ch. V-8).

Table Ch. V-15 Foreign Direct Investment in the Manufacturing Sector divided by Subsector, 1989-1997 (percentages)

1989 1990 1991 1992 1993 1994 1995 1996 1997

Total Investment in Manufacturing 100 100 100 100 100 100 100 100 100

Food, beverages & tobacco 21.6 15.3 27.3 20.6 36.1 29.8 13.8 12.2 50.2 Wood and wooden prod. 5.0 1.9 1.8 3.8 8.7 1.0 0.0 0.0 0.0 Paper and paper prod. 2.0 0.4 0.3 0.9 0.3 0.9 0.0 0.0 0.0 Non-metal mineral prod. 1.2 1.6 15.8 39.1 0.7 0.9 1.9 0.3 0.1 Textiles, garments & leather 4.1 1.1 4.6 5.3 3.2 0.5 0.0 0.0 0.0 Chemical subst., rubber & plastics 25.9 40.6 12.2 13.6 16.5 9.9 11.8 27.6 6.4 Basic metals industry 1.6 1.3 4.6 1.4 10.7 22.6 3.1 8.2 1.8 Metal prod. machinery & equip. 28.8 35.7 32.6 14.4 21.3 30.4 59.9 44.5 34.3 Other manufacturing ind. 9.8 2.0 0.5 0.9 2.4 4.1 9.4 7.1 7.3 note: Starting from 1995, other manufacturing industries data group wood and wooden products, paper and paper products and textiles, garments and leather, as well as other. Within the manufacturing subsectors, the branches that received the most f. d. i. are by order of importance: the automobile ind. and other consumption prod.; followed by chemical prod. & subst.; beverages; basic chemicals subst.; dairy prod.; pharmaceutical prod.; machinery & electrical equip.; machinery & equipment for gen. uses; the manufacturing of cement, lime & plaster; plastics; manufacturing and assembly of electronic equipment; canned food; and lastly, paper & cellulose. source: "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. note: in blue all export-oriented subsectors Consequently, from 1989 to 1994, average output in manufacturing grew, mainly in those industries that were receiving national and foreign capital inflows: the metal products, machinery and equipment industry, the chemicals, and the food, beverages and tobacco. To a lesser extent basic metals, the non-metal mineral products, and other manufacturing industries that were benefiting from some sporadic investment flows also reported GDP growth rates. The only industry that recorded GDP growth without receiving any foreign investment was the paper and paper products. The reason for this growth could be that the paper and paper products industry was highly regulated until the middle of the 90s and received a lot of public support. The industry was considered a “paraestatal” and foreign investment was as thus highly restricted (see table Ch. V-16). 

Figure Ch. V-8 Foreign Direct Investment in Manufacturing, 1989-1997

70

FOOD, BEVERAGES & TOBACCO 60 TEXTILES, GARMENTS, LEATHER

50 WOOD & WOODEN PROD.

PAPER AND PAPER PRODUCTS

40 CHEMICAL SUBSTANCES, COAL

NON-METAL MINERAL PROD. 30

BASIC METALS INDUSTRY

20 METAL PROD. MACHI &EQUIP.

OTHER MANUFACTURING IND. 10

0 1989 1990 1991 1992 1993 1994 1995 1996 1997

source: "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex,

Table Ch. V-16 Index of Manufacturing Industry's Output divided by Subsector, 1980-1994 (1980=100) NON-EXPORT ORIENTED SUBSECTORS EXPORT-ORIENTED SUBSECTORS AVERAGE Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal prod. Other beverages & wooden editorial & mineral garments substances metals machinery & industries & tobacco products printing products & leather rubber & plastics equipment 1980 100 100 100 100 100 100 100 100 100 100 1981 106.4 104.3 99.4 105.1 103.2 105.7 109.6 104.9 109.7 113.1 1982 103.5 109.1 98.1 105.9 110.6 100.7 112.4 95.2 96.2 108.8 1983 95.4 107.6 91.1 98.1 92.9 95.1 110.5 89.3 74.7 88.3 1984 100.2 109.2 94.1 103.6 98.1 96.1 118.2 99.6 81.4 98.4 1985 106.3 113.3 97.4 112.7 105.5 98.5 125.1 100.7 92.2 106.5 1986 100.7 112.7 94.6 109.1 98.6 93.8 120.9 93.8 79.4 97.3 1987 103.8 113.7 97.9 110.8 107.9 89.3 127.4 104.3 84.1 94.2 1988 107.1 113.9 95.5 115.4 106.2 90.1 130.1 109.7 95.1 98.2 1989 114.8 122.7 94.1 123.3 111.3 92.9 142.1 112.4 105.6 106.1 1990 121.7 126.5 93.1 128.8 118.5 95.6 149.4 121.6 119.7 115.5 1991 126.6 132.9 93.5 127.2 122.2 92.1 153.9 117.2 134.5 117.7 1992 129.3 137.4 93.1 128.7 128.9 88.9 157.1 117.8 139.2 126.1 1993 128.5 140.8 89.4 124.5 130.5 84.4 153.4 122.9 138.4 125.1 1994 128.7 137.5 89.5 123.8 130.6 85.1 153.8 123.1 139.7 125.9 source: Author's own calculations based on SCN data quoted in "La Economía Mexicana en Cifras 1995", p.104. The ENESTyC survey, also confirms that most manufacturing industries that represented a large share of total manufacturing GDP and/or those which were considered highly and medium export-oriented and internationally competitive industries, received the biggest proportion of private foreign and national investment between 1989 and 1994.

Before the opening some countries like Germany, Japan, Switzerland and France were importantly investing in the country. Major European Union investors had already established maquiladora industries like Philips, Siemmens, Valeo, Rauma and Thompson, among others. After the opening, the United Kingdom, followed by such countries as India, and the new investment laws also attracted other Asian and European countries. However, the majority of investment inflows (more than 50 per cent on average) between 1980 and 1997 were coming from U.S investors. After NAFTA’s entrance, foreign direct investment in the textile and clothing sector between 1994 an 1998 amounted to 2 billion U.S. dollars. Firms such as Burlington, Cone Mills, Dupont, Guilford Mills and Tarrant invested in Mexican operations.111 (see table Ch. V-17) 

Table Ch. V-17 Direct Foreign Investment by Country of Origin, 1980-1997 (percentages, at the end of the year) TOTAL United United Germany Japan Switzerland France Spain Canada Holland India Panama Other States Kingdom 1980 100 65.7 3.0 10.4 7.5 6.8 1.2 4.9 1.1 -0.5 1981 100 63.0 2.4 8.6 12.5 4.4 0.6 6.0 0.3 2.2 1982 100 68.0 1.2 6.4 10.4 3.7 1.1 6.4 1.3 1.5 1983 100 39.0 7.2 16.1 0.6 2.4 16.1 1.9 3.2 13.6 1984 100 63.8 3.1 10.7 2.5 4.2 0.6 0.8 2.3 12.1 1985 100 76.7 3.3 3.2 4.6 8.2 0.6 0.8 2.0 0.6 1986 100 49.8 4.3 9.0 5.9 1.4 13.1 3.9 1.7 11.0 1987 100 68.9 11.1 1.2 3.4 2.5 0.8 3.2 0.5 8.4 1988 100 39.3 24.3 4.3 4.7 2.7 4.8 1.1 1.1 17.6 1989 100 72.6 1.8 3.4 0.6 7.8 0.7 1.8 1.5 1.9 8.0 1990 100 62.0 3.1 7.7 3.2 4.0 4.9 0.3 1.5 3.4 9.9 1991 100 66.9 2.1 2.4 2.1 1.9 14.0 1.2 2.1 3.4 3.9 1992 100 45.9 11.9 2.4 2.4 8.8 1.9 1.0 2.5 2.3 21.0 1993 100 71.5 3.9 2.3 1.5 2.1 1.6 1.3 1.5 1.8 12.6 1994 100 45.4 5.6 2.9 6.1 0.5 0.9 1.4 7.2 7.1 11.8 3.4 7.7 1995 100 63.4 2.7 7.0 2.1 2.6 1.5 0.5 2.2 9.2 0.7 0.8 7.4 1996 100 66.0 1.0 2.7 1.6 1.1 1.7 0.9 7.4 6.3 4.3 0.3 6.7 1997 100 58.7 19.5 5.2 3.5 0.1 0.2 2.6 1.2 1.2 0.3 0.0 7.4 source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", p.350-351; La Economía Mexicana en Cifras 1998, p.475-476

In the services sector, the subsectors that received the highest sum of productive foreign resources were also foreign investment-related: communications, professional, technical and specialised services, real estate, finance, as well as restaurants and hotels (see table Ch. V-18 and figure Ch. V-9). Foreign investment in services has concentrated geographically in the main urban conglomerates, tourist areas along the beach and in the northern region of the country. After the signing of the Mexico-European Union Free Trade Agreement, large inflows of investment from European companies were expected.

Table Ch. V-18 Foreign Direct Investment in the Services Sector divided by Subsectors, 1989-1997 (millions of dollars) 1989 1990 1991 1992 1993 1994 1995 1996 1997

F. D. I. in Services 100 100 100 100 100 100 100 100 100

Communications 0 3 72 43 2 1 Professional, technical & specialized services 12 6 5 42 43 12 9 12 5 Real estate services 75710521114 3 0 Stock Market related financial inst. 40251321 Hotels, Restaurants, Bars & Night Clubs 33 1 6 2 20 33 7 10 25 Insurances & deposits related financial inst. 0 4 0 0 433666857 Banking, credit insitutions 000111 Air traffic services 600001 Other services 24536814813 source: Author's own calculations based on "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994" Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 10. note: Between 1989 and 1994 other services comprise recreational and sportive centres, travel agencies, cinema, theatre, radio, television, water transport and other. Between 1995 and 1997 other services comprise communications, stock market related financial institutions, banking and credit institutions and air traffic services. note: in blue all foreign investment-related subsectors



Figure Ch. V-9 Foreign Direct Investment in the Services Sector, 1989-1997

80 Communications

70 Professional, technical & specialized services 60 Real estate services

50 Stock Market related financial inst. 40 Hotels, Restaurants, Bars & Night Clubs 30 Insurances & deposits related financial inst. 20 Banking, credit insitutions

10 Air traffic services

0 O ther services 1989 1990 1991 1992 1993 1994 1995 1996 1997

-10

source: Author's own calculations based on "Resultados de la Nueva Política de Inversió n Extranjera en Mé xico 1989-1994" 

VI. Other Important Employment Issues

A. Total employment distribution by size of establishment

Table Ch. VI-1 Percentage of Manufacturing Formal Establishments by Size of Establishment, 1982-1999

1982 1985 1987 1990 1999

Total 100 100 100 100 100

Micro 78 76 77 79 92 Small 17 19 18 17 6 Medium 33331 Large 22221 source: Author's own calculations based on INEGI: Micro, pequeña, mediana y gran empresa, censos económicos 1999 note: micro enterprises comprise 1 to 15 workers; small 16 to 100; medium 101 to 250; and large enterprises 251 and more In 1992, around 300 establishments exported 70 per cent of non-oil exports and the top 10 companies on this list accounted for nearly half of the nation’s exports. In fact, the number of large establishments decreased in proportion to the total number of establishments in manufacturing. The number of large establishments continues being small and is diminishing proportionately to other establishments’ sizes. While in 1992, in general, 1.5 per cent of all establishments were considered large-sized, seven years later, they only represented 0.7 per cent of all establishments. All export-oriented establishments seemed to be concentrating their production in a small number of large establishments. The only exception was the basic metals that increased its proportion of large establishments from 7.8 per cent in 1992 to 12.8 per cent in 1999. On the other hand, micro establishments seemed to be proliferating mainly in the informal sector and augmented their share from 87.1 per cent in 1992 to 92.8 per cent in 1999 (see table Ch. VI-1 and Ch. VI-2).

Table Ch. VI-2 Percentage of Manufacturing Formal Establishments by Subsector and Size of Establishment, 1992-1999 TOTAL LARGE MEDIUM SMALL MICRO 1992 1999 1992 1999 1992 1999 1992 1999 1992 1999

TOTAL 100 100 1.5 0.7 2.0 1.1 9.5 6.4 87.1 91.8 Food, beverages and tobacco 100 100 0.3 0.5 1.0 0.5 7.8 3.6 90.9 95.4 Wood and wood products 100 100 1.4 0.2 2.7 0.5 11.5 4.3 84.4 95.0 Paper and paper products 100 100 0.7 0.7 0.7 1.2 5.4 10.1 93.3 88.0 Non-metal mineral products 100 100 2.1 0.3 3.6 0.5 16.6 3.6 77.7 95.6 Textiles, garments and leather 100 100 2.1 1.2 3.6 2.0 16.6 8.9 77.7 87.8 Chemicals, rubber and plastics 100 100 5.7 3.2 8.6 6.1 35.8 32.0 49.9 58.7 Basic metals 100 100 7.8 12.8 8.4 9.9 33.4 22.9 50.5 54.4 Metal products, machinery & equip. 100 100 2.6 0.9 2.5 1.3 11.4 7.5 83.5 90.3 Other manufacturing industries 100 100 1.7 0.5 3.0 0.8 14.7 7.8 80.6 90.9 source: Author's own calculations based on ENESTyC 1995, p.213 and ENESTyC 1999 From 1982 to 1999, formal employment concentration in large establishments, in general, increased from 48.1 per cent to 50.2 per cent (see table Ch. VI-3). However, if informal employment is included, micro-sized establishments continue being in Mexico the providers of the largest number of jobs. The 1999 economic census recorded 344 thousand manufacturing establishments, 1 million 443 thousand in commerce and 938 thousand in services. Out of these, the number of micro informal sector businesses (from 1 to 15 persons) proliferated from 1982 to 1999. According to the 1999 Economic Census, micro establishments increased from representing 78,573 thousand in 1982 to 317,360 thousand in 1999, 4.4 times as many in a period of 17 years.112



Table Ch. VI-3 Percentage of Manufacturing Formal Employment by Size of Establishment, 1982-1999

1982 1985 1987 1990 1999

Total 100 100 100 100 100

Micro 11.6 10.8 11.2 11.8 24.7 Small 24.1 23.8 23.4 22.5 17.3 Medium 16.2 16.3 16.0 15.7 14.4 Large 48.1 49.2 49.4 50.0 50.2 source: Author's own calculations based on INEGI: Micro, pequeña, mediana y gran empresa, censos económicos 1999 note: micro enterprises comprise 1 to 15 workers; small 16 to 100; medium 101 to 250; and large enterprises 251 and more According to another source, the NES, manufacturing micro establishments of 1 to 5 persons represented 21 per cent of the total number of establishments in 1988, and increased to 31 per cent in 2000. The growth of micro establishments was faster in non-export oriented subsectors. In food, beverages and tobacco they accounted for 45 per cent and in the wood and paper products for 47 per cent in 2000. In export-oriented establishments they represented 33 per cent in textiles, 20 per cent in chemicals, and 18 per cent in metal products, machinery and equipment. In other trade-related sectors by the year 2000, 53 per cent of establishments in transport, storage and communications, and lastly, 32 per cent in finance, insurance and real estate were micro-sized. In all of these sectors the number of micro establishments grew considerable during this period (see table Ch. VI-4).

Table Ch. VI-4 Total Employment (Formal and Informal) by Economic Sector and Size of Establishment 1988-2000 (thousands) TOTALS 1 person 2 to 5 persons 6 to 15 16 to 50 51 and more Not specified 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000

T O T A L 100 100 13 19 27 35 9 8 8 7 41 31 1 0

AGRICULTURE, CATTLE, FORESTRY & FISHING 100 100 27 21 36 59 12 10 16 4 7 5 2 0 MINING 100 100 0 4 0 5 3 3 3 7 91 81 2 0 MANUFACTURING 101 100 6 10 15 21 12 9 12 10 55 49 1 0 Non export-oriented Food, beverages and tobacco 100 100 4 14 24 31 12 9 9 8 51 37 1 0 Wood & prods; paper & prods* 100 100 8 15 27 32 19 12 13 13 32 28 2 0 Non-metal mineral products 100 5 17 9 13 55 1 Export-oriented Textiles, garments and leather 101 99 12 15 9 18 20 12 17 13 43 41 1 1 Chemicals, rubber and plastics*** 100 99 1 4 5 16 5 9 8 11 80 59 1 1 Basic metals 100 99 4 0 11 2 8 1 9 11 67 86 1 1 Metal prods., machinery & equip. 101 100 4 5 11 13 8 6 10 6 67 69 1 0 Other manufacturing industries** CONSTRUCTION 100 100 10 17 32 50 15 10 13 10 27 13 2 0 ELECTRICITY 100 100 0 0 0 0 0 1 0 1 100 98 0 0 WHOLESALE TRADE***** 100 99 5 6 21 16 19 12 20 19 32 46 3 1 RETAIL TRADE 106 100 26 27 56 49 9 7 4 4 11 12 0 0 RESTAURANTS & HOTELS 100 100 4 5 37 43 23 19 16 14 19 19 1 0 TRANSPORT, STORAGE & COMM. 100 100 21 18 21 35 4 6 7 10 46 31 1 0 FINANCE, INSURANCE & REAL ESTATE**** 100 100 6 12 9 20 6 13 7 11 71 44 1 0 COMMUNITY, SOCIAL & PERSONAL 100 100 28 30 57 25 8 5 2 5 4 35 1 0 PUBLIC ADMINISTRATION & DEFENSE 100 100 0 0 0 0 0 0 0 1 100 99 0 0 WORKER IN THE U.S. 99 10 21 15 16 29 8 NOT SPECIFIED 95 91 0 8 2 10 0 14 0 17 2 43 92 8 source: Author's own calculations based on INEGI's Encuestas Nacionales de Empleo 1988, p.95 and 2000, p. 151 *Wood and wood products totals are grouped with paper and paper products total employment **NES 1988 groups basic metals data with metal products, machinery and equipment. NES 2000 includes metal products machinery and equipment employment in other manufacturing industries totals. Since the metal products machinery and equipment industry is such an important export-oriented subsector, a division was made considering either basic metals or other manufacturing industries total to represent 10% of the provided figure ***Chemicals, rubber and plastics totals comprise non-metals mineral products employment ****NES 1988 data mixes finance insurance and real estate with some community, social and personal services like medical, and educational *****Wholesale and retail trade data is not divided in NES 2000. Since it represented 10% of the total of the two in 1988, the author made the calculations for 2000 note: in blue all export-oriented or foreign investment-related economic sectors or subsectors For example, according to the 1995 ENESTyC the total number of formal textiles, garments, shoes and leather establishments in Mexico was calculated to be around 27, 392 in 1995. Only 221 were large-scale, 344 medium-sized, 2,715 small and the majority of them 24,110 or 88 per cent were micro-scale establishments. Half of the establishments in the textiles sector were in 1995 producing clothing and employing 198 thousand workers. Another 11 per cent were concentrated in the production of shoes providing work to almost 79 thousand workers. 

A large number of micro, small and medium domestic firms concentrate in producing traditional consumer goods and light intermediates. The majority of them report low productivity levels and normally possess low capital, simple technology, and low product differentiation. Mexican quality, in the traditional sectors, on average, still continues to be poor by international standards. By 1999, most of domestic firms had not been able to modify their basic structure.

The rest of domestic firms receive important capital investment and tend to be also larger in size. They normally require large concentration ratios and higher capital requirements. They are normally part of transnational (TNC) conglomerates and possess the necessary technological expertise, product differentiation and financial capacity. The main items produced by the large-scale capital goods industry are non-electric machinery and equipment, automobiles and motors and cars’ accessories (see table Ch. VI-5). Most of the parent affiliates are in the U.S. They have a long trajectory in the country since the majority of them arrived in the 1960’s or in the 1970’s. Many companies with head offices in the United States produce in both Canada and in Mexico, so the industrial structure of the three countries is tied. A lot of their trade occurs at the intra-industry and intra-firm level or from a subsidiary or affiliate shipping to the parent company. Normally, U.S. and Canada’s TNC’s produce parts of final products for final assembly in Mexico.113

Table Ch. VI-5 Capital Goods Industry GDP Percentages by Type of Good, 1980-1989 (percentages) 1980 1981 1982 1983 1985 1986 1987 1989

T O T A L 100 100 100 100 100 101 102 100 Structural metallic products 3.8 3.7 4.4 4.3 3.4 3.6 2.8 2.3 Other metallic products, except machinery 1.9 2.0 2.1 2.5 2.2 2.6 2.6 2.1 Non-electric machinery and equipment 23.5 22.4 21.8 21.7 19.1 19.6 18.4 19.2 Electric machinery and appparatus 9.5 9.2 9.5 9.4 9.0 10.2 10.1 8.7 Electronic apparatus 5.9 5.5 5.6 7.3 5.7 7.2 7.6 7.1 Electric apparatus 6.6 6.4 7.2 7.7 7.5 8.4 8.6 6.9 Automobiles 24.5 26.4 23.7 18.4 24.2 21.3 24.2 26.2 Motors and cars' accessories 17.6 17.8 17.8 20.1 22.6 21.7 21.2 21.2 Equipment and transport material 6.5 6.4 7.6 8.2 6.1 6.6 6.7 6.2 source: Author's own calculations based on Sistema de Cuentas Nacionales de Mexico quoted in "La Economía Mexicana en Cifras 1999", p.291 Very little support was given during the period studied to medium, small and micro- enterprises that were succumbing to the economic situation relative to the support that the government was providing and continues providing to large-scale industry. Since Mexico is a country rich in human resources, these policies are definitely to be questioned on what concerns providing an impulse to employment growth. In fact, the proliferation of micro establishments is in large part thanks to the growing importance in remittances backing up their creation and supporting their functioning.

From 1997 onwards the situation for micro, and small enterprises has worsened. All regulation or control of interest rates’ margins provided by NAFIN to the commercial bank until then, disappeared. From 1997 on, commercial banks, based on the policy “the smaller the establishment, the higher the risk of non-payment”, provide credit at the following discriminatory rates:

• Large enterprise: between TIIE + 2 and TIIE + 5

• Medium enterprise: between TIIE + 5 and TIIE + 8

• Small enterprise: between TIIE + 7 and TIIE + 12

• Micro enterprise: between TIIE + 10 and TIIE + 16 

NAFIN’s programme that is supposed to be supporting micro enterprises, the “Programa Global para el Desarrollo de la Microempresa”, states clearly «even if it is paradoxical, micro and small productive units dispose of a higher capacity to assimilate the impact of higher interest rates than those prevailing in the market for other enterprise strata”. NAFIN adds: “There exists an inverse proportional relation between the size and dimension of the enterprise and its internal financial capacity return rate”.114 It is true that micro enterprises and businesses can possibly have a higher return rate relative to large businesses, due to their comparative advantage of being closer to the client than large businesses. However, it is also true that millions of them have closed in the country because they are just strangled with high interest rates and do not have the capacity to cover the cost.

Micro-finance institutions, supported by the Inter-American Development Bank and its institution FOMIN, apply interest rates to micro enterprises that fluctuate between 3 to 6 flat per cent per month. In the majority of cases, micro enterprises need to pay weekly, what represents an annual net real interest rate of 50 to 158 per cent. Bancomext, another development bank, provides credit at preferential rates only to large-scale export-oriented establishments.

The only socially acceptable credit institution is what is called “Fondo Nacional de Empresas Sociales” of the Social Development Ministry. They provide subsidised interest rates that fluctuate between 5 and 12 per cent. However, the fund is small and does not have the capacity needed.

It is fair to mention that, whenever the economic situation permitted it, the Government established some employment-creation programs. For example, the 1984 National Development Plan (PND) created a program of promotion of medium, and small industry: Through FOGAIN, the program helped little craftsmen workshops that proved to have the capacity to grow in the future. In total, the programme created at the local and state levels around 350,000 jobs. In 1988, the government started another program of promotion of micro enterprises and self-employment with the campaign “Empléate a tí mismo” (literally, provide yourself a job).

Through SOLIDARIDAD, the government also created 85,000 jobs from 1991 to 1994. Most of these jobs were related to infrastructure project such as schools, rural clinics, and electricity connections. Other minor employment programmes were also implemented since the late 1980’s like the Job Creation in Rural Areas and the Employment in Critical Urban Areas that are still in operation today. In addition, the government promoted some programs of manufacturing micro-industry development, too. These programmes have had a positive, but still reduced, impact on employment creation due to the magnitude of the problem.115

B. Women’s participation in export-oriented employment and child labour

The most dynamic labour market development after the 1982 crisis was the dramatic increase in the proportion of women working in the labour market’s formal and informal sectors. According to the World Bank Development Indicators database, female’s labour force participation out of total labour forced increased before the opening from 26.4 in 1980 to 27.8 in 1984. Right after the first trade liberalization measures were put in place, from 1985 to 1988, their participation increased from 28 to 33.6 per cent. And, after the consolidation of  trade policies’ period, women’s employment share increased from 33.9 per cent in 1989 to 39.7 per cent in 2000 (see table Ch. VI-6).

Table Ch. VI-6 Female Labour Force out of Total

LABOUR FORCE FEMALE LABOUR FORCE (millions) (% OF TOTAL) 1980 22.247 26.4 1981 22.966 26.6 1982 23.708 26.8 1983 24.473 28.1 1984 25.264 27.8 1985 26.080 28.0 1986 26.907 28.8 1987 27.761 32.7 1988 28.641 33.6 1989 29.549 33.9 1990 30.486 33.7 1991 31.416 35.5 1992 32.374 35.7 1993 33.362 37.2 1994 34.281 36.7 1995 33.881 38.7 1996 34.994 38.5 1997 36.291 39.3 1998 37.117 38.4 1999 38.069 39.3 2000 38.983 39.7 source: Author's own calculations based on World Tables 1995, The World Bank According to García and Oliveira (1990), increasing female employment during the eighties and part of the nineties was marked amongst married women with children who, in previous years, had been much less likely than young, unmarried women to be economically active.116 The so-called «feminisation» of the Mexican labour market was attributed in large measure to the necessity of additional family income due to the subsequent economic crisis.117 However, for the purposes of this study, the author searched to find out if the trade opening also expanded the labour supply into export-oriented occupations for women. 

Table Ch. VI-7 Employment (Formal and Informal) Share by Economic Sector and Gender, 1991, 1995, 2000

ANNUAL % CHANGE YEARS 1991 1995 2000 1 9 9 1 - 2 0 0 0 GENDER TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL M E N W O M E N AGRICULTURE 100 87.7 12.3 100 85.6 14.4 100 86.4 13.6 -1.5 -1.7 -0.5 MINING 100 86.5 13.5 100 87.8 12.2 100 88.4 11.6 -3.2 -3.0 -4.3 MANUFACTURING 100 65.2 34.8 100 69.8 30.2 100 62.5 37.5 6.3 5.6 7.7 CONSTRUCTION 100 97.4 2.6 100 97.3 2.7 100 97.4 2.6 3.9 3.9 3.7 ELECTRICITY 100 85.7 14.3 99 83.8 15.0 100 83.4 16.6 2.7 2.4 4.9 COMMERCE AND SERVICES 100 57.2 42.8 100 55.9 44.1 100 56.1 43.9 4.6 4.3 5.0 Wholesale trade 100 69.8 30.2 100 71.1 28.9 100 70.7 29.3 8.3 8.5 7.8 Retail trade 100 52.6 47.4 100 47.9 52.1 100 49.6 50.4 4.0 3.2 5.0 Hotels and Restaurants 100 49.9 50.1 100 50.8 49.2 100 48.9 51.1 8.0 7.6 8.4 Sale of food in public places 100 42.0 58.0 100 38.2 61.8 100 37.6 62.4 -0.3 -1.5 0.5 Transport and storage 100 93.3 6.7 100 93.6 6.4 100 93.4 6.6 5.4 5.5 5.1 Communications 100 70.6 29.4 100 68.3 31.7 100 68.7 31.3 8.8 8.2 10.1 Finance, Insurance & Real Estat 100 63.7 36.3 100 63.0 37.0 100 62.6 37.4 7.2 6.9 7.8 Community and Social Services 100 45.1 54.9 100 42.1 57.9 100 43.2 56.8 3.7 3.1 4.2 Reparation Services 100 96.5 3.5 100 95.4 4.6 100 96.1 3.9 6.5 6.4 8.4 Domestic Services 100 9.9 90.1 100 8.8 91.2 100 11.6 88.4 9.0 12.5 8.7 Government Services 100 69.6 30.4 100 70.6 29.4 100 63.8 36.2 -4.2 -4.8 -2.9 Other Services 100 56.9 43.1 100 51.4 48.6 100 67.4 32.6 8.0 11.5 3.3 100 81.9 18.1 100 87.4 12.6 100 77.1 22.9 -1.5 -2.1 1.0 TOTAL 100 69.6 30.4 100 66.5 33.5 100 65.9 34.1 3.1 2.3 4.8 source: Author's own calculations based on INEGI (National Institute of Statistics, Geography and Informatics), National Employment Surveys (NES) 1991, 1993, 1995 and 2000. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors note: NES include metal products, machinery and equipment information on other manufacturing industries data The increase in women’s employment was highly related to the frequent economic recessions and to other sociological factors like a higher education of women and a change of values. However, it is also true that export-oriented sectors comprised a higher percentage of women workers than non-export-oriented. According to the 1991 Mexican National Employment Survey, women workers represented 12.3 per cent of all workers in agriculture, 13.5 per cent in mining, 34.8 per cent in manufacturing and 42.8 per cent in commerce and services. Nine years later, in the 2000 Mexican National Employment Survey, women represented a higher share (13.6 per cent) in agriculture’s employment, had reduced their participation (11.5) in the mining and quarrying sector, had increased their share (37.5 per cent) in manufacturing’s total employment, and had also increased their participation in commerce and services (43.9 per cent). (see table Ch. VI-7)

In the most important export-oriented manufacturing subsectors, like the metal products, machinery and equipment, and the chemicals, rubber and plastics, women increased their employment share by at least 2 points from 1991 to 2000. The opposite was true of the textiles, garments and leather subsector. However, the textiles, garments and leather subsector continued being the subsector with the largest share of women workers: 56 per cent in 2000 (see table Ch. VI-8).

Table Ch. VI-8 Total Manufacturing Employment (Formal and Informal) by Subsector and Gender, 1991-1993-1995-2000

ANNUAL % CHANGE YEARS 1991 1993 1995 2000 1 9 9 1 - 2 0 0 0 GENDER TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL M E N W O M E N MANUFACTURING 100 65.2 34.8 100 66.4 33.6 100 69.8 30.2 100 62.5 37.5 6.3 5.6 7.7

Food, beverages & tobacco 100 59.9 40.1 100 64.7 35.3 100 72.1 27.9 100 58.2 41.8 4.1 3.7 4.8 Textiles, garments & leather 100 42.9 57.1 100 43.4 56.6 100 48.5 51.5 100 44.0 56.0 9.1 9.6 8.7 Wood and paper 100 83.8 16.2 100 82.1 17.9 100 80.3 19.7 100 77.7 22.3 6.3 5.0 12.9 Chemicals, rubber & plastics 100 72.4 27.6 100 78.2 21.8 100 76.9 23.1 100 70.5 29.5 2.8 2.4 3.7 Basic metals 100 89.2 10.8 100 87.9 12.1 100 93.2 6.8 100 92.5 7.5 4.2 4.8 -0.5 Metal prods, mach. & equip 100 74.0 26.0 100 75.2 24.8 100 73.9 26.1 100 70.2 29.8 8.8 7.8 11.6 source: Author's own calculations based on INEGI (National Institute of Statistics, Geography and Informatics), National Employment Surveys (NES) 1991, 1993, 1995 and 2000 Mexico. note: NES include metal products, machinery and equipment information on other manufacturing industries data in blue all export-oriented subsectors Within the commerce and services sector, the most foreign investment-related subsectors like finance, insurance and real estate, and hotels and restaurants, were hiring a larger number of women, On the contrary, women’s participation in wholesale trade was slightly descending. This was also the case of the male-dominated transport, storage and communications subsector (see table Ch. VI-9). 

Table Ch. VI-9 Gender Distribution of Formal and Informal Employment in Trade-Related Sectors 1991, 1993, 1995, 2000

YEAR Manufacturing* Wholesale Trade Transport, Storage & Comm. Finance, Insurance & Real Estat AVERAGE ALL SECTORS TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN TOTAL MEN WOMEN

1991 100 70 30 100 70 30 100 93 7 100 64 36 100 70 30

1993 100 71 29 100 72 28 100 93 7 100 61 39 100 69 31

1995 100 73 27 100 71 29 100 94 6 100 63 37 100 67 34

2000 100 69 31 100 71 29 100 93 7 100 63 37 100 66 34 source: Author's own calculations based on INEGI, Población Ocupada por Rama de Actividad segun Sexo, National Employment Surveys 1991, 1993 and 1995, 2000 * Manufacturing export-oriented sectors comprise: textiles, garments & leather; chemicals, rubber & plastics; basic metals; metal prods, machinery & equipment. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors Mexican women continue to face discrimination in the labour market in many ways. Some Mexican women still complain about the fact that many firms illegally fire them if they marry or become pregnant or that some establishments restrict their hiring to avoid having to pay for maternity leave. It is also known that in other instances, in order to be promoted, women must make more efforts to prove their abilities. Other times, they are required to have more education for the same types of job offered to less educated men and are provided with lower remuneration than male counterparts with the same educational level. (This issue will be more developed on the section on remuneration differences by sex)

According to ILO’s report “Women and Men in the Informal Economy”, 94 per cent of all women in agricultural activities could be considered to be in informal employment. In addition, 80 per cent of women working in wholesale and retail trade had informal type of jobs. If a comparison was made of informality in manufacturing employment, while only a third of men were considered informal workers, about half of women in manufacturing jobs were in informal employment, mainly in the textiles and clothing subsectors.118

Concerning the issue of child labour in Mexico, the Federal Labour Code stipulates that the utilization of work done by children younger than 14 is prohibited. Between the age of 14 and 16, children should not work a labour journey longer than 6 hours. While the problem is very visible, the Government has never recognised that child labour exists in the country. For this reason, it is almost impossible to find statistical information on child labour in Mexico. So, it is almost impossible to measure it or to find out if it is higher now than before the trade opening or if it exists or not in export-oriented sectors.

During the harsh recession years of the 1980s, a growing number of children were visibly participating in economic activities. The need that most households experienced to supplement the income of the main breadwinner pushed a great number of children to look for remuneration to help their families. A great number of working children were concentrated in the informal sector. The large majority of these children seemed to be concentrated in retail trade and services. According to Roberts, these children worked irregular hours in petty trade or the personal services or were employed in local workshops. The biggest percentage of them were simply on the streets selling newspapers, chewing gums, playing the clowns or setting their throats on fire to beg for a coin. Another important number of them was concentrated in the agricultural sector, in the harvesting or packing processes. In the manufacturing sector, they are employed mostly in unpaid family labour in micro enterprises.119

According to the 1993 National Survey of Manufacturing Workers, 19.7 per cent of manufacturing total workers started working between 10 and 14 years old. The survey does not specify if they started working at that early age in manufacturing export-oriented sectors or not. Another 34.2 per cent of manufacturing workers had started working between 15 and 17 years old. The National Surveys on Education, Training and Employment (1991 to 1999) recorded that the population that did not continue studying, increased from 66 to 70.3 per cent  in 8 years. Out of this number, 28.6 per cent stopped studying for economic reasons and 10.8 per cent for family reasons. Almost one-fifth of total workers reported in the same survey having started to work while studying (see table Ch. VI-10).

When they engage in child labour, poor children are impeded to acquire the education and skills that will make them more productive workers in adult life and that would give them more opportunities to obtain a better-remunerated job. The Economic Commission for Latin America and the Caribbean (CEPAL) declared that by the end of 1995, one out of every 5 Mexican children worked. The CEPAL reminded the Mexican society that each of these children lost, on average, four years of schooling and as a consequence their future income was reduced.120

Table Ch. VI-10 Other Important Indicators of Education related to Labour Force Participation 1991-1999

1991 1993 1995 1997 1999

Population that did not continue studying* 66.0% 68.0% 69.0% 70.0% 70.3% divided by reason not to continue: Economic reasons 27.4% 26.1% 26.2% 31.3% 28.6% Family reasons 8.6% 10.6% 13.6% 10.1% 10.8% Did not want to 44.4% 45.2% 44.0% 45.0% 46.6% There was no school nearby 5.0% 5.4% 5.0% 3.7% 3.7% Other reasons 14.5% 12.5% 11.0% 9.8% 10.1

Population that started working while studying 18.4% 18.1% 18.3% 19.1% 19.3%

Employed 12 to 14 years old (thousands) 1083 1269 1278 out of total employed 3.4% 3.8% 3.2%

Employed 15 to 19 years old (thousands) 4602 4787 4455 out of total employed 14.7% 14.2% 11.2%

Employed in manufacturing that started working between 10 and 14 years old 19.7% between 15 and 17 years old 34.2%

source: INEGI; Encuesta Nacional de Educación, Capacitación y Empleo, 1991. 1993, 1999, and Encuesta Nacional a Trabajadores Manufactureros, 1993, p.33 *population 12 years and older out of total population

It is urgent to improve wages and the situation of the labour force in general. This step would reduce the need of poor families to rely on their children’s work. It is essential to provide a healthy economic environment necessary to let these children live their childhood and concentrate in studying. If these children continue their studies, poverty in the long run will be also reduced.



VII. Employment Fluctuations per Sector and Subsector according to Growth in Exports-Imports and Foreign Investment

A. The primary or agricultural sector

1. Introduction

The primary or agricultural sector in Mexico includes agriculture, livestock, forestry, fisheries, hunting and bee keeping. While the agricultural sector had played a very important role in Mexico’s economy in the past providing employment to almost 40 per cent of the labour force in 1970, and participating in almost 90 per cent of exports, by 1998 it only accounted for 5.6 per cent of GDP and its exports’ share had tumbled to represent only 4.5 per cent of total exports. Total employment levels fell significantly from representing a 25.8 percentage share in 1980 to only 18.1 per cent by the year 2000 (see table Ch. VII-1).

Table Ch. VII-1. Agricultural Sector Indicators, 1980-2000 (millions of current dollars)

MERCHANDISE TRADE % ot total % of total % of total % of total Average Remuneration % of total YEAR IM EX EX-IM imports exports GDP investment Index 1980 = 100 employment 1980 2025 1528 -497 10.5 9.9 8.2 0.1 100 25.8 1981 2422 1482 -940 9.7 7.4 8.0 -0.3 105.7 1982 1100 1233 133 7.3 5.8 7.9 0.3 95.5 1983 1701 1189 -512 18.8 5.3 8.4 0.0 78.8 1984 1880 1461 -419 15.5 6.0 8.4 0.1 74.5 1985 1607 1409 -198 11.1 6.5 8.5 0.0 75.2 1986 938 2098 1160 7.5 13.0 8.5 0.0 75.5 1987 1109 1543 434 8.3 7.5 8.5 0.4 70.1 1988 1773 1670 -103 8.7 8.1 8.1 -0.4 59.7 23.5 1989 2003 1754 -249 7.9 7.7 7.6 0.8 57.1 1990 2071 2162 91 6.6 8.1 7.8 1.6 54.7 1991 2130 2373 243 4.3 5.6 7.6 1.3 50.7 1992 2858 2112 -746 4.6 4.6 7.3 1.1 49.3 1993 2633 2505 -128 3.6 4.8 7.5 0.7 48.3 26.9 1994 3371 2678 -693 4.2 4.4 7.4 0.1 50.7 1995 2644 4016 1372 3.6 5.0 6.5 0.1 37.8 1996 4671 3592 -1079 5.2 3.7 5.8 0.4 36.0 1997 4173 3828 -345 3.8 3.5 6.0 0.1 1998 4698 5296 598 3.7 4.5 5.6 2000 18.1 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) source: INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1995" (NAFINSA), p.97; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. Formal employment levels were the most affected decreasing from 526 thousand in 1985 to 398 thousand in 2000. In fact, the agricultural sector was the only economic sector were formal employment levels decreased. Even if total employment levels fell significantly, informal employment levels (obtained by subtracting total employment levels minus formal employment levels) increased slightly by 300 thousand: representing 6.1 million workers in 1988 to 6.4 million workers in 2000 (see figure Ch. VII-1).

The primary sector is in fact the economic sector where structural adjustment measures, especially trade liberalization’s impact on employment, can be most clearly appreciated in a very direct and tangible way. While this impact it is unfortunately negative, it is very important to see that the lack of government support to provide incentives (as it did to many manufacturing subsectors) was determinant in the decrease of employment levels in the sector  and in the increase in informality levels. Indeed, unemployment levels and poverty have exacerbated making evident that millions of workers had to pay large adjustment costs.

Figure Ch. VII-1 Formal Employment by Sector, 1980-2000

100%

80%

Other

60% Service Sector Commerce

Industrial Sector

Agricultural Sector 40% Percentage of total insured in the IMSSin the insured of total Percentage 20%

0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

The agricultural sector kept an important level of protection during the trade opening in 1985 and the country’s accession to GATT. However, during the Salinas period of consolidation of trade policies, the level of employment fell sharply from 1989 onwards when guaranteed prices disappeared, import license coverage importantly went down, irrigation facilities were privatised and subsidized credit was virtually eliminated. Indeed, between 1980 and 2000, the level of agricultural production decreased by more than 3 per cent annually. The agricultural sector has not been able to attract foreign investment either and its share does not even account to 1 per cent of total.

2. Before 1992

Before 1992, the majority of Mexico’s agricultural sector was under a system of land tenure. This system was put in place after the 1910 revolution when peasants were provided with land expropriated from large landholdings, haciendas. As a result, the agricultural sector expanded from 1935 to 1965 when large plots of land to communal institutions called “ejidos”121 were distributed. Ejido members (and their descendants) had the right to use the land allotted to them, but not to sell it, rent it or mortgage it to outsiders. Although ownership was collective, each ejidatario worked his land individually and had individual rights on parts of the ejido that were not considered collective. Ejidatarios risked losing their land if they did not comply.

During the import-substitution period, the government subsidised the agricultural sector with guaranteed prices, as well as credit, procurement of inputs and marketing of output. At  the same time, the government provided incentives to production according to output capacity and organisation. Small-scale producers had more possibilities of benefiting from subsidies and other incentives like cheap credit during the import-substitution period than during the export-promotion or trade liberalization period. However, the system was not perfectly egalitarian and while small producers benefited from guaranteed prices, and marketing support, the flow of public resources for mechanisation, irrigation, acquisition of seed and pesticides reached in bigger proportions large producers that cultivated crops for exports and the production of meat. Since the system was based on providing benefits according to output capacity, it resulted on a regressive mechanism of income redistribution where large-scale producers were the main beneficiaries. Indeed, public resources beneficiaries were concentrated in regions or areas where large producers (mainly in the northern regions in close proximity to the U.S.) were located. According to Levy and van Wijnbergen of every dollar of subsidies to maize producers, only a third reached subsistence small-scale farmers in the central and southern regions.122

The structure of the Mexican agricultural sector developed, then, as a dual system. A modern capitalist sector concentrated capital, technology and land, and produced a large share of output with a wide diversification of crops (mainly fruits and vegetables), and on the other hand, there was a large small-scale, “peasant” agriculture that comprised most of the ejidos and the rest of the small agricultural farmers with very low productivity levels and producing mostly basic grains like corn, and beans.

During the period 1935-1965, agricultural production grew at a rate of 6 per cent per year, about the same as GDP and made the country self-sufficient in food production. As it was mentioned before, it was, in fact, agriculture’s production trade surplus that financed almost half of the industrial trade deficit during the years that industrial production was importing a higher proportion of goods than it was exporting.

In the late 1950’s the government created CONASUPO (Comisión Popular de Subsistencias Populares) as a trade monopoly in basic foodstuffs. CONASUPO’s policy was to promote high producer prices and low consumer prices. The institution procured grains as part of the government’s farmer price support program and operated storage facilities, various food-processing plants, and food-wholesaling and retailing organisations. With CONASUPO, the government acquired importance in the regulation of the domestic agricultural market, including the support for guaranteed price policies and food distribution to rural and urban low-income segments of the population.

According to Buzaglo, Mexican agriculture stagnated in the mid-1960s when output growth became slower than population and demand growth.123 One of the main problems of the ejido system was that individual peasant units had grown quite small (7 ha on average) as a result of subdivision of farms by inheritance. The small size of individual holdings contributed to impeding an increase in productivity.

Public irrigation works proliferated in the northern area where most large capitalist producers were found, and the development of the poorest sectors in the central and south part of the country where most ejidos and other types of peasant agriculture were concentrated seemed to be almost forgotten. Government’s subsidies seemed tailor-made to favour large farm enterprises.

During the presidency of Echeverría (1970-76) measures were adopted to re-channel public funds to create a better access to credit facilities, a duty free import of farm machinery, a fertiliser subsidies policy to develop livestock and crops production, and to shift public  irrigation programmes to small-scale farms. In 1975, the government established BANRURAL with the purpose of increasing the availability of credit.

The government (financed by the oil revenues) also started a program called “Sistema Alimentario Mexicano” (SAM). This program gave a strong support to big and small producers and to consumers, increasing subsidies. SAM defined a basic basket of food products that in principle should be available to low-income population at controlled prices according to minimum wages. It organised the sale of agricultural goods included in the basic consumption basket to be offered to low-income groups at reasonable prices.

In order to promote national production of certain agricultural products, subsidies were increased. For the first time, ejidatarios also benefited from low prices of chemical fertilisers and an insurance called “shared risks” which considered the possible loss of crops due to weather changes, as well as reducing debts according to losses suffered. In 1981, the programme also increased the guarantee price of corn; the most important basic grain produced by Mexican peasant agriculture. That same year, the agrarian law was reformed to place restrictions on the size of private landholdings, and gave the power to government to seize under-utilised land and redistribute it to landless peasants.124

SAM proved to be a very good effort to foster peasant production and increased national self-sufficiency in the middle and late 70s. For the first time, special attention was also given to the development of livestock production, too. SAM’s incentives generated an increase in production and performance of Mexican agriculture. Unfortunately, SAM was not very long- lived. Only a few years after its initiation, the sudden change in the economic situation of the country, undercut the finances it was based on. Even if during the crisis, SAM’s assistance was more needed than before, government’s low revenues forced it to reduce its support. Besides, the real exchange rate appreciation between 1978 and 1981 promoted large increases of agricultural imports. In 1980 agricultural imports represented 13 per cent of total imports. The agricultural sector was converted into another drain on foreign exchange. That year, Mexico’s agricultural trade balance was negative for the first time.

Henceforth, the continuous crisis of the Mexican economy seems to have been particularly detrimental to agricultural employment since it was the sector where underdevelopment problems were the most serious. After the 1982 crisis, government policies aimed at reducing public deficit had a more severe impact on the agricultural sector than in any other economic sector, reducing employment significantly. Resources for rural development projects were cut drastically. The years 1982-83 meant a sharp fall in infrastructure investment, such as irrigation systems, electricity and roads, but also in credit opportunities. Even if public support was reduced, there was a recovery in agricultural production in the years 1984-1986 due to an improvement in farm exports thanks to favourable weather, and good international prices of coffee and tomatoes. Food crops such wheat also performed well.

With the decision to liberalise trade in 1985 and the entrance of Mexico to GATT, import licensing requirements for most agricultural goods were importantly reduced. At the same time, the government reduced public investment in irrigation, the provision of improved seeds and agricultural subsidies for electricity, fertiliser, and water at an average rate of 13 per cent a year from 1985 to 1989. Agricultural producers had to face higher costs, and credits with very high interest rates. The government tried to keep until 1986 a subsidy to the official agricultural credit. But from then on, public credit was almost inexistent and private credit was given only when banks could assure themselves that clients could refund. 

By the late 1980s there were still almost 30,000 ejidos in Mexico, comprising over 3 million farm households, occupying over 60 per cent of cropland and almost half the national territory.125 And, according to the 1991 agricultural census, 72 per cent of all ejidos’ main crop was corn. The effect of the stabilisation and liberalisation policies hit hard the whole agricultural sector, but they were especially harsh for private small-scale producers and ejidatarios. To ejidatarios and other peasant producers, the reduction of subsidies and the reduction on guarantee prices meant big losses and by 1988, 65 per cent of corn producers reported a deficit. Since national agricultural prices were going down, it was often very hard for small peasants to continue cultivating their own lands. In addition, real wages of day- labourers and other mostly seasonal agricultural workers suffered a big drop. The reduction of wages increase in agricultural output benefited mainly capital agriculture producers. As a result of extremely low wages in the agricultural sector, a large number of peasants were pushed to leave their lands off-season, to find a job in urban centres. Wages of family members working in urban centres were often used to cultivate small peasant land.126

The guarantee prices mechanism was replaced by another determined by a negotiated (fixed between buyers, producers, and government) process that had the objective of stabilising prices. In addition, tariffs and other import controls were also reduced. Small producers of commercial crops such as rice, soybeans, and sorghum were left without access to domestic markets in 1990-91 when import licences were suddenly lifted. In addition, by 1991, only 14per cent of all rural production units were using credit or were insured against bad weather.

Landless peasants were affected through the contraction of employment and wages (see table previously mentioned Ch. VII-1) and small-scale producers by the decrease in output prices, subsidies, the increase of credit interest rates and the lack of credit. By the late 1980, 67 per cent of them lacked any technology and machinery and their limited utilization of inputs such as fertilizers, insecticides, herbicides and other chemicals made them lose a great share of their crops per year. Their limited availability of farming implements and draft power equipment, together with a high vulnerability to risk and bad weather, insured their failure to plant mixed crops. Low productivity, poverty and underemployment attained a large number of the rural population and became embedded in the sector. Many agricultural workers and producers decided then to leave the rural sector indefinitely.

Table Ch. VII-2 Production of Main Agricultural Products, 1980-1993 (thousands of tons)

Total Sugarcane Corn Alfalfa Sorghum Wheat Beans Oranges Tomatoes Coffee Soybean Barley Cottonseed Cottonfiber Rice

1980 78986 36480 12374 16188 4689 2785 935 1743 1321 220 322 539 572 373 445 1981 82498 34905 14766 15999 6296 3189 1469 1789 1074 244 707 551 530 335 644 1982 80452 36940 10147 17167 4956 4468 1093 2025 1313 231 649 424 273 166 600 1983 78117 34109 13061 15261 4846 3460 1282 2069 1472 313 688 558 355 228 415 1984 64596 21725 12910 13625 5009 4505 960 1632 1574 123 685 619 455 290 484 1985 81458 34400 14103 13776 6597 5214 912 1770 1616 260 929 536 220 317 808 1986 77092 34900 11721 13906 4833 4770 1085 1909 1454 375 709 515 226 144 545 1987 76723 34302 11607 12229 6298 4415 1023 1934 1672 573 828 617 414 220 591 1988 71958 29694 10600 14766 5895 3665 857 2099 1980 879 226 350 491 456 1989 22834 10953 5002 4375 593 922 435 206 348 1990 27422 14635 5978 3931 1287 575 492 264 260 1991 25841 14252 4308 4061 1379 725 580 307 229 1992 28076 16929 5353 3621 719 594 550 50 260 1993 27178 18309 2954 3621 1092 415 548 80 159 source: "México Social 1992-1993", Banamex-ACCIVAL, p.364 After 1988, the agricultural credit supplied by BANRURAL was cut back in areas deemed to have a high risk of crop failure. The government also reduced producer prices during those same years.127 Seasonal and rain-fed agriculture was hit the hardest. The most seriously affected crops were sugarcane, alfalfa, sorghum, cottonseed, cotton fiber and rice. Other crops like beans, wheat soybean, and barley slightly increased. However, they could not provide the necessary coverage of the national market (see table Ch. VII-2). 

From 1988 onwards the agricultural sector started recording important trade deficits. Imports of soybean, sorghum and bovine livestock became very significant, while exports were counted only in thousands of dollars. The only important exports during this period were fresh vegetables and tomatoes (see table Ch. VII-3).

Table Ch. VII-3 Main Agricultural Import and Export Goods 1980-1992

I M P O R T S (millions of dollars) Oilseeds & Bovine Raw TOTAL Corn Soybean Sorghum other seeds livestock Lambswool leather 1980 1276 595 132 313 126 17 31 62 1981 1550 453 355 432 149 47 33 81 1982 726 38 156 195 203 41 25 68 1983 1491 634 218 434 139 4 12 50 1984 1539 375 403 363 240 37 17 104 1985 1279 255 275 264 213 128 26 118 1986 692 165 167 78 147 66 15 54 1987 802 284 220 62 114 33 12 77 1988 1326 394 336 138 148 182 25 113 1989 1443 441 326 322 149 87 25 93 1990 1323 435 217 331 152 71 23 94 1991 1453 178 348 362 229 183 20 133 1992p 1103 105 319 401 81 121 8 68

E X P O R T S (thousands of dollars) Fresh Bovine TOTAL Cotton Coffee Tomatoes Vegetables Livestock 1980 1155 317 422 167 169 80 1981 1157 309 334 250 199 65 1982 969 184 345 154 178 108 1983 931 116 386 112 149 168 1984 1144 208 424 221 179 112 1985 1145 90 492 214 162 187 1986 1769 74 824 408 198 265 1987 1194 72 492 200 238 192 1988 1263 113 435 243 269 203 1989 1233 112 513 199 197 212 1990 1632 92 333 428 430 349 1991 1555 77 368 262 490 358 1992p 899 28 195 163 376 137 p: preliminary totals source: "México Social 1992-1993", Banamex-ACCIVAL, p.370. The Mexican government started a real restructuring of the sector with the World Bank’s support. In fact, between 1987 and 1994 two programmes of Agricultural Sector Adjustment Loans (AGSAL I and II) were implemented. The first AGSAL had the following objectives:

1. reduce general food subsidies and target food subsidies to the poor;

2. reduce government intervention in agricultural markets, moving from guarantee prices to world-market prices;

3. abolish quantitative restrictions;

4. reduce the role of agricultural State-owned companies;

5. liberalise domestic agricultural trade;

6. eliminate input subsidies;

7. increase efficiency and volume of public investment in agriculture; and 

8. decentralise and reduce staff of the Ministry of Agriculture.

AGSAL II further supported Government’s objective of increasing agriculture’s growth rate by rising productivity and improving efficiency, at the same time that output and input complementation was improved. The programme aimed, at the same time, to alleviate extreme poverty through targeted food programs. The following objectives were explicitly stated:

1. implement trade and other policy reforms to reduce further government’s role in the production, planning, marketing, storage and processing of agricultural products, and encourage more competitiveness of the private sector, thus increasing agriculture’s growth rate;

2. reduce consumer food subsidies and substitute them by targeted assistance and nutrition programs; and

3. change the role of the Ministry of Agriculture to emphasise policy formulation and basic regulatory functions.128

Since the price of corn and other basic grains was higher in Mexico than in the U.S., the Mexican government aimed at reducing the difference between internal and international prices. The government started importing cheaper food, mainly from the United States, hoping to maintain prices control for basic items and to benefit consumers. From 1982 to 1989, there was a sharp decrease in guarantee prices of main crops.

3. The law reform

Salinas administration undertook major reforms concerning the trade liberalization of the agricultural sector, even before the approval of a law reform in 1992. The proportion of agricultural imports subject to licensing and average tariffs fell sharply as of 1989. At the same time, the average producer subsidy over 14 major commodities fell from 47.6 in the mid 1980s to 19.9 per cent by the end of 1990. Guarantee prices for all basic foodstuffs, except maize and beans were eliminated and subsidies on most inputs (including fertilizers, water and electricity) and on credit were drastically reduced. At the same time, State intervention and market control on sugar, cocoa, maize, tobacco and sisal were eliminated or reduced.

In 1991, Salinas’ administration proposed to change government’s agricultural policy by revising constitutional Article 27 concerning the ejidos, ending land distribution, and permitting peasants to rent or sell ejido communal land. On the whole, small-scale producers, peasant workers and ejidatarios represented almost six million workers that same year. At the same time the law reform permitted both foreigners and corporations to buy land in Mexico. The proposal aimed at promoting modern, capitalist entrepreneurship on areas under inefficient cultivation by peasants. Competition would then determine the selection process whereby more competitive farmers would prevail and overall production would increase.

In fact, the law reform was approved on February 27th 1992. The government and other adversaries of the “ejido” stated that the “ejido”, as an institution, needed to be restructured since the agricultural sector was suffering from stagnation and the situation continued deteriorating. They argued that “ejido” lands were not efficient enough and claimed that it was necessary to privatise in order to increase production and productivity. On the other hand, the adversaries of the reform argued that government’s inaction in providing credit, and technical assistance was largely responsible for this lack of productivity. They also  proclaimed that the majority of “ejido” land was of very bad quality and could not fulfil the economic function expected from it.129

In sum, the new law:

(a) put an end to land distribution;

(b) gave a certain period of time to “ejidatarios” that owned a bigger proportion of land than that authorised, to legalise their situation;

(c) created federal, autonomous, agrarian tribunals to arbitrate the conflicts related to the possession or the usufruct of land;

(d) created new forms of associations for production: ejidatarios were allowed to rent or sell their land, to hire labour, to undertake contracts or joint venture agreements;

(e) gave the ejido propriety and the communal propriety a status of permanence, protected by the Constitution; the decisions to use the land would belong to the owners;

(f) established a judicial distinction between the agricultural land and the lots where habitations were build;

(g) stated that “ejido” lands used for harvesting could belong to an association of producers, to a third party or could maintain their present status.

(h) allowed foreigners to own agricultural land and there was no limit imposed.130

The law was not very explicit in what concerns the financial mechanisms to be offered to peasants to help them overcome difficulties during restructuring. It established the possibility of constituting a guarantee fund for essential credit needs, but gave the responsibility to private banks of providing financing. However, private banks continued applying the same policy of providing credit only when recovery prospects seemed bright (see table Ch. VII-4). 

Table Ch. VII-4 Index of Credit provided to the Agricultural Sector, 1980-1993 (Base 1980=100)

T O T A L Commercial Banks Development Banks C R E D I T %%% 1980 100 100 100 1981 54.1 8.2 27.1 1982 24.9 -9.1 9.3 1983 -38.3 -20 -28.3 1984 -4.8 7.8 -10.9 1985 -11.6 12.1 -7.7 1986 -26.3 -8.7 -18.6 1987 -26.5 -13.6 25.6 1988 -35.5 13.6 23.3 1989 -23.7 8.5 -14.2 1990 35.1 2.4 8.7 1991 59 9.3 23.5 1992 75.5 -2 29.1 1993 72.4 -36.8 6.9 source: Quinto Informe de Gobierno, Anexo Estadístico, 1993, quoted in: Problemas del Desarrollo; "TTLC y Agricultura Mexicana", vol XXX, no. 96 Critics of the land reform feared that the new law would create a higher displacement of workers from rural to urban areas, a higher concentration of land, and a larger consolidation of rich owners with strong capital as it was the case before the 1910 Mexican revolution. They argued that the land tenure modifications risked benefiting primarily large commercial land-owners or ejidatarios, because possession of a title would ensure them access to credit and external investment.

A report from the World Bank concluded that a program of public credit guarantees was necessary to insure farmers’ access to credit. The above-mentioned report stated “liberalizing agriculture in the absence of resources for adjustment would put and undo strain on the welfare of large numbers of the rural population. Thus, the reform process needed a commitment technology to insure that its components were carried out”.131 They recommended the Mexican government accompanies the liberalisation process with adjustment programs of irrigation and land improvement which in turn will increase the value of land, utilise more labour and raise wages in rural and urban areas.

Indeed as critics had feared, the peasant, labour-intensive segment of the sector, was not provided with the needed support to improve production methods prevalent in modern agriculture. Some 6 million small farmers and labourers faced serious job and income loss, and rural workers started a big exodus from rural areas. Enormous numbers of day-labourers and temporary agricultural workers left the countryside from 1992 to 2000. As a consequence, agricultural employment went down quickly. The number of workers moving from rural areas to urban centres (mainly to the three largest cities and to border towns) was calculated to represent 600 thousand per year from 1992 to 2000. Between 30 and 40 per cent of all rural families had family members that had either temporarily or definitely migrated by 1996.132

Since the majority of them had a very low educational level, they could only find jobs as construction workers or domestic servants. Their migration was creating an over concentration of the population in urban outskirts under very bad social conditions. At the same time, it was creating (and is still creating) a reduction of wages of other urban unskilled occupations, as well as increasing migration pressures of urban settlers to the U.S. This huge  migration also contributed to the fast growth of the informal sector, more unemployment, more employment precariousness, as well as related social problems, and of course, a further deterioration in income distribution and more poverty (see table Ch. VII-5).

Table Ch. VII-5 Urban Population Annual Growth Rate, 1980-2000

YEAR POPULATION URBAN URBAN ANNUAL POP. POPULATION PERCENTAGE (millions) (% of Total) (millions) CHANGE

1980 67.57 66 44.6 1981 69.19 67 46.4 3.9 1982 70.78 68 48.1 3.8 1983 72.35 68 49.2 2.2 1984 73.91 69 51.0 3.7 1985 75.46 70 52.8 3.6 1986 77.01 70 53.9 2.1 1987 78.56 71 55.8 3.5 1988 80.11 71 56.9 2.0 1989 81.66 72 58.8 3.4 1990 83.22 72 59.9 1.9 1991 84.79 73 61.9 3.3 1992 86.36 73 63.0 1.9 1993 87.95 73 64.2 1.8 1994 89.54 73 65.4 1.8 1995 91.14 73 66.5 1.8 1996 92.56 74 68.5 2.9 1997 93.90 74 69.5 1.4 1998 95.22 74 70.5 1.4 1999 96.56 74 71.5 1.4 2000 97.96 74 72.5 1.4 source: IMF: International Financial Statistics Yearbook 1980 and 2001 According to Barkin, U.S. private credit institutions also encouraged and facilitated Mexican government’s decision to abandon its support for small-scale rain fed agriculture. Through this mechanism, Mexico was going to maintain its import food policy by opening its markets to growing volumes of foodstuffs-grains, oilseeds, milk, meat, egg, as well as animal feed from the U.S., the number one export country of agricultural products in the world.133

However, it is true that the government did not have the choice if he wanted to improve competitiveness in the sector, but no support programs within the permitted scheme were immediately created to help the large number of rural workers affected. It is a pity that the government considered only large-scale manufacturing enterprises as needing incentives and support, while almost forgetting about the whole agricultural sector and the largest number of manufacturing and commerce and services’ micro and small enterprises who provided most employment.

In 1993, when the social impact of the measures started to be evident in urban centres and in an attempt to assist at least partly, micro and small-scale producers through the transition period, the government announced that it was going to establish a rural direct subsidy program over a 15-year period called PROCAMPO. PROCAMPO was supposed to be launched on 1994 to be a US$3.5 billion income support scheme that was eventually going to replace both guarantee and agreed prices. Rather than paying a subsidy to farmers based on  what they produced, PROCAMPO would pay farmers subsidies based on the amount of land that they tilled for specific crops. Under PROCAMPO, over 3.3 million producers of beans, corn, sorghum, soybeans, rice, wheat, and cotton were to be eligible for credit in the form of individual checks, on a per hectare basis with the objective of converting their basic crops to more lucrative cash crops. PROCAMPO could be used to compensate for loss of income of the liberalisation of prices and marketing of basic goods.134 PROCAMPO payments were to gradually decrease and then cease after some years.

The government took some time to negotiate PROCAMPO within NAFTA and only announced that it was ready to implement it in 1995. Under NAFTA, Mexican subsidies to production were accepted under very strict rules and only in exceptional cases like small subsidies in electricity, and water.135 A very negative point about PROCAMPO is that it does not benefit directly landless workers in any way. In addition, PROCAMPO has proven to be insufficiently targeted to smaller subsistence farmers and too costly to the economy since it represents twice the programmed cost of the price support scheme.

After the December 1994 new crisis, the situation for maize (corn) and beans small-scale producers deteriorated even more. Out of a total of 600,000 hectares of rain fed agricultural land, primarily destined to corn and bean production, 300,000 were not going to be planted in 1995.136 Until the implementation of PROCAMPO, no development policies seemed able to integrate the millions of people in rural areas (mainly moving from the central and southern regions of the country) to the more modern fruits and vegetables plantations in the north, hoping to return home with enough cash to survive for the remainder of the year. Only few of them were hired under reasonable working conditions in the agroexport sectors. The majority of day-labourers were provided with temporary or casual low-waged contracts and no social security coverage while at the same time, having daily journeys of 12 to 14 hours a day. Only one fifth of them were considered to have a stable job.

4. The agromaquila and U.S. main advantages

A new form of employment started developing in the Mexican rural sector, after the law reform and has grown since the entrance of NAFTA. Gomez and Caraveo (1990) call that the “agromaquila”. The agromaquila was expected to reduce migration by keeping Mexican workers on their side of the border. Indeed, some parts of the Canadian and U.S. horticultural industry started shifting south to Mexico. More than 30 varieties of vegetables have developed under the agromaquila system and 95 per cent of this production goes to the external market.137

The agromaquila is a process of decentralisation of those phases of the agricultural productive process that require an intensive use of labour force. Foreign companies (mainly U.S.) provide capital, technology and markets and the receptor country contributes with the labour force. According to Lara Flores the demand for agricultural labour force in Mexico tends to concentrate in the northern border states of Baja California, Sonora, Sinaloa and Tamaulipas where government concentrated since the 1950’s massive investment in irrigation systems and farm credit. The majority of rural workers in the northern farms come from agricultural marginal areas of the south and central part of Mexico. Most of the time, these workers come from the poorest indigenous ethnic groups. Forty percent of them are women and a big number are children. Important migrant routes have been established from the more backward economic areas of the states of Oaxaca, Chiapas, Guerrero, Michoacán, Jalisco, Guanajuato, and Zacatecas.138 

However, the system has not provided the number of jobs expected in Mexico. One of the main reasons for this is that the U.S. agricultural sector is still highly protected. The fact that the U.S. has kept its agricultural sector so protected, makes us wonder why could not Mexico also kept providing some type of support as that provided to the manufacturing sector? These measures would have avoided such a large concentration of workers in big urban areas reducing or keeping urban wages down and increasing criminality rates and migration rates.

According to Morales Aragón (1994) U.S. main advantages over Mexico’s agriculture are that the U.S. is the biggest world producer of agricultural goods and that it has very high productivity levels. Resources and production were 10 or 15 times bigger than that of Mexico by 1994. But, most importantly, he stated, the U.S. continued providing large public support to the agricultural sector through direct subsidies to producers covering all stages of production: from cultivation to commercialisation.

Indeed, the U.S. agricultural sector still counts with a variety of protection programs:

ƒ support of market prices through a system of internal prices, export taxes and voluntary restraints

ƒ direct support to production through direct payments in case of losses;

ƒ subsidies to fertilizers and irrigation;

ƒ support programmes of marketing and promotion;

ƒ tax-exemptions to gasoline and other subsidies to transport;

ƒ provision of cheap credit;

ƒ promotion of scientific research; and

ƒ provision of fiscal incentives to invest and other fiscal programs.139

In contrast, Mexico was hoping to attract foreign investors with the following advantages: its soil variety and abundant land and water resources in climates adapted for the production of vegetables and fruits, the easy transfer of technology from the U.S., a nucleus of experienced producers, a strong structure of multinational industries established and the supply of an abundant and cheap labour force. The difference in daily wages between U.S. and Mexican workers and the difference in the number of journeys needed to produce certain vegetables per hectare, would make it very attractive for producers of these crops to move to Mexico even after including transportation costs.140

5. NAFTA’s main provisions concerning the sector

Under NAFTA, Mexico made separate bilateral agreements on trade of agricultural goods with Canada and the United States. Under the bilateral Mexico-Canada’s agricultural accord, Canada maintained its import quotas, and Mexico its import licences, on bilateral trade in diary, poultry and eggs. Canada and Mexico phased out immediately all tariff and non-tariff barriers on their trade, with the exception of those goods just mentioned before. Agricultural trade between Mexico and Canada is small compared to Mexican-U.S. trade. It is made up largely of grains going to Mexico and Mexican beer exported to Canada. Over 85 percent of Canada’s agricultural imports from Mexico already entered duty-free before 

NAFTA. All tariffs under NAFTA were to be phased out over a period of 10 years. However, Mexico kept the right to continue applying MFN tariffs on sugar imports from Canada.141

Most tariffs on U.S.-Mexico trade were to be phased out within 10 years. Non-tariff barriers, (quotas, import licensing requirements) were to be transformed into tariff-rate quotas (TRQ’s), for sensitive products. Such is the case of wheat where Mexico was to replace import licences with tariffs, and of corn, beans and barley where it replaced them with TRQ’s. Tariff-rate quotas for sensitive products were supposed to disappear 15 years after the entrance of the treaty.

On Mexico-U.S. trade, the most important products covered under different time- schedule elimination of tariffs were divided as such:

(a) 57 per cent immediately: applied to Mexican imports of U.S. cattle, beef and selected hides and skin, and on most U.S. fresh fruits and vegetables, hops, nuts; as well as on U.S. imports of Mexican livestock, poultry and eggs, meat and out-of-season fruits and vegetables;

(b) 6 per cent more in five years and 8 percent gradually in annual rates: Mexican imports of U.S. horticultural products and others. U.S. imports of selected Mexican fresh fruits and vegetables and cut roses;

(c) 23 per cent more in 10 years and 5 percent gradually in annual rates: Mexican imports of U.S. wheat, rice, from October to December on soybeans and selected horticultural products such as fresh grapes, fresh onions, fresh peaches, preserves cherries, dried mushrooms, canned corn and prepared peanuts. The same percentages applied to U.S. imports of Mexican avocados, frozen strawberries, limes, tomato paste, sauces and purees, frozen asparagus, broccoli, cauliflower, and only from August to September to cantaloupes, and from November to May to bell peppers;

(d) the remaining 1 per cent in the year 15: Mexico will phase out TRQ’s for U.S. corn and beans. At the same time, U.S. imports of Mexican sugar, orange juice and peanuts will be exempted from TRQ’s.

With these measures, the Mexican government was symbolically trying to prove that it was protecting peasant agriculture. The government managed to achieve a lapse of 15 years, the maximum possible, to protect the two most important basic grains in Mexican diet (corn and beans) from foreign competition.

Overall the trade balance of the agricultural sector that had already been showing negative results in the past, worsened with the 1992 reform. Due to the real exchange rate appreciation, U.S. basic cereals and beans became immediately very profitable to export to the Mexican market and a large current account deficit resurged. Mexican imports of the above-mentioned products further increased considerably after the coming into force of NAFTA. At the beginning of 1995, the President of the National Union of Producers of Corn announced that the country was going to import 6 million tons of corn from the U.S. and was going to pay more than 1.6 billion dollars for imports of ten basic grains, as well as oilseeds, lambswool, raw leather and dairy products. The reasons he gave, were weather problems but more importantly production deficiencies, lack of resources and credit, and lack of government support to stimulate productivity.142 

Mexico, a net exporter of agricultural goods (especially grains) almost until the end of the 70s became a major importer. By the year 1995, the agricultural trade balance showed its highest deficit ever: 1.3 billion dollars. Five year later, the U.S. economy that is supposed to be specializing in capital-intensive production was the no. 1 leading exporter of agricultural products, Mexico, a supposedly labour-intensive economy ranked in 14th in the list of leading importers of foodstuff worldwide. The value of its agricultural products imports doubled from 5,374 millions of dollars in 1990 to 11,056 in 2000. 143

6. Agricultural wages

Concerning remuneration, and as in other economic sectors, even if productivity was rising, wages continued a downward trend in agriculture. The enormous supply of rural labour force and the almost absolute absence of trade unions in the sector were factors that contributed to lower rural wages even more than in other economic sectors. By the end of 2000, 34 per cent of all agricultural workers did not receive any remuneration at all, while 52 per cent received from less than one to two minimum wages. The percentage share of non- remunerated workers in agriculture almost tripled increasing from accounting 12 per cent in 1988 to 34 per cent in 2000 (see table Ch. VII-6).

Table Ch. VII-6 Income level by Economic Sector 1988-2000 (thousands) Less than 1 m. than Less From 1.1 to 2 m From 2.1 to 3 m

TOTALS From 3 to 5 m.w From 5.1 to 10 than 10 m More remunerate Not specified Not 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 12740 38785 2999.2 6219 6169.6 11074 1377.4 6968.9 770.6 5290 257.2 2836 79.3 1146 693.6 4112 393.2 1138 AGRICULTURE, CATTLE, FORES 330.8 7035 135.4 2043 95.9 1597 16.8 444 17.7 202 10.8 101 1.7 46 39.3 2380 13.2 220 MINING 180.8 222 4.8 4.5 47.3 33 63.1 30.6 34 43.6 13 77 2.5 27 0 0.8 15.7 4.8 MANUFACTURING 2842.8 7444 589.2 980 1584 2558 268.3 1710 157.5 994 55 416.6 16.7 198 87.7 413 84.2 172 ELECTRICITY 83 188 1.9 2.6 39.7 23 28.5 46 9.6 67 0.3 35 0.1 6 0 0.5 3.2 6 CONSTRUCTION* 662.9 2500 190 153.5 352.5 968.7 56.1 697 34.7 425.5 8.5 128.5 1 44 7.1 38 13.1 44.7 WHOLESALE AND RETAIL TRADE2550.6 6807 667.6 1129.3 992.9 1990.1 230.5 1132.6 137.2 803.2 49.1 415.2 17.8 183.4 390.3 926.9 65.4 225.7 RESTAURANTS AND HOTELS 599 1833 188 315.9 232.5 648 39.4 285 27.6 198.3 6.9 88 2.6 26.4 90.4 229.8 11.5 40.8 TRANSPORT, STORAGE & COMM 684.6 1726 72.3 81 375.1 405 121.5 442.6 62.1 408 21.9 231 5.7 96 4.1 13 21.9 45.8 FINANCE, INSURANCE & REAL ES 668.3 1554 64 82 303.3 334 133.5 326.3 82.2 296.7 31.8 244.7 14.3 152 4.2 18 34.9 98.7 COMMUNITY, SOCIAL & PERSON 3192.3 7589 1021.2 1386 1487.3 2215 322.6 1309 156.7 1357.9 31.9 801 9 219 69.9 90 93.7 208 PUBLIC ADMINISTRATION & DEF 899 1729 67.4 39 654.2 290 92.7 537 42.6 471 13.3 236.6 2.5 100 0.3 1.6 29.8 52 NOT SPECIFIED 45 158 0.1 1.6 4.7 10 4.3 6 8.6 21 14.5 59 5.4 45 0.2 0.08 6.7 14.7 source: INEGI's Encuestas Nacionales de Empleo 1988, and 2000 note: 1988 data only covers "more urbanised areas" As predicted, Mexico has started rapidly specializing mainly in the production of fresh vegetables and fruits, as well as cotton, and coffee. While the production of fruits, vegetables, flowers and tropical products represented in 1991 only 3.5 per cent of the 5 million ha of production by irrigation in Mexico, by the year 2000 the most valuable and fastest growing exports were fresh vegetables and livestock. Fishing also expanded rapidly, and more than two-thirds of shrimps, prawns and shellfish catch was exported. However, the Mexican peso appreciation has not permitted some agricultural goods to compete internationally. Goods like sugar and orange juice were Mexico could have a comparative advantage, had been negotiated as U.S. highly sensitive products under NAFTA and had only showed a slight growth in total agricultural exports during the first five years of the entrance of the treaty.

Since the cultivation of fruits and vegetables creates three to four times more employment per acre than the cultivation of grain crops, the specialisation of Mexico on fruits and vegetables in the long run should be positive for the further development of agricultural employment, wages’ raise, the reduction of migration and the consequent rise in urban wages. The development of the agricultural sector is appropriate to Mexico’s richness in human resources, especially in some regions of the country. Overall, though, the agricultural sector continues to attract only a small number of investors, creating only a few number of jobs (see table Ch. VII-7). 

Table Ch. VII-7 Direct Foreign Investment by Economic Sector, 1980-1997 (yearly data, percentages) YEAR TOTAL DIRECT INDUSTRY* SERVICES** COMMERCE MINING AGRICULTURE FOREIGN National Maquiladoras Transport & Finance Wholesale Trade INVESTMENT Manufacturing Communications Hotels & Restaurants

1980 100 79.2 8.1 7.3 5.3 0.1 1981 100 82.6 18.8 10.0 -11.1 -0.3 1982 100 60.9 37.6 0.2 1.1 0.3 1983 100 87.3 1.9 8.6 2.2 0.0 1984 100 88.8 8.5 2.2 0.4 0.1 1985 100 67.4 25.2 6.3 1.0 0.0 1986 100 79.2 13.3 6.2 1.3 0.0 1987 100 61.9 37.0 -0.5 1.3 0.4 1988 100 32.3 59.5 7.8 0.8 -0.4 1989 100 39.3 44.1 15.5 0.4 0.8 1990 100 32.0 59.2 4.6 2.5 1.6 1991 100 27.4 59.6 10.9 0.9 1.3 1992 100 32.2 45.6 20.9 0.2 1.1 1993 100 47.4 35.3 15.5 1.1 0.7 1994 100 2.6 49.7 7.5 11.0 6.9 9.2 12.1 0.8 0.1 1995 100 2.8 41.3 13.8 4.8 10.8 13.4 12.0 1.0 0.1 1996 100 0.4 43.9 14.2 6.6 6.0 17.7 9.6 1.2 0.4 1997 100 1.0 49.4 12.5 4.5 6.5 7.4 17.9 0.7 0.1 source: Author's own calculations based on "Inversión Extranjera y Empleo en México", STPS-SECOFI, table 8. "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994", SECOFI, table 4. and La Economía Mexicana en Cifras 1995, p.348 and 1998, p.473. *Starting from 1994, industry includes only electricity, water and construction ** Starting from 1994, Services comprise other than transport and communications and financial note: in blue all export-oriented or export-related sectors

7. Who have been the winners of the game?

Until the end of 2000, Mexico had not been able to attract the needed foreign investors to the agricultural sector. On the other hand, the liberalisation measures were favouring in Mexico a small number of strong highly commercialised, capital-intensive farm units, even more as they had done during the import-substitution period. Those modern agricultural sectors that had the means to adapt to new market changes introducing new machinery and technology, and could easily change culture patterns were the main beneficiaries. The global winners, then, could be considered to be big U.S. producers of grain, particularly corn, and of livestock products and fruit and vegetable producers in northern Mexico, while considering as losers, Mexican basic cereals farmers, as well as U.S. producers of certain fruits and vegetables. Indeed, regions that had benefited the most were the advanced modern zones in the north, northeast and some central parts of Mexico that enjoyed access to U.S. market as well as appropriate transportation and irrigation systems, soil, water, climate and geographic situation.144

Mexican policies were also benefiting consumers by providing them with low prices of imported products. On the contrary, peasant production concentrated in the most marginal regions, in the slopes and narrow valleys in Central and Southern Mexico continued to be left behind. However, one wonders whether these policies are appropriate for a country with a large and growing low-skilled labour force.

8. What could have been done better?

The reduction of tariffs and non-tariff barriers, implied by the trade liberalization attempts, the law reform and NAFTA should have probably been accompanied with important support programs to create more employment, providing micro and small-scale producers with the required training, marketing, financing and transportation support to rapidly improve their production means. While production and input subsidies provided by the public sector were not accepted within the new free trade framework of the World Trade Organisation and 

NAFTA, other support programs like direct credit to small-scale farmers were allowed and could be put into practice.

At the beginning of 1995, Mexican producers with access to U.S. credit who had borrowed in dollars at lower interest rates than domestic had to meet much higher service obligations with the peso devaluations of December 1994. This group formed a socio- economic pressure group called «El Barzón». El Barzón organised several mass protests and rallies calling for a debt restructuring and moratorium to finance farmers and businessmen hurt by the crisis. They often mobilised groups to resist to bank seizures of property. Another organisation, the Permanent Agrarian Congress (CAP) developed proposals for the introduction of new support programs for small producers and legal protections against the concentration of private landholdings. The government’s only response to these pressure groups was that Mexico could not afford to subsidise agricultural exports in the way that the United States and the European Union did. However, confronted with the serious situation of the agricultural sector, after the 1994 crisis, some tariffs were augmented protecting products such as beef, leather, and others like shoes and textiles.

The author wonders why was it necessary to leave the agricultural sector without support and to sacrifice so many agricultural jobs in rural areas without providing rapidly in rural areas most affected other job options through public works, etc. It is true that the price of agricultural goods has lost a lot of value in the international market. But, for the sake of avoiding large concentrations of unemployed workers in urban areas, could not programmes of rapid redeployment of workers being undertaken? If those workers in rural areas had had the necessary educational level, they would not have had such a difficult time integrating in urban labour markets. However, the educational level of these workers was very poor and they had very small possibilities of integrating into the system. Programmes to improve the educational level of the rural population should be given high priority.

It is still not too late to adopt policies promoting employment in rural areas, especially in the agricultural sector. For example, a solidarity fund could be created to promote development, competitiveness and productivity of smaller production units. Government fiscal incentives could be facilitating the creation of such funds. These funds could provide access to cheap credit and fertilisers, as well as new technology, and training on modern agricultural methods.

Another option is that the part of the manufacturing sector benefiting from a growing number of exports could start organising to help promoting employment in agricultural areas. The proposal of Garibay-Flores that the surplus produced now by the manufacturing sector finance the development of a large part of the agricultural sector, as a way to “return the favour of deficit financing” during the import-substitution area is correct.145 Hewitt de Alcántara summarises the problem in a nutshell remarking “if peasants do not receive any support now as agricultural population, they would have to be supported anyway in the long run, in other ways, and probably in other places as poor consumers or simply, as hungry people”.146

If this is not done, population concentration, accompanied by many social ills like growing criminality, drug trafficking and others will continue to aggravate and poverty will just get accentuated in the country. The economic and social costs that accompany this process in the long run should be weighted against its benefits. The land tenure 1992 reform and the removal of barriers to trade in corn and beans contributed to the uprising in Chiapas on January 1, 1994 and others in Guerrero and Oaxaca in 1995-96 and if the trend continues major social disruptions could arise. 

B. The secondary or industrial sector

1. General trends

Mexican industry is made up of 4 major sectors: a) mining and quarrying, b) construction; c) electricity, gas and water; and finally, d) manufacturing divided in nine subsectors (defined in appendix II) that are themselves divided in branches.

A general view of the labour market situation of the whole industry will be quickly provided covering all the above-mentioned industries. However, for the purpose of this study, the construction, and electricity, gas and water employment and wages’ trends will be studied very rapidly only. While their growth could be stimulated by the growth of exports in the economy, these industries will be only considered indirectly related to the growth in trade of goods, investment and services. As a result of all of these factors, while touching all of these sectors in parts on the report, the author will mainly concentrate on studying the manufacturing industry, and most particularly its export-oriented subsectors, and the mining and quarrying. While in some manufacturing subsectors natural or artificial barriers to trade exist like in the case of goods that have a high weight-to-value ratio and transportation is too costly or too difficult, the author will not be able to include such detailed data in the report.

Total construction employment has increased rapidly in big cities since it absorbs a high number of new migrants into urban areas (from 4.4 per cent in 1970 to 6.5 per cent in 2000). More than 85 per cent of construction workers were employed in 1988 informally without receiving and social benefits or protection. The situation has improved since then and by the year 2000 only 64 per cent of construction workers had an unprotected job (see table Ch. VII- 8).

Table Ch. VII-8 Percentages of Total Employment (Formal and Informal) by Economic Sector

1980 1988 1993 2000 1988 1988 2000 2000 Non export- Export- Non export- Export- oriented or oriented oriented or oriented non foreign or foreign non foreign or foreign investment- investment- investment- investment- related related related related sectors sectors sectors sectors T O T A L 100 100 100 100 79.5 20.7 71.3 27.5 AGRICULTURE, CATTLE, FORESTRY & FISHING 25.8 23.5 26.9 18.1 23.5 18.1 MINING 2.3 0.9 0.5 0.4 0.9 0.4 MANUFACTURING 11.7 19.7 15.5 19.4 Non export-oriented Food, beverages and tobacco 3.8 3.6 4.0 3.8 4.0 Wood, wood prods; paper and paper prods.* 5.9 2.0 2.5 5.9 2.5 Non-metal mineral products** Export-oriented Textiles, garments and leather 3.5 3.8 4.8 3.5 4.8 Chemicals, rubber and plastics 1.6 2.3 2.6 1.6 2.6 Basic metals 1.0 0.2 0.3 1.0 0.3 Metal products, machinery & equip.*** 3.6 3.1 4.6 3.6 4.6 Other manufacturing industries 0.4 0.4 0.5 0.4 0.5 CONSTRUCTION 5.9 5.4 5.7 6.5 5.4 6.5 ELECTRICITY 0.5 0.5 0.3 0.5 0.5 0.5 COMMERCE, RESTAURANTS & HOTELS 7.9 19.3 21.0 22.3 Wholesale trade 1.6 2.2 2.8 1.6 2.8 Retail trade 13.9 14.9 14.8 13.9 14.8 Restaurants and hotels 3.9 2.6 3.4 3.9 3.4 Preparation, sale of food in public places 1.2 1.3 SERVICES 45.8 30.8 30.2 33.0 Transport, Storage & Communications 3.1 3.8 4.1 4.4 3.8 4.4 Finance, Insurance & Real Estate 1.9 1.4 3.3 4.0 1.4 4.0 Community, Social & Personal Services 11.1 16.5 15.2 17.5 16.5 17.5 Other Services* 21.6 4.8 3.7 2.6 4.8 2.6 Public administration and Defense 8.1 4.4 3.9 4.5 4.4 4.5 sources: 1970 and 1980 is Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) *1970 Other services data include community, social and personal services employment, as well as finance, insurance and real estate and public administration and defense 1980 Other services data include some community, social and personal services that were later separated in the NES note: in blue all export-oriented or foreign investment-related economic sectors or subsectors 

The Electricity, gas and water sector has maintained a very weak participation in total employment of around 0.5 per cent for the past three decades. On the other hand, and since it is a sector largely publicly owned, it has recorded high levels of formality throughout: from 70 per cent in 1980 to 76 per cent in the year 2000.

During the period studied, the third industrial sector, the mining and quarrying, was providing an insignificant employment share: 2.3 per cent in 1980 going down to representing 0.4 per cent in the year 2000. The sector lost 54 thousand jobs from 1988 to 2000. Compared to 1980 levels it lost in a period of 20 years, 360 thousand jobs. The main reason for this decrease in employment is that the oil industry is largely capital-intensive and other industries like silver and copper were increasingly laying off workers since the international price of these metals was rapidly going down. Indeed, while mining and quarriyng used to contribute to 67.1 per cent of total exports in 1980, by 1998, its export share of total exports accounted only for 6.3 per cent.

Policies aimed at promoting trade merchandise exports have been very successful in diminishing oil’s weight in the economy. However, even if its percentage of total exports has been going significantly down, as mentioned before, it is important to keep in mind that oil exports continue until present largely subsidising the constant manufacturing trade deficit. Average remuneration in the mining and quarrying sector has been falling more importantly than in any of the other sectors. It has reported an even larger fall than the agricultural sector (see table Ch. VII-9).

Table Ch. VII-9 Mining Sector Indicators, 1980-2000 (millions of current dollars) MERCHANDISE TRADE % ot total % of total % of total % of total Average Remuneration % of total YEAR IM EX EX-IM imports exports GDP investment Index 1980 = 100 employment 1980 257 10410 10153 1.3 67.1 3.2 5.3 100 2.3 1981 279 14516 14237 1.1 72.2 3.4 -11.1 101.8 1982 221 16602 16381 1.5 78.2 3.7 1.1 91.2 1983 144 15667 15523 1.6 70.2 3.8 2.2 70.2 1984 194 15735 15541 1.6 65.0 3.8 0.4 65.6 1985 213 13819 13606 1.5 63.8 3.7 1.0 72.3 1986 188 6090 5902 1.5 37.7 3.7 1.3 62.2 1987 256 8453 8197 1.9 41.2 3.8 1.3 61.3 1988 324 6544 6220 1.6 31.9 3.8 0.8 57.6 0.9 1989 387 7897 7510 1.5 34.6 3.6 0.4 56.9 1990 389 9538 9149 1.2 35.5 3.6 2.5 55.2 1991 386 7812 7426 0.8 18.3 3.5 0.9 55.3 1992 520 7776 7256 0.8 16.8 3.4 0.2 59.4 1993 390 6764 6374 0.5 13.0 3.4 1.1 55.2 0.5 1994 438 6994 6556 0.6 11.5 3.4 0.8 55.2 1995 600 7975 7375 0.8 10.0 1.4 1.0 38.7 1996 649 11192 10543 0.7 11.7 1.3 1.2 33.7 1997 854 10840 9986 0.8 9.8 1.4 0.7 1998 916 7388 6472 0.7 6.3 1.4 2000 0.4 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) source: INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1995" (NAFINSA), p.97; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. note: There is a lot of discrepancy between the total number of exports and GDP. Probably the data on mining GDP did not include oil exports, but only other metals. Notwithstanding, Mexico continues to be the sixth largest producer of crude petroleum with the eighth world largest oil reserve base estimated at 67 billion barrels in 2000. The mining and quarrying sector has also contributed to a positive trade balance concerning other more labour-intensive sectors like precious and other metals. Mexico is the world’s leading exporter of silver, and produces large part of the world’s zinc, lead, copper and iron. In addition, Mexico is rich in rare mineral resources. It leads the world in the production of fluorite, celestite and sodium sulphate, and ranks high in the production of bismuth, graphite, antimony, arsenic, barite, and sulphur. However, the mining sector has not come anywhere  near realising its full potential and accounts for only 1 per cent of GDP. Low international prices of mineral resources, a shortage of finance and outmoded technology still tends to hold back their production. Even if the importance of trade of oil, precious metals and other rare mineral resources has diminished out of total output, they continue representing, especially oil, an important trade share.

The manufacturing sector147 accounted for about 22.1 per cent of Mexico's GDP in 1980 and employed about 11.7 per cent of its workforce. Twenty years later, manufacturing’s share of total employment had gone up to represent 19.4 per cent, while it continued contributing more or less to the same percentage of total output. As mentioned in the previous section, while manufacturing employment three folded to represent 7.5 million workers in two decades, 3 million of these jobs were created in the informal sector, and almost 2 million were created in the formal sector. However, formality levels that were very high in 1980, and had gone down to represent less than 48 per cent by 1990, were improving and by the year 2000, represented as much as 58.3 per cent of total manufacturing employment.

Notwithstanding, compared to the 2.2 million of jobs created by the community, social and personal services sector, as well as retail trade and considering that its trade balance is most of the time in red numbers and also considering all the support that the sector has enjoyed until present, the number of formal jobs provided by the manufacturing sector still seemed low.

On the trade side, the change in the composition of exports away from oil exports and the export promotion policies seemed to have successfully resulted in the growth of manufacturing trade. Ros emphasises a theory that trade liberalisation has not been the main force behind the fast growth of manufacturing exports. He stresses that the highest export industries (automobile and, computer and other electronics) are precisely the two were trade and industrial policies during the import substitution period were temporarily waived. Indeed, their finished products were fully protected by import licences during the import-substitution period and the later export-promotion years. Here, he gives as the major causes of rapid export growth, a fortunate combination of international factors (a shift of domestic supply towards exports in order to offset declining domestic sales, and U.S. redefinition of productive strategies towards lower cost countries because of Japanese competition) and the industrial policy reforms of the late 1970s and early 1980s.148

Ros considers that the outstanding export performance of Mexico’s manufacturing in the 1980’s and 1990s is thus, to a large extent, a legacy of the import substitution period and highlights its success. In fact, much of Mexico’s original export spurt came from affiliates of transnationals that had originally invested in the country to take advantage of protectionist policies. He underlines that the main reason why transnational companies were interested in investing in Mexico during the import-substitution period is that protectionism, by limiting competition, allowed them to enjoy monopoly-like large profit margins.149

Whatever the real force behind the growth of manufacturing exports, right after the 1985 opening, manufacturing exports showed a jump of twenty percentage points in only one year. By 1989, manufacturing exports represented already 57 per cent of total exports. During the consolidation of trade policies’ period, manufacturing exports increased by an additional thirty percentage points (see table Ch. VII-10).

Manufactures constitute nowadays, Mexico’s main specialized and efficient tradables where it has a comparative advantage. Most of this trade occurs at the intra-industry and intra- firm level or from a subsidiary or affiliate shipping to the parent company. Mexico is placed  nowadays, way ahead of Brazil as an exporter of manufactures with a 46.4 total share of all Latin American merchandise exports, and just behind the four leading East Asian NICs.150 At present, the fastest growing subsectors in manufacturing are the highly export-oriented metal products, machinery and equipment, as well as the chemical, substances, rubber and plastics. These two subsectors are followed by the non-export-oriented food, beverages and tobacco subsector.

Table Ch. VII-10 Manufacturing Sector Indicators, 1980-2000 (millions of current dollars) MERCHANDISE TRADE % ot total % of total % of total % of total Average Remuneration % of total YEAR IM EX EX-IM imports exports GDP investment Index 1980 = 100 employment 1980 16852 3571 -13281 87.1 23.0 22.1 79.2 100 11.7 1981 22044 4099 -17945 88.3 20.4 21.7 82.6 102.8 1982 13570 3386 -10184 90.3 15.9 21.2 60.9 99.5 1983 7119 5448 -1671 78.9 24.4 20.4 87.3 77.3 1984 10035 6985 -3050 82.5 28.9 20.7 88.8 72.5 1985 12582 6428 -6154 86.6 29.7 21.4 67.4 72.8 1986 11203 7909 -3294 90.1 48.9 21.0 79.2 66.9 1987 11854 10427 -1427 89.1 50.9 21.3 61.9 66.4 1988 18120 12268 -5852 89.4 59.7 21.7 32.3 66.1 19.7 1989 22831 13091 -9740 89.8 57.3 22.5 39.3 70.5 1990 28523 14861 -13662 91.2 55.4 22.8 32.0 73.0 1991 46967 32307 -14660 94.0 75.7 22.9 27.4 76.9 1992 58237 36168 -22069 93.7 78.3 22.8 32.2 83.4 1993 61568 42500 -19068 85.1 81.9 22.5 47.4 86.6 15.5 1994 74426 51075 -23351 93.8 83.9 22.5 59.9 86.6 1995 67500 67383 -117 93.2 84.7 19.2 57.9 59.9 1996 81137 81013 -124 90.7 84.4 18.1 58.4 57.6 1997 101586 95565 -6021 92.5 86.5 21.0 62.9 1998 113348 106150 -7198 90.4 90.3 21.1 2000 19.4 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) source: INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1995" (NAFINSA), p.97; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. Before the opening from 1980 to 1984, all manufacturing subsectors, in general, recorded GDP downturns, or very small growth. The only two exceptions to the rule were chemicals substances, rubber and plastics, and the food, beverages and tobacco (see table Ch. VII-11).

Table Ch. VII-11 Index of Manufacturing Industry's Output divided by Subsector, 1980-1994 (1980=100) NON-EXPORT ORIENTED SUBSECTORS EXPORT-ORIENTED SUBSECTORS AVERAGE Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal prod. Other beverages & wooden editorial & mineral garments substances metals machinery & industries & tobacco products printing products & leather rubber & plastics equipment 1980 100 100 100 100 100 100 100 100 100 100 1981 106.4 104.3 99.4 105.1 103.2 105.7 109.6 104.9 109.7 113.1 1982 103.5 109.1 98.1 105.9 110.6 100.7 112.4 95.2 96.2 108.8 1983 95.4 107.6 91.1 98.1 92.9 95.1 110.5 89.3 74.7 88.3 1984 100.2 109.2 94.1 103.6 98.1 96.1 118.2 99.6 81.4 98.4 1985 106.3 113.3 97.4 112.7 105.5 98.5 125.1 100.7 92.2 106.5 1986 100.7 112.7 94.6 109.1 98.6 93.8 120.9 93.8 79.4 97.3 1987 103.8 113.7 97.9 110.8 107.9 89.3 127.4 104.3 84.1 94.2 1988 107.1 113.9 95.5 115.4 106.2 90.1 130.1 109.7 95.1 98.2 1989 114.8 122.7 94.1 123.3 111.3 92.9 142.1 112.4 105.6 106.1 1990 121.7 126.5 93.1 128.8 118.5 95.6 149.4 121.6 119.7 115.5 1991 126.6 132.9 93.5 127.2 122.2 92.1 153.9 117.2 134.5 117.7 1992 129.3 137.4 93.1 128.7 128.9 88.9 157.1 117.8 139.2 126.1 1993 128.5 140.8 89.4 124.5 130.5 84.4 153.4 122.9 138.4 125.1 1994 128.7 137.5 89.5 123.8 130.6 85.1 153.8 123.1 139.7 125.9 source: Author's own calculations based on SCN data quoted in "La Economía Mexicana en Cifras 1995", p.104. During the years 1980-1982 manufactured exports actually contracted. The rapid expansion of the economy due to the oil boom led to an excessive appreciation of the real exchange rate, increasing the growing demand for manufacturing imports and decreasing the competitiveness of exports. In turn, the trade deficit of the trade account increased. Later, the domestic manufacturing sector was affected by the various economic crisis of the 1980’s  since there was little domestic demand for its production directed mainly to the national market (see table Ch. VII-12).

As a consequence of the fall in output, between 1980 and 1984 formal employment importantly fell in the metal products machinery and equipment, in textiles, garments and leather and wood and wooden products. An aspect that contributed to this fall is the contraction of wages that had as a consequence a reduction of domestic demand and led, in turn, to the liquidation or downsizing of a large part of national industry. Formal employment losses were concentrated in highly pro-cyclical industries such as the basic metals, electrical appliances and consumer goods with a relatively high-income elasticity of demand.151 (see table Ch. VII-13)

Table Ch. VII-12 Manufacturing Imports and Exports of Goods and Trade Balance by Subsector, 1980-1998 (millions of current dollars) (QQF DGXGTCIGU  VQDCEEQ 6GZVKNGU ICTOGPVU  NGCVJGT 9QQF  YQQFGP RTQF 2CRGT GFKVQTKCN  RTKPVKPI %JGOKECNU TWDDGT  RNCUVKEU +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ 1980 1170 772 -398 268 185 -83 83 55 -28 639 79 -560 2709 955 -1754 1981 1078 679 -399 404 181 -223 87 59 -28 705 81 -624 3127 1224 -1903 1982 691 707 16 270 150 -120 52 52 0 471 78 -393 2329 845 -1484 1985 508 751 243 144 195 51 49 72 23 415 87 -328 2936 2173 -763 1986 490 937 447 136 333 197 48 101 53 431 138 -293 2400 1634 -766 1989 2014 1268 -746 812 623 -189 111 197 86 934 269 -665 4450 2300 -2150 1992 3336 1365 -1971 3023 2317 -706 550 499 -51 2189 655 -1534 9536 3979 -5557 1994 3989 1896 -2093 4167 3256 -911 695 586 -109 3039 562 -2477 11824 4627 -7197 1995 2616 2529 -87.5 3618 4899 1281 350 619 269 2899 872 -2027 11840 6183 -5657 1996 3116 2930 -185.7 4603 6339 1736 390 861 471 2887 896 -1991 14727 6339 -8388 1997 3587 3324 -263 6145 8815 2670 461 1047 586 3280 1063 -2217 18428 7071 -11357 1998 3666 3482 -184 7076 9204 2128 506 1103 597 3584 1084 -2500 6918 7196 278 0QPOGVCN OKPGTCN RTQF $CUKE OGVCNU /GVCN RTQF OCEJ  GSWKR 1VJGT KPF TOTAL TOTAL TOTAL ;'#4 +/ EX EX-IM IM EX EX-IM IM EX EX-IM IM EX EX-IM IMPORTS EXPORTS EX-IM 1980 164 128 -36 2325 568 -1757 9392 786 -8606 103 44 -59 16853 3572 -13281 1981 202 125 -77 2823 806 -2017 13479 894 -12585 136 50 -86 22041 4099 -17942 1982 117 140 23 1355 491 -864 8209 888 -7321 76 36 -40 13570 3387 -10183 1985 103 313 210 1118 641 -477 7242 2129 -5113 65 68 3 12580 6429 -6151 1986 93 375 282 823 917 94 6732 3410 -3322 50 64 14 11203 7909 -3294 1989 228 567 339 1776 1900 124 12250 5859 -6391 254 108 -146 22829 13091 -9738 1992 716 919 203 4509 2074 -2435 33731 23712 -10019 644 649 5 58234 36169 -22065 1994 1010 1215 205 5126 2620 -2506 43490 35324 -8166 1112 989 -123 74452 51075 -23377 1995 910 1405 495 4897 4889 -8 39709 44681 4972 1709 1306 -403 68548 67383 -1166 1996 1264 1718 454 5949 7875 1926 47462 55736 8274 3011 1406 -1605 83409 84100 691 1997 1462 2025 563 7283 5358 -1925 59792 65166 5374 3194 1696 -1498 103632 95565 -8067 1998 1512 2162 650 8592 5202 -3390 67370 72070 4700 3044 1780 -1264 102268 103283 1015 source:Author's own calculations based on NAFINSA "La Economía Mexicana en Cifras" 1995 and 1998"; note: As of 1990, total manufacturing trade data includes maquiladoras During the first phase of the opening (from 1985 to 1988), the government decided to promote manufacturing exports to a great extent. In addition to the existing maquiladora program, the government promoted other new programs to increase exports, mentioned before, such as (PITEX) a program to allow temporary tax-free import of inputs used for the production of exports, and (ALTEX) a preferential program for export-oriented establishments that facilitated the import of capital goods. Both of the programs eased the import of parts and components used in the production of exports and lessened the restrictions on foreign direct investment in exporting sectors. The government also continued implementing protectionist programs providing special regulations for the promotion of exports of the automotive, pharmaceutical and microcomputer industries.152 

Table Ch. VII-13 Manufacturing Formal Employment Distribution by Subsector, 1980-2000

Non-export oriented Export-oriented TOTAL Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal Other beverages wooden editorial mineral garments substances metals products manufacturing & tobacco products & printing products & leather rubber machinery & industries & plastics equipment 1980 100 25 6 5 6 18 11 4 22 2 1985 100 27 5 5 7 17 13 4 20 2 1987 100 18 4 5 5 18 13 4 30 3 1988 100 18 4 5 5 18 13 4 31 3 1989 100 18 4 5 5 18 13 3 32 3 1990 100 18 4 6 5 18 13 3 32 3 1991 100 18 4 6 5 18 13 3 32 3 1992 100 19 4 6 5 18 12 2 32 3 1993 100 19 4 6 5 17 12 2 32 3 1994 100 19 4 6 4 18 12 2 33 3 1995 100 19 4 6 4 18 12 2 33 3 1996 100 18 4 5 4 20 12 2 33 3 1997 100 18 4 5 4 20 11 2 33 3 1998 100 17 4 5 4 21 11 2 33 3 1999 100 16 4 5 3 21 11 2 34 3 2000 100 16 3 5 3 21 11 2 36 3 source: INEGI; Sistema de Cuentas Nacionales de México compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica. Manufacturing output increased slowly in most manufacturing subsectors from 1985 to 1988. In large part, the increase was attributed to the economic recovery in the United States and the new bilateral agreement signed with that country. Industrial expansion concentrated on the chemical substances, rubber and plastics, and the metal products, machinery and equipment with its automobile industry that grew by 14 percentage points, if compared to its 1980 levels. Others that recorded growth way above average were the paper, editorial and printing and the food, beverages and tobacco. There was also a slow recovery in industries such as cement from the non-metal minerals subsector, and steel from the basic metals industry. The rest of the manufacturing subsectors, even the highly export-oriented ones did not increase their output importantly until the consolidation of trade period.

Indeed, as a result of the undervalued exchange rate and the credibility in the trade liberalisation program, especially in the announcement of Mexico’s entry to the GATT, there was an improvement in the number of enterprises that opened up their doors in Mexico during this period. Government’s reduced budget implied that public credit was not available and the lack of private assistance to restructure hurt a big number of national manufacturing medium, small and micro firms. However, at the same time, the deep devaluation of the peso in 1987 created a barrier that protected small and micro industry from total collapse since it prevented more imports from coming in. On the other hand, the price of imports of intermediate and capital goods needed in large enterprises in the production of export goods increased. While big exporters benefit since their goods become more competitive in foreign markets, the increased price of imports can have a negative effect on prices of goods destined to the internal market as well as to foreign markets.

The consolidation of trade policies (between 1989 and 1994) was a harsher period to national non-competitive industry since it implied a lot of pressure on the productive sector to rationalise its production system through technological innovation. With the value of the currency kept high relative to the U.S. dollar, these industries were deprived of the protection provided before from a massive invasion of imports. Therefore, labour-intensive industries formed of thousands of small and micro establishments with low capital suffered a crisis. Those industries that showed the fastest decline and lost of competitiveness were non-durable consumer goods industries such as the textiles, wood, paper, non-metal minerals and basic metals. The combined weight of these industries, as a proportion of total manufacturing production, went down from 36 per cent in 1980 to 28 per cent in 1998. This downturn seems to be the result mainly of the continuous entrance of foreign imports putting those companies that lacked capital and technology in a precarious position in the national market. More and  more establishments started formally closing up, mainly medium, small and micro-sized, and appearing informally as small providers of services or specific goods of formal enterprises or moving to the commerce and services sector.

Manufacturing formal employment in industries like the wood and wooden products and the non-metal mineral products, as well as the basic metals had negative growth rates. Great job losses were also reported in the food, beverages and tobacco. These were industries that were either privatised and went through deep restructuring with the liquidation of large number of workers, or possessed only obsolete technology and had little access to credit. Some of the industries never recuperated their 1980 levels, or like in the case of the wood and wooden products only did it late in the 1990’s. This was the case of the non-metal mineral products and the basic metals subsector (see table Ch. VII-14).

Table Ch. VII-14 Index of Manufacturing Formal Employment Divided by Subsector, 1980-2000 (1980=100) Non-export oriented Export-oriented TOTAL Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal Other beverages wooden editorial mineral garments substances metals products manufacturing & tobacco products & printing products & leather rubber machinery & industries & plastics equipment 1980 100 100 100 100 100 100 100 100 100 100 1985 99.9 109.2 82.5 99.6 105.9 96.4 114.4 100.6 87.8 103.7 1987 99.9 73.8 64.4 102.9 80.6 99.3 113.7 85.6 135.2 142.8 1988 99.8 72.1 67.1 105.2 76.2 97.7 112.1 83.8 140.0 135.6 1989 99.9 71.7 65.5 108.3 74.6 99.6 111.8 75.0 140.7 138.6 1990 99.9 72.0 65.3 111.9 74.1 98.2 111.3 70.6 142.1 135.2 1991 99.8 72.2 65.0 114.2 72.9 98.6 112.2 62.0 142.5 136.1 1992 99.9 76.1 64.3 119.6 71.7 98.6 109.0 51.9 141.1 141.8 1993 99.9 77.1 64.9 120.4 71.9 96.5 108.2 50.4 141.9 143.0 1994 100.2 75.8 63.7 118.3 68.6 97.3 106.0 53.3 146.1 144.6 1995 99.9 76.0 59.4 113.7 62.6 99.6 105.7 54.8 145.7 152.8 1996 99.9 72.6 61.2 108.0 57.9 107.8 102.3 52.8 146.6 157.9 1997 99.9 71.2 60.1 105.5 56.0 112.0 98.4 50.5 149.1 151.7 1998 100.0 68.8 60.9 102.2 54.6 118.3 97.2 50.7 148.9 144.6 1999 99.9 66.7 58.9 100.6 53.6 118.5 95.2 44.6 153.1 157.8 2000 99.9 63.2 58.5 99.5 51.0 118.2 94.0 42.7 158.8 162.4 source: INEGI; Sistema de Cuentas Nacionales de México compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica. note: there is a big difference between 1989 and 1990 manufacturing sector data since starting from1990 maquiladora employment is included. note: in blue all export-oriented or foreign investment-related economic sectors or subsectors On the contrary, the capital-intensive part of the manufacturing sector responded positively to export-promotion policies and subventions such as the PITEX and ALTEX programs. The dismantling of import barriers encouraged modernisation and restructuring of large competitive Mexican industry. Industrial restructuring in domestic firms was then accomplished only in TNC’s like those involved in the production of electronics, automobiles, computers and chemicals, and in a minority of big national enterprises. As Mertens says, it was, and it still is, mostly large firms that can «borrow abroad at low interest rates, establish joint ventures and have access to technological and organisational innovations».153

During the Salinas presidency, foreign capital was permitted to invest in many areas that were prohibited before, and the government intensified its policy of maintaining low import- tariffs on industrial inputs and capital goods. The two previous mentioned factors acted as a subsidy and continued encouraging a capital-intensive production of durable consumer and capital goods. As a result, manufacturing industrialisation continued, as it did during the import-substitution period, benefiting a capital-intensive and technologically advanced structure of production. Discrimination against simple manufactures was accentuated with a lack of access to affordable credit and an artificially valued currency starting from 1989. 

Table Ch. VII-15 Foreign Direct Investment in the Manufacturing Sector divided by Subsector, 1989-1997 (percentages)

1989 1990 1991 1992 1993 1994 1995 1996 1997

Total Investment in Manufacturing 100 100 100 100 100 100 100 100 100

Food, beverages & tobacco 21.6 15.3 27.3 20.6 36.1 29.8 13.8 12.2 50.2 Wood and wooden prod. 5.0 1.9 1.8 3.8 8.7 1.0 0.0 0.0 0.0 Paper and paper prod. 2.0 0.4 0.3 0.9 0.3 0.9 0.0 0.0 0.0 Non-metal mineral prod. 1.2 1.6 15.8 39.1 0.7 0.9 1.9 0.3 0.1 Textiles, garments & leather 4.1 1.1 4.6 5.3 3.2 0.5 0.0 0.0 0.0 Chemical subst., rubber & plastics 25.9 40.6 12.2 13.6 16.5 9.9 11.8 27.6 6.4 Basic metals industry 1.6 1.3 4.6 1.4 10.7 22.6 3.1 8.2 1.8 Metal prod. machinery & equip. 28.8 35.7 32.6 14.4 21.3 30.4 59.9 44.5 34.3 Other manufacturing ind. 9.8 2.0 0.5 0.9 2.4 4.1 9.4 7.1 7.3 note: Starting from 1995, other manufacturing industries data group wood and wooden products, paper and paper products and textiles, garments and leather, as well as other. Within the manufacturing subsectors, the branches that received the most f. d. i. are by order of importance: the automobile ind. and other consumption prod.; followed by chemical prod. & subst.; beverages; basic chemicals subst.; dairy prod.; pharmaceutical prod.; machinery & electrical equip.; machinery & equipment for gen. uses; the manufacturing of cement, lime & plaster; plastics; manufacturing and assembly of electronic equipment; canned food; and lastly, paper & cellulose. source: "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. note: in blue all export-oriented subsectors Two of the subsectors that received the highest percentage of productive foreign investment, and reported the highest output and employment growth, were again the highly export-oriented chemical substances, rubber and plastics; metal products, machinery and equipment. A third subsector that also received high foreign investment shares while not being able to increase employment levels as much, was the non export-oriented food, beverages and tobacco (see table Ch. VII-15).

At the same time, informal employment grew rapidly acting often as subcontract employment of formal firms. The process of export industrialisation showed that it had its limits since the recession periods under which trade liberalisation began to be implemented did not increase the opportunity of participation in the market of the majority of small firms. The objective of more competitiveness, productivity, modernisation of the productive process, and introduction of quality products could not be met by the majority of them.154 Besides, the start-up costs of export promotion such as the gathering of information about foreign markets, changes in product design, marketing efforts, were large and usually beyond the capabilities of most of these enterprises.

Table Ch. VII-16 Percentage Distribution of Manufacturing Industry's GDP by Subsector, 1980-1998 010':2146 14+'06'& 57$5'%6145 ':214614+'06'& 57$5'%6145 TOTAL Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal prod. Other beverages & wooden editorial & mineral garments substances metals machinery & industries & tobacco products printing products & leather rubber & plastics equipment 1980 100 25 4 5 7 14 15 6 21 3 1981 100 24 4 5 7 14 15 6 22 3 1982 100 26 4 6 7 13 16 6 20 3 1983 100 28 4 6 7 14 17 6 17 2 1984 100 27 4 6 7 13 18 6 17 3 1985 100 26 4 6 7 13 18 6 18 3 1986 100 28 4 6 7 13 18 6 17 3 1987 100 27 4 6 7 12 18 6 17 2 1988 100 26 4 6 7 12 18 6 19 2 1989 100 26 3 6 7 11 18 6 20 2 1990 100 26 3 6 7 11 18 6 21 2 1991 100 26 3 5 7 10 18 6 23 2 1992 100 26 3 5 7 9186233 1993 100 26 3 5 7 9186233 1994 100 26 3 5 7 9186242 1995 100 28 3 5 7 8175243 1996 100 26 3 5 7 9165263 1997 100 25 3 5 7 9155283 1998 100 25 3 5 7 8155293 source: Author's own calculations based on SCN data quoted in "La Economía Mexicana en Cifras 1995", p.104. Large establishments that were receiving big inflows of private investment, and introducing new technology, were attaining a favourable outcome in terms of participation in manufacturing GDP. Overall, growth got concentrated in those sectors dominated by large capital-intensive corporations, both domestic and transnational and with strong intra-firm links. For example, by 1998 the metal products, machinery and equipment (automotives, trucks auto parts, radios, electronic equipment) exports represented 69.8 per cent of total value of exports. Its relative output weight, as well as that of another well-supported industry,  the chemicals and petrochemicals; grew from 36 percent in 1980 to about 44 percent in 1998 (see table Ch. VII-16 and Ch. VII-17).

In fact, large-scale enterprises benefit from an additional system: what is called “factoraje”. After receiving the merchandise, large-scale enterprises promise to pay back their small and micro suppliers in periods of 60, 90 or 120 days. During this period, large enterprises sell the merchandise and invest the money to obtain an additional profit. The system contributes to obtain an additional subsidy on the back of micro and small-scale enterprises.

Table Ch. VII-17 Manufacturing Imports and Exports of Goods and Trade Balance by Subsector, 1980-1998 (percentages) (QQF DGXGTCIGU  VQDCEEQ 6GZVKNGU ICTOGPVU  NGCVJGT 9QQF  YQQFGP RTQF 2CRGT GFKVQTKCN  RTKPVKPI %JGOKECNU TWDDGT  RNCUVKEU +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ +/ ': ':+/ 1980 6.9 21.6 14.7 1.6 5.2 3.6 0.5 1.5 1.0 3.8 2.2 -1.6 16.1 26.7 10.7 1981 4.9 16.6 11.7 1.8 4.4 2.6 0.4 1.4 1.0 3.2 2.0 -1.2 14.2 29.9 15.7 1982 5.1 20.9 15.8 2.0 4.4 2.4 0.4 1.5 1.2 3.5 2.3 -1.2 17.2 24.9 7.8 1983 7.4 13.3 5.9 0.7 3.5 2.8 0.3 1.5 1.2 4.1 1.4 -2.7 22.4 28.4 5.9 1984 5.0 11.8 6.8 1.0 3.9 2.9 0.4 1.4 1.0 3.8 1.4 -2.4 22.8 31.9 9.0 1985 4.0 11.7 7.6 1.1 3.0 1.9 0.4 1.1 0.7 3.3 1.4 -1.9 23.3 33.8 10.5 1986 4.4 11.8 7.5 1.2 4.2 3.0 0.4 1.3 0.8 3.8 1.7 -2.1 21.4 20.7 -0.8 1987 3.9 12.6 8.7 1.5 5.4 4.0 0.4 1.3 0.9 5.1 2.1 -3.0 22.5 18.8 -3.7 1988 6.8 11.1 4.3 2.5 5.1 2.6 0.4 1.5 1.0 4.4 2.6 -1.8 19.4 19.3 -0.1 1989 8.8 9.7 0.9 3.6 4.8 1.2 0.5 1.5 1.0 4.1 2.1 -2.0 19.5 17.6 -1.9 1990 9.4 7.4 -2.0 3.7 4.3 0.6 0.6 1.1 0.5 3.7 1.4 -2.4 17.3 20.1 2.8 1991 5.6 4.4 -1.2 4.8 6.2 1.5 0.9 1.4 0.5 3.9 1.9 -1.9 17.1 11.5 -5.6 1992 5.7 3.8 -2.0 5.2 6.4 1.2 0.9 1.4 0.4 3.8 1.8 -1.9 16.4 11.0 -5.4 1993 5.1 3.7 -1.3 5.3 6.5 1.2 0.9 1.3 0.5 3.6 1.6 -2.0 15.5 10.0 -5.4 1994 5.4 3.7 -1.6 5.6 6.4 0.8 0.9 1.1 0.2 4.1 1.1 -3.0 15.9 9.1 -6.8 1995 3.8 3.8 -0.1 5.3 7.3 2.0 0.5 0.9 0.4 4.2 1.3 -2.9 17.3 9.2 -8.1 1996 3.7 3.5 -0.3 5.5 7.5 2.0 0.5 1.0 0.6 3.5 1.1 -2.4 17.7 7.5 -10.1 1997 3.5 3.5 0.0 5.9 9.2 3.3 0.4 1.1 0.7 3.2 1.1 -2.1 17.8 7.4 -10.4 1998 3.6 3.4 -0.2 6.9 8.9 2.0 0.5 1.1 0.6 3.5 1.0 -2.5 6.8 7.0 0.2 0QPOGVCN OKPGTCN RTQF $CUKE OGVCNU /GVCN RTQFOCEJ  GSWKR 1VJGT KPF +/ EX EX-IM IM EX EX-IM IM EX EX-IM IM EX EX-IM 1980 1.0 3.6 2.6 13.8 15.9 2.1 55.7 22.0 -33.7 0.6 1.2 0.6 1981 0.9 3.0 2.1 12.8 19.7 6.9 61.2 21.8 -39.3 0.6 1.2 0.6 1982 0.9 4.1 3.3 10.0 14.5 4.5 60.5 26.2 -34.3 0.6 1.1 0.5 1983 0.6 3.9 3.3 7.6 16.2 8.6 56.6 30.5 -26.1 0.3 1.4 1.1 1984 0.7 4.1 3.4 10.0 12.7 2.7 55.9 31.7 -24.2 0.4 1.1 0.7 1985 0.8 4.9 4.0 8.9 10.0 1.1 57.6 33.1 -24.5 0.5 1.1 0.5 1986 0.8 4.7 3.9 7.3 11.6 4.2 60.1 43.1 -17.0 0.4 0.8 0.4 1987 0.9 4.3 3.4 7.3 12.1 4.8 58.0 42.7 -15.2 0.5 0.7 0.1 1988 0.9 4.2 3.4 8.3 12.8 4.5 56.6 42.7 -13.9 0.7 0.7 0.0 1989 1.0 4.3 3.3 7.8 14.5 6.7 53.7 44.8 -8.9 1.1 0.8 -0.3 1990 1.1 3.5 2.4 7.1 12.7 5.6 56.0 48.7 -7.2 1.1 0.9 -0.3 1991 1.2 2.6 1.4 8.1 6.5 -1.6 57.3 63.3 6.1 1.2 2.2 1.0 1992 1.2 2.5 1.3 7.7 5.7 -2.0 57.9 65.6 7.6 1.1 1.8 0.7 1993 1.2 2.6 1.4 13.3 5.7 -7.6 54.0 66.5 12.5 1.1 2.0 0.8 1994 1.4 2.4 1.0 6.9 5.1 -1.8 58.4 69.2 10.7 1.5 1.9 0.4 1995 1.3 2.1 0.8 7.1 7.3 0.1 57.9 66.3 8.4 2.5 1.9 -0.6 1996 1.5 2.0 0.5 7.1 9.4 2.2 56.9 66.3 9.4 3.6 1.7 -1.9 1997 1.4 2.1 0.7 7.0 5.6 -1.4 57.7 68.2 10.5 3.1 1.8 -1.3 1998 1.5 2.1 0.6 8.4 5.0 -3.4 65.9 69.8 3.9 3.0 1.7 -1.3 source:Author's own calculations based on NAFINSA "La Economía Mexicana en Cifras" 1995 and 1998"; note: As of 1990, total manufacturing trade data includes maquiladoras

2. Maquiladoras

In 1965, changes were introduced in the Mexican law to allow for the emergence of maquiladoras. Until the coming into force of NAFTA, maquiladoras were considered to be: assembly plants established in Mexico for processing of inputs, raw materials, components, parts etc. into final products for re-export to the United States in generally labour-intensive operations. When the maquiladora programme was put in place, export promotion policies were absent, and maquiladoras came to be an exception since they were established under a special free trade and investment regime to attract capital. They opened under a status of export processing plants and they were concentrated along the northern border region with the U.S. 

The maquiladora programme permitted raw materials, machinery, vehicles, and parts to be imported into Mexico exempted from any tariffs, taxes or any other import restrictions. Assembly took place in Mexico, and then the product was returned without duty to the United States. Mexico taxed only value added, which was almost all labour, and not the total value of goods. At the beginning, the program was limited to northern border regions. Mexico’s initial intention was to provide jobs lost through the U.S. cancellation of the Bracero program which since 1942 had permitted Mexicans to migrate to the U.S. for temporary agricultural work.155 As a result of this program the principal cities along the country’s northern border experienced an unusual boom.

When maquiladoras were created, they were strictly limited in their right to sell their goods in Mexico. The Mexican government required them to export 100 per cent of their production. Since maquiladoras were permitted to import machinery and components duty- free as long as the products were re-exported from Mexico, Mexican industry, especially medium, small and micro-sized that was not receiving any support or subsidies from the government, found themselves in a big disadvantage. Most maquiladoras did not pay state and local taxes, while Mexican industry was obliged to pay local and regional taxes, as well as taxes to import technology, which helped the former developed and the latter stagnate.

Maquiladoras have also enjoyed from a lot of freedom concerning labour relations. They have put into practice, for example, flexible arrangements that the Mexican labour law does not allow for, de-jure. For example, they have installed the linking of salary to productivity and piecework system, as well as other flexible arrangements like multiskilling, job rotation, multiple working shifts, wage variations depending on output of working teams, quality circles, co-operative relations between management and labour and others. They often shut down establishments for a week or two during the year for maintenance reasons and do not cover workers’ wages during this period.156

Later, the Mexican government attempted to transform maquilas into permanent industrial bases by encouraging more capital-intensive operations and devaluing the peso to cheapen labour.157 In 1987, a presidential decree decreased the percentage of output to be exported to 80 per cent and in 1989 the percentage was reduced even further to 50 per cent.158 Indeed, on December 1989, the maquiladora regime was modified. While the new regime did not remove maquiladoras duty-free status on imported inputs, nor did it remove its exemption from taxes on production, the main purpose of the new regulations was to further integrate the industry into the national economy. Maquiladoras had been criticized for having only very weak backward linkages to the rest of the Mexican economy and not transferring their technology to the rest of the economy. A little bit more than 2 percent of their inputs were produced in Mexico, by 1990. So, even if they provided jobs, they had not had a significant role in the economy as an engine of long-term growth until then (see table Ch. VII-18). 

Table Ch. VII-18 Maquiladoras, Origin of Raw Materials: Domestic & Foreign, 1984-1995 (current billion dollars) Total Foreign Domestic (percentage) (percentage) 1984 3.8 3.8 98.7 0.05 1.3 1985 3.9 3.8 99.2 0.03 0.8 1986 4.4 4.3 98.9 0.05 1.1 1987 5.6 5.6 98.4 0.09 1.6 1988 7.9 7.8 98.4 0.13 1.6 1989 9.6 9.5 98.4 0.15 1.6 1990 10.7 10.5 98.2 0.19 1.8 1991 11.9 11.7 98.2 0.22 1.8 1992 14.4 14.2 98.0 0.29 2.0 1993 17.7 17.4 98.3 0.31 1.7 1994 20.5 20.1 98.0 0.41 2.0 1995 23.2 22.7 97.9 0.49 2.1 source: CIEMEX-WEFA Maquiladora Industry Analysis 1995, volume 8, number 1, p.5.1 & 6.1 The new regulations encouraged the increased use of local content by offering tax concessions on domestic market sales and provided maquiladoras with the right to sell locally 50 per cent of their preceding 12 months’ total export sales. The new regulations were aimed at increasing their sourcing of supplies from the local market. If they wanted to sell part of their output locally, maquiladoras were given the option either to pay duties on the foreign- content of the product sold in the national market, or to pay duties on individual imported components. Maquiladoras licences were also provided for an indefinite period and the list of products eligible for duty-free imports was also enlarged to include telecommunications and computer equipment.

The maquiladora program was liberalised geographically, too in 1989 and maquiladoras had the right to install plants all over the Mexican Republic. As a result, maquiladoras began opening some of their plants in cities in Central Mexico since, generally, these are less expensive wage locations. Wage rates are lower in the interior of the country than at the border, so those maquiladoras that have relocated some of their plants tend to start off with more labour-intensive processes. However, workers, on average, have a lower educational level. In some southern and south-central regions where maquiladoras are moving, 25 per cent of adults are still illiterate. At this moment, 64 per cent of their plants are still located in the border area and the other 36 per cent in the interior of the country.

Maquiladoras were during the 1980 and 1990s the most dynamic sector of the Mexican manufacturing industry on what concerns introduction of new technological processes, new job creation and exports’ growth. Maquiladoras became during these two decades Mexico’s most important net generator of foreign exchange. Real growth averaged 14.2 per cent per year between 1994 and 2000. 

Table Ch. VII-19 Maquiladora Formal Employment divided by Sector and Percentage Change per year, 1980-1998 (thousands) PERCENTAGE YEAR TOTAL FOOD TOYS & SERVICES FOOTWEAR FURNITURE TEXTILES & CHEMICALS TRANSPORTATIOMACHINERY ELECTRIC & OTHER CHANGE SPORTING GOODS & LEATHER % WOOD/META& APPAREL EQUIP. & TOOLS ELECTRONICS PER YEAR

1980 111.7 1.4 2.8 6.0 1.8 3.2 17.6 0.1 7.5 1.8 69.4 7.9 1981 122.9 1.6 2.7 6.8 1.8 3.3 18.1 0.1 11.0 1.4 76.2 8.0 10.1 1982 119.4 1.6 2.6 7.4 2.0 3.1 15.0 0.0 12.3 1.3 74.1 7.6 -2.9 1983 142.4 1.9 3.5 9.4 2.8 4.9 16.2 0.0 19.6 1.5 82.7 8.4 19.3 1984 188.8 1.8 6.2 10.6 3.9 6.2 19.9 0.3 29.4 2.2 108.5 10.9 32.6 1985 198.1 1.9 7.3 12.9 4.5 6.5 21.5 0.1 40.1 2.4 100.9 13.9 4.9 1986 230.5 2.2 7.1 16.0 4.6 9.6 25.3 0.3 49.1 3.3 113.1 19.4 16.4 1987 271.3 2.5 9.5 15.6 5.3 14.3 30.3 0.9 59.3 3.8 129.8 34.0 17.7 1988 323.1 3.4 11.4 15.9 6.5 17.8 34.7 1.5 74.4 4.9 152.6 46.4 19.1 1989 359.9 4.2 12.0 18.1 8.0 19.7 38.4 2.7 89.3 5.7 161.9 58.6 11.4 1990 383.6 7.8 10.5 18.9 7.2 23.8 41.2 6.7 97.6 5.0 165.0 64.0 6.6 1991 415.9 8.8 8.0 24.7 7.4 26.7 46.3 7.7 116.6 5.1 164.6 51.4 8.4 1992 451.3 10.0 8.3 26.8 7.4 28.8 53.7 9.3 124.2 5.2 177.6 54.4 8.5 1993 484.7 11.7 9.1 27.8 7.5 31.6 64.5 11.7 126.6 5.3 188.9 56.2 7.4 1994 516.7 7.5 9.0 25.7 7.4 34.4 74.3 12.6 129.6 5.7 210.5 63.9 6.6 1995 578.7 7.7 9.5 27.7 7.5 35.8 99.5 12.7 137.2 6.7 234.4 69.2 12.0 1996 676.2 11.3 11.2 31.0 7.5 40.5 131.8 13.7 158.4 8.1 262.8 78.5 16.8 1997 799.4 12.1 13.8 35.3 8.9 44.2 171.8 16.5 176.6 9.2 311.1 99.3 18.2 1998 989.1 11.9 14.2 39.1 9.2 46.7 199.8 18.8 190.2 10.5 335.1 113.4 23.7 Average 13.2 source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", NAFINSA, p. 370-372, "La Economía Mexicana en Cifras 1998", p.495 Between 1980 and 1998 maquiladoras’ employment grew at a rate of 13.2 per cent per year, increasing from 119,500 to 989,100 workers (see table Ch. VII-19 and figure Ch. VII-2). By 1998, the number of maquiladora plants increased to 3000 from representing 620 in 1980. Maquiladoras’ employment grew at an amazing pace after the entry to NAFTA. By 1998, maquiladoras provided a quarter of the manufacturing sector’s formal employment. Their share went quickly up from representing only 4.9 per cent in 1980. Impressing as this employment growth can be, it only represented in 1998, 2.6 per cent of total employment.

Maquiladoras have been experiencing a continuous increase in exports. Maquiladora exports grew from representing 2.5 billion dollars in 1980 to 53.1 billion dollars in 1998. By 1998, the maquiladora programme accounted for 50 percent of the country’s total manufacturing exports. The policy to further integrate the industry into the national economy seems to have had its fruits since by 1998, maquiladoras were importing much less than national manufacturing: only 78 per cent of total national manufacturing imports’ value. Indeed, the new wave of maquiladoras seems to have a higher level of integration nowadays with Mexican companies than in 1989.



Figure Ch. VII-2 Maquiladora's Employment, 1980-1998 1200.0

1000.0

800.0

600.0

400.0

200.0

0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", NAFINSA, p. 370-372, "La Economía Mexicana en Cifras 1998", p.495 Establishments belonging to the metal products, machinery and equipment subsector account for over half of the maquiladora plants. An average of 25 per cent of all establishments was operating in the production of electric/electronic goods, followed by textiles and apparel establishments (18 per cent), and transportation and equipment. By 1995, the vast majority of maquiladoras were owned by U.S. companies, although ownership by Japanese companies had grown rapidly.

Two types of maquiladoras have developed in the country. The old-style maquiladoras characterised by the use of labour-intensive operations that combine minimum wages with piecework, and the more sophisticated type with advanced forms of production mainly in automobile-related manufactures and advanced electronics assembly. The first type hires mostly women and they tend to concentrate in garment productions, basic semiconductors and other type of light manufacturing. The second wave of maquiladora plants has made substantial investments in complex technology, and they are also hiring growing numbers of skilled male workers because of the rise in high-tech production.159

New maquiladoras are shifting sectoral composition, moving into more skilled-labour assembly activities and high technology production. Most of the production now consists of automobile assembly, machinery and equipment, televisions and other electronic assembly. New maquiladoras incorporate more capital-intensive methods by employing computerised and other advanced technology that allows the production process to be more flexible.

Indeed, a good point about the new wave of maquiladoras is that there is an increase emphasis on employee training since the increasing sophistication of production lines and high-tech production processes on the factory floor has increased the demand for skilled labour. Besides, their labour force is more likely to be unionised in independent trade unions and has a wider coverage of social security legislation. In addition, productivity is rising in maquiladoras. Total value added in current dollars divided by the total number of workers increased from representing 4056 U.S. dollars per worker in 1984 to 7328 U.S. dollars per worker in 1995 (see table Ch. VII-20). 

Table Ch. VII-20 Maquiladora Industry Productivity, 1984-1995 (1984=100)

Total no. Value Added Value Added Productivity of workers (current dollars) divided by total Index number of workers 1984 199680 810000000 4056.5 100 1985 211960 890000000 4198.9 103.5 1986 249810 880000000 3522.7 86.8 1987 305220 1080000000 3538.4 87.2 1988 369470 1530000000 4141.1 102.1 1989 418500 2060000000 4922.3 121.3 1990 447570 2450000000 5474.0 134.9 1991 467290 2790000000 5970.6 147.2 1992 505720 3260000000 6446.3 158.9 1993 540920 3740000000 6914.1 170.4 1994 580540 4560000000 7854.8 193.6 1995 647930 4610000000 7115.0 175.4 source: Author's own calculations with CIEMEX-WEFA, "Maquiladora Industry Analysis" data and NAFIN: La Economía Mexicana en Cifras 1995, p. 370-372 Maquiladora wages have almost doubled in a period of 10 years (1984-1995) for managerial staff, while that of direct labour has gone up only by 27 per cent (see table Ch. VII-21). In fact, the lack of trained or trainable employees has resulted in a faster than expected wage increase or provision of bonuses to semi-skilled and highly skilled levels. However, low wages of unskilled workers are causing a high labour turnover (20 per cent). This fact has increased difficulties in maintaining standard zero defect production quality. A lot of unskilled workers stay in maquiladoras until they obtain enough money to cross the border to go to find a higher remunerated job in the U.S. A high turnover of workers has become very costly since workers do not acquire cumulative on-the-job training and a low- qualified labour force becomes a major constraint to productivity.

While direct labour still represented 87 per cent of total employment in clothing establishments and 80 per cent in auto parts, their percentage share has been declining since 1980 (see tables Ch. VII-22 and Ch. VII-23). According to Christman “the industry’s growth continues to outpace the growth in the employable/trainable labour force”.160 At the same time, there is a shift from labour quantity to labour quality. In a survey made by Wilson (1990), only 44 per cent of maquiladoras could still be considered labour-intensive assembly plants.161 The author believes that in a labour-intensive country like Mexico the educational level has not kept pace or has been left behind the trend towards more capital-intensive, high tech sectors. (A subject that will be developed in a subsequent section)



Table Ch. VII-21 Maquiladoras' Wage Rates, Bonuses and Total Earnings (dollars per hour), 1981-2001 MAQUILADORA TOTAL (AVERAGE) 1981 1985 1990 1995 2000a 2001a Wage rate 1,99 1,38 1,78 1,69 2,72 2,97 base 1,55 1,07 1,26 1,14 1,84 1,99 fringe benefits 0,44 0,31 0,52 0,55 0,88 0,98 bonuses AUTOPARTS (average) 1981 1985 1990 1995 2000a 2001a Wage rate 2,30 1,57 2,21 2,03 3,26 3,52 base 1,81 1,28 1,53 1,26 2,00 2,14 fringe benefits 0,49 0,29 0,68 0,77 1,26 1,38 bonuses ELECTRONIC (average) 1981 1985 1990 1995 2000a 2001a Wage rate 1,97 1,43 1,88 1,85 2,94 3,22 base 1,50 1,07 1,31 1,23 1,93 2,09 fringe benefits 0,47 0,36 0,57 0,62 1,01 1,13 bonuses CLOTHING (average) 1981 1985 1990 1995 2000a 2001a Wage rate 1,64 1,05 1,27 1,04 1,73 1,88 base 1,32 0,84 0,90 0,76 1,26 1,36 fringe benefits 0,32 0,21 0,37 0,28 0,47 0,52 bonuses Sources: INEGI. Estadísticas de la Industria Maquiladora de exportación: 1974-1982, 1975-1986,1978 -1988 1990-1994; and, CIEMEX-WEFA: Maquiladora Industry Until now, more maquiladoras have opened their doors in the country and the net result in employment has been positive. A dilemma will be posed in the future, though, because on one hand, the new emphasis put on training and the new demand on skilled labour is beneficial for the whole Mexican labour force since there is a higher need to increase productivity through worker training and development. An educated and skilled work force will allow the industry to achieve a sophisticated production process. But, on the other hand, if labour-intensive assembly plants continue changing to capital-intensive, the demand for unskilled workers could diminish, decreasing even further the level of formal manufacturing employment. However, faced with competition from other (mainly Asian) developing countries with lower wages and a larger labour supply, and probably, more skilled, than Mexico (the case of China), the trend will just probably continue in the future.

What was the exact impact of NAFTA on maquiladoras? Maquiladora plants were little affected by NAFTA because they were already integrated into U.S. and Mexican economies. NAFTA only removed the special formal status of existing maquiladoras, since all industries were regulated under a trade system that was as open or more open than the one enjoyed after the entering of NAFTA. The domestic-content requirement and foreign exchange balancing requirements were eliminated immediately after the agreement came into effect.

However under NAFTA, three main aspects of maquiladoras changed: all duty drawbacks on third-country components were to be eliminated by January 1, 2001; Mexico also decided to eliminate after seven years the 50 per cent limitation on maquiladora sales into the local market. The third important modification was that maquiladoras would no longer be required to register with the Mexican government to receive a tax exemption on imported goods since most U.S. goods would enter duty free, without being held in-bond. Lastly, NAFTA rules of origin would apply to maquiladora shipments. Thus, as long as the source of the inputs is a North American country, no duties are assessed. However, whenever maquiladoras use non-North American inputs, NAFTA’s Article 303 stipulates that duty drawback provisions apply. 

Table Ch. VII-22 Autoparts Maquiladora Industry-Levels and Composition of Employment, 1980-2001. (percentages) 1980 1985 1990 1995 2000a 2001a Total employment 100 100 100 100 100 100

Direct 84,13 84,17 79,42 79,90 80,10 80,10 men 32,42 45,78 47,43 n.d. n.d. n.d. women 67,58 54,22 52,57 n.d. n.d n.d. Technicians 8,96 9,73 12,47 11,30 11,10 11,10 Administrative 6,91 6,10 8,11 8,80 8,80 8,80 source: INEGI. Estadísticas de la Industria Maquiladora de exportación: 1974-1982, 1975-1986,1978 -1988 1990-1994; and, CIEMEX-WEFA: Maquiladora Industry Analisys: 1991 and 1997.

Table Ch. VII-23 Clothing Maquiladora Industry-Levels and Composition of Employment, 1980-2001. (percentages) 1980 1985 1990 1995 2000a 2001a Total employment 100 100 100 100 100 100

Direct 89,56 85,12 85,03 86,70 87,20 87,20 men 16,17 20,17 24,38 n.d. n.d. n.d. women 83,83 79,83 75,62 n.d. n.d. n.d. Technicians 7,30 11,13 10,62 9,30 9,00 9,00 Administrative 3,14 3,74 4,35 4,00 3,80 3,80 source: INEGI. Estadísticas de la Industria Maquiladora de exportación: 1974-1982, 1975-1986,1978 -1988 1990-1994; and, CIEMEX-WEFA: Maquiladora Industry Analisys: 1991 and 1997. At present, the maquiladora program continues operating under the “Exporting Maquiladora Industry Registry” program that is a tax-deferring program. They still do not pay taxes on importing materials, machinery, equipment and production support tools needed for the manufacturing of their products. However, since 1994, the industry pays transfer-pricing rules. Under these rules, maquiladoras are required to pay taxes on their production, even, when the product is not sold in the Mexican market, but transferred to the parent company outside. The rules consider as taxable income 6.9 per cent of the maquiladoras’ assets or 6.5 per cent of their operating costs.162

After the government took this decision, a lot of maquiladoras started threatening to leave the country. China was performing an aggressive factory-recruiting campaign. The country was offering maquiladoras to move there with very convenient conditions. For example, China promised not to charge them the transfer-pricing taxes, offered them income tax breaks, to lower the cost of raw material supplies, cheap technical support, land and ready made factories at low lease rates and even offered free land to big companies that create a large number of jobs.163 Since China also has lower wages and a labour force less unprotected than the Mexican, the Chinese government was playing with joker cards to win the trade competition.

3. Evolution by Subsector

a) Metal products, machinery and equipment As mentioned before, as a strategy to develop the domestic manufacturing base for such industrial subsectors as autos, computers and other electronics, import-substituting  industrialisation provided a lot of incentives and protection to the metal products, machinery and equipment subsector in the form of tax rebates, duty exemptions, etc. The protection received during the 1960s, and 1970s continued during the 1980s and the 1990s.

While most protection programs have disappeared, the sector continues benefiting, at present, from PITEX and ALTEX programmes (very similar to the maquiladora programme) with its tax deferring benefits. Importing companies under PITEX continue benefiting from non- payment of taxes on importing material, machinery, equipment and support tools needed for the production of exports. This subsector’s industrial branches have become, then, outstanding examples of industries that have developed an impressive export performance under continuous preferential support and incentives provided by the government for more than 4 decades.

Indeed, its automotive, trucks, auto parts and engines, as well as its minicomputers and other electric and electronic equipment and machinery received the most costly subsidies and the best facilities to import capital goods. As a result, the industry has become composed of dynamic, modern and highly capital-intensive industrial branches with high rates of technological and organizational innovation. The majority of the trade done by this subsector (27.8 per cent of total output in 1995) is U.S.-owned intra-industry and intra-firm trade.

Its operations mainly consist in assembling of imported components. This fact explains its considerable demand of intermediate imported inputs that often creates a significant current account deficit. However, the appreciation of the real exchange rate, together with the facilities provided to import cheap capital goods has also meant that the subsector has been taking a greater capital-intensive direction than it would have otherwise done. This subsector had the capacity to provide large numbers of jobs. While it has almost tripled its formal employment since 1980, growing from 548 thousand jobs to 1 million 568 thousand in 2000, its employment share only represented 3.8 per cent of total employment. Probably without these incentives, the subsector could have provided even more formal jobs, if it had taken a less capital-intensive direction.

The author does not know if it was such a good idea to have provided and to continue providing so many incentives to this manufacturing subsector when capital and skilled labour were still very scarce. In addition, if the industry was supposed to be able to earn high enough returns to capital, labour, and other factors of production to be worth developing, then why did not private investors develop the industry without government’s support?

Between 1980 and 1994, the metal products, machinery and equipment was the manufacturing subsector receiving the highest direct investment flows. Foreign direct investment, together with the incentives mentioned before enabled it to acquire new technologies, improve infrastructure, stimulate productivity and increase competitiveness in world markets. While the subsector used to show the highest trade balance deficits until 1994, six years after the initial enforcement of NAFTA, the subsector has finally become more of an export platform than the import platform it was for so many decades. In 1991, its percentage of total manufacturing exports was finally higher than its percentage of total manufacturing imports. The subsector’s GDP share has also increased from 21 to 29 per cent. The subsector has also benefited from labour cost reduction in the country. Average remuneration in the subsector had halved by 1996 from its 1980 value. Lastly, its share of total, as well as formal manufacturing employment had grown considerably (see table Ch. VII-24). 

Table Ch. VII-24 Metal Products, Machinery and Equipment, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 9392 786 -8606 55.7 22.0 64.8 21 100 1981 13479 894 -12585 61.2 21.8 70.1 22 104.2 1982 8209 888 -7321 60.5 26.2 71.9 20 103.7 1983 4031 1663 -2368 56.6 30.5 141.8 17 80.7 1984 5615 2216 -3399 55.9 31.7 111.4 17 75.5 1985 7242 2129 -5113 57.6 33.1 83.1 18 76.6 22 1986 6732 3410 -3322 60.1 43.1 100.9 17 71.1 20 1987 6872 4457 -2415 58.0 42.7 169.1 17 70.7 30 1988 10249 5237 -5012 56.6 42.7 85.7 19 71.2 18.0 31 1989 12250 5859 -6391 53.7 44.8 65.6 20 28.8 76.3 32 1990 15963 7241 -8722 56.0 48.7 63.8 21 35.7 79.6 32 1991 26903 20463 -6440 57.3 63.3 43.9 23 32.6 84.2 32 1992 33731 23712 -10019 57.9 65.6 45.4 23 14.4 92.5 32 1993 35675 28352 -7323 54.0 66.5 31.2 23 21.3 95.6 20.3 32 1994 43490 35324 -8166 58.4 69.2 34.9 24 30.4 95.7 33 1995 39709 44681 4972 57.9 66.3 -426.6 24 59.9 53.9 33 1996 47462 55736 8274 56.9 66.3 1196.9 26 44.5 51.7 33 1997 59792 65166 5374 57.7 68.2 -66.6 28 34.3 33 1998 67370 72070 4700 65.9 69.8 463.1 29 33 1999 34 2000 24 36 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4.

(i) Automobiles, trucks and auto parts

The automobiles, trucks, auto parts, auto bodies, motors and accessories, are by far, the two fastest growing and more dynamic industrial branches of the metal products machinery and equipment subsector. While in 1980, they together accounted for 30.1 per cent of the industry’s output, by 1996 their share had rapidly grown to represent 44.6 per cent of total (see table Ch. VII-25).

In 1962, under the export-promotion policy of the import substitution era, the automotive industry was placed under a special industrial development program: imports of inputs were allowed if exports in a fixed proportion of the value of imports were carried out. Tax incentives, favourable import licences for finished equipment as well as preferential tariffs were granted in exchange for export quotas. It was estimated that 23 per cent of total subsidies encouraging the development of manufacturing capacity between 1977 and 1982, exclusively benefited the automobile industry.

Table Ch. VII-25 Percentage Distribution of the Metal Products, Machinery & Equipment Subsector's GDP, 1980-1996

1980 1985 1987 1989 1992 1994 1995 1996

TOTAL 100 100 100 100 100 100 100 100 Metal furniture 2.8 2.4 2.5 2.0 1.5 1.4 1.2 1.0 Structural metals 4.0 4.0 3.7 3.2 4.0 4.1 3.5 3.1 Other metals, except machinery 14.9 14.8 15.9 14.1 10.5 10.9 11.0 11.0 Non-electrical machinery & equip. 17.7 15.1 14.0 15.3 9.4 9.0 9.1 8.2 Electrical machinery & material 6.8 6.7 7.2 6.7 7.1 6.3 6.7 6.5 Household appliances 5.0 3.6 3.5 3.2 3.5 3.4 3.7 3.5 Electronic equip. & material 9.3 8.6 9.5 9.1 10.3 13.2 14.4 14.6 Electrical equip. & material 4.7 5.6 6.2 5.3 4.9 5.8 5.8 5.7 Automobiles 17.5 18.0 17.2 20.1 22.5 21.4 19.6 22.5 Automobile parts, motors, accesories & 12.6 16.8 15.1 16.2 23.9 22.3 22.4 22.1 Transport equip. & material 4.7 4.6 5.4 4.8 2.5 2.3 2.5 1.8 source: Author's own calculations based on Sistema de Cuentas Nacionales de México, quoted in "La Economía Mexicana en Cifras 1990", p.289. Since borders were closed, the automobile industry enjoyed from a monopoly in the domestic market. This tactic increased domestic prices that at periods doubled or even tripled U.S. prices. In 1981, the automotive industry reached its highest level of production: 500,000 vehicles per year. In 1983, a new «Automotive Decree» granted full protection against foreign competition through import licences and high tariffs, with additional benefits from trade liberalisation on imported components, requiring producers and assemblers in return to: 

1. reduce the number of car lines and models;

2. produce additional lines only if they were «balance of payments neutral»;

3. increase the local content requirement for finished vehicles from 50 to 60 percent (with the purpose of strengthening the national auto parts industry); and,

4. balance all their foreign exchange transactions on a yearly basis.164

The industry also benefited from the new export-promotion incentives of 1985-86 under a protected market for automotive imports. Even under the GATT agreement, special treatment was negotiated for automobiles and computers production. It was not until 1989, that two new automotive decrees, the Decree for the Development and Modernization of the Automotive Industry and the Decree for the Development and Modernization of the Transportation Vehicles Manufacturing Industry started a gradual trade liberalization of this industrial branch allowing for assembly car producers to import a small quantity of passenger cars according to specific ratios derived from the firm’s trade surplus; reduce domestic content requirements in the auto-parts industry; relax export requirements starting from 1990 and abolish the restrictions on the number of lines and models produced. In order to increase foreign investment in the industry, the 1989 decree also redefined the industry, reducing the number of firms subject to the 40 per cent limit on foreign participation. Motor vehicle producers were also allowed to import automobiles of their own brand name to supplement their domestic production.165

In 1990, the motor vehicle industry contributed to 2.3 of national GDP and 9 per cent of manufacturing GDP. There has been an increase in the share of exports in total sales of vehicles due to workers’ purchasing power lost and the installation of export-oriented production capacity for assembling engines and vehicles for export. By 1994, the industry was producing 1.1 million vehicles: 47.6 per cent for the domestic market and 52.4 per cent for the export market (see table Ch. VII-26).

Table Ch. VII-26 Total Production of Automobiles by Market of Destination, 1985-1994

Production for the domestic market Production for the export market TOTAL (percentages) (percentages) (units) Total Total Automobiles Trucks Automobiles Trucks 1985 42180085.163.357.914.985.914.1 1986 32810980.064.355.620.056.543.5 1987 33767567.662.859.232.475.224.8 1988 50520265.563.158.534.583.216.8 1989 62923068.963.158.531.184.415.6 1990 80369165.365.852.034.790.79.3 1991 96088362.063.657.338.093.66.4 1992 1051179 62.8 65.0 53.9 37.2 88.8 11.2 1993 1054991 53.3 69.3 44.2 46.7 90.3 9.7 1994 1096791 47.6 67.5 48.1 52.4 87.6 12.4 source: Author's own calculations based on "La Economía Mexicana en Cifras 1995", p.126. Most of this trade was conducted with a 10 per cent to 20 per cent tariff for auto parts, and 20 per cent for vehicles before the coming into force of NAFTA. And, gas motors, chassis, vehicles, light trucks, heavy trucks, buses and tractors needed a licence permit to enter the country. Under NAFTA, Mexico reduced tariffs immediately from 20 per cent to 10 per cent and is expected to eliminate restrictions on investment over a period of 10 years for passenger cars and phase out tariffs and other restrictions on light trucks in 5 years, and on buses and heavy trucks and spare parts imports in 10 years. The NAFTA agreement provided relatively more protection for the Mexican-based (but mostly U.S. owned) auto industry for  the next ten years in what concerns passenger cars. While the United States accepted to immediately reduce all tariffs on passenger cars, for light trucks tariffs will be eliminated in 5 years and for heavy trucks and buses from Mexico in a 10-year period.166

Under NAFTA Mexico decided to continue requiring significant import licences for the import of new and used automotive goods for a long period of time. Local content requirements were kept for the motor vehicle assembly industry for small cars (36 per cent), for trucks and buses (40 per cent), as well as minimum local content requirements in the use of parts and components produced by the domestic auto parts industry. In accordance with NAFTA’s investment provisions, Mexico immediately permitted NAFTA partners to make investments of up to 100 percent in Mexican «national suppliers» of parts, and up to 49 per cent in other automotive parts enterprises, increasing to 100 per cent after five years.

To qualify for duty-free treatment under the pact, cars were required to pass a rules of origin test with a minimum level of North American parts and labour: 62.5 per cent for autos, light trucks, engines, and transmissions; 60 per cent for other vehicles and parts. The regional- content requirement would grow gradually with time: 50 per cent for the first four years of the pact, 56 per cent for the second four years and it will rise to 62.5 per cent after eight years. Carmakers’ building new factories to make a model not yet made in North America obtained five years of a 50 per cent rule, but the standard rose more quickly, to 62.5 per cent in the sixth year forcing new assembly firms to source largely from Mexican- U.S. owned suppliers.

The 1989 Auto Decree was to cease to exist, under NAFTA, at the end of the 15-year transition period. The rules of origin presented in the NAFTA agreement concerning automobiles were seen as a result of the fears of the Big Three U.S. automakers that Japanese competitors could use Mexico as an «export platform». The Big Three were expected to sell several hundred thousand more cars a year in Mexico after the transition period, and Mexico hoped to become a major supplier of small cars and light trucks to the U.S. and Canadian markets.167

Mexico decided to open its borders slowly to used vehicles only 15 years after the enforcement of NAFTA, The ban will be completely phased out 25 years later, affecting consumers who will not be able to benefit fully from the open market until this moment. The Mexican government took that decision probably fearing that a horde of imports of used cars will seriously affect its trade balance since U.S. cars are much cheaper than in Mexico. Mexican consumers were very disappointed with the outcome since they were expecting to have an immediate access to U.S. used cars. Again, consumers were sacrificed for the benefit of producers.

While the special support programme for heavy trucks was terminated in 1994, the special protection programme for cars and light trucks was scheduled over a longer period. The automobile industry is still highly regulated internally through preferential treatment under a sectoral programme that does not seem to be needed anymore.

When it opened operations in the country, the industry concentrated mainly on the assembly of auto parts and vehicles, later it began manufacturing auto parts, engines and vehicles. While assembly operations still account for 55 per cent of total production in 1991, the production of auto parts, engines and other components for terminal car producers has been rapidly increasing. The growing specialization on the production of goods, instead of their assembly is reducing the possibilities of this type of industries to provide a larger number of jobs. The author is not sure that this type of production specialization is appropriate to a country rich in human resources. 

The Mexican automotive manufacturing has strengthened trends towards greater intra- industry and intra-firm specialisation with high productivity and quality levels and low production costs. Mexican firms concentrate on entry-level cars and light trucks, and in the production of parts. The automobile sector is, as well, the main source of export foreign exchange, after the petrochemical industry. The industry provides employment to 350,000 workers or to 15 per cent of manufacturing workers. Capital invested in the industry is mainly foreign. The top three exporting companies are The Big Three transnational auto manufacturers: Chrysler, Ford, and General Motors which are 99 per cent U.S. owned. Most of the production and sale of automobiles in the Mexican market is done in large-scale establishments by the Big Three, plus two other TNCs competitors: Volkswagen-Daimler- Benz and Nissan.168

If the growth of exports in the automobile industry is considered to be a sign of the good health of the industry, barriers to imports just seem obsolete by now. In addition, it is important to underline that the automotive industry has been contributing for years to the current accounts deficit since even if the industry exports more than half its output, it also imports a large number of foreign components for its production.169 It is not fair that this industry that counts on a large capital, high-technology and modern machinery remains so protected, while other weaker sectors that would have needed a longer period of adaptation and support are being exposed to free trade openly.

By the year 2000, Mexico was exporting more than one million vehicles (cars, trucks and buses) a year. Auto parts exports also tripled in comparison to 1993. The WTO 2000 International Trade Statistics ranked Mexico sixth among the leading worldwide exporters of auto and auto-parts, and the third among foreign suppliers for the U.S. Canadian and Japanese automotive industries. Indeed, the exports of automotive products augmented from 4,708 million dollars in 1990 to 30,645 million dollars in 2000, 6.5 times as much in only a decade. Automotive products share grew from 11.6 to 18.4 per cent of the economy’s total merchandise exports.170

While in 1990, exports of machinery and transport equipment together represented a 39.7 per cent share in the economy’s total merchandise exports, by 2000 it had gone up to a 59.7 per cent: Its value multiplied 6 times from 1990 to 2000: from 16,152 million dollars to 99,369 million dollars. Automobiles and vehicle parts trade are, now, after oil (petroleum and petrochemicals) the second largest category of exports from Mexico to the United States, are the first manufacturing trade component between Mexico and the U.S. and also between Mexico and Canada.

(ii). computer industry and other electric and electronic goods

The computer industry and other electronic goods are the second largest industrial branch comprised also within the metal goods, machinery and equipment subsector. The industry is specializing on high technology goods and has been one of the fastest growing export industries of the 1980’s and 1990s. The computer industry established operations in Mexico in the early 1980s when an official decree called for the promotion of a national computer industry. The three major computer companies that arrived at that moment were IBM, Hewlett Packard and Apple, the three from the U.S.

Computer firms were included in 1981 under special development programmes that granted them incentives to export with tariff protection and quantitative restrictions on computer imports. In order to encourage participation in the programme, the government offered them in addition a 20 percent tax credit for their investment and for the amount of new  jobs generated by this investment. Participants were also offered preferential pricing on energy consumption, and preferential treatment in government procurement.

In 1987, a decree required that foreign manufacturers of minicomputers use at least 30 percent Mexican content, increasing up to 40 percent in 1989. However, producers complained that local content requirements were difficult to meet due to the lack of sufficient local production. Since incentives to smaller national producers were not provided at the same time, it was hard to develop the local computer industry, at the same rhythm. While the industry created employment, the decree did not get to achieve its main purpose that was to develop Mexican-made parts.

On April 1990, the government removed import licences and replaced them by tariffs on imports affecting the whole electronics industry. However, the new regulations continued providing protection through incentive schemes on local content requirements by allowing firms that use at least 30 per cent local content to import duty free up to 80 percent of their production and the equivalent of 200 percent of their investment in technology until March 1993.171

By 1987 more than half of production was exported, covering, at the same time, more than 56 percent of domestic demand. The reduction of domestic and import price differentials also seems to have been achieved slowly. In general, the industry has shown to be adapting itself very positively to the new trade liberalisation system. From 1993 to 1996, output showed an average annual increase of 18 percent and exports went up by an average of 38 percent.

With the NAFTA Mexico phased out its 20 per cent computer tariff for the United States, and Canada and will seek to lower it for all other countries to 3.9 per cent in a period of 10 years. Contrary to textiles and autos, NAFTA establishes a common external tariff for computers and related parts among the three countries. To qualify for duty-free treatment, computers will be required only to contain a North American-made motherboard or a circuit board, a major component that normally accounts for 20 per cent to 40 per cent of the value of the computer. However, Mexico will still keep licence permits on old computers.

Under NAFTA, U.S. and Mexico electronic industries integrated their production processes and the industry has incredibly increased its production and productivity. The industry has largely become robotized with high technology machinery. IBM, which is the largest producer of computers in Mexico has become an integral part of IBM’s worldwide network, producing not just for Mexico but also for the world market with large profits. At present, import licences are only required for used computers.

By 1999, Mexican electronic exports faced an average import tariff close to zero (0.02 per cent) in the U.S. market. Today Mexico is a major producer of laptop computers and has become the number one TV supplier to the U.S. In 1999 Mexico sent every day, on average, 50,000 TV sets to the U.S. and was overtaking Asian suppliers as the main manufacturing centre for electronic goods sold in the U.S. Other products that Mexico exports to the U.S. market are internal combustion engine generators, electric motors, fire alarms, and semiconductor devices. The U.S. is, in turn, Mexico’s main supplier of electric motors, printed circuits, TV tubes, resistors, and transistors.172 Until present, used non-electrical machinery and equipment is still subject to import licensing: pumps, loading machinery, construction, mining machinery, agricultural machinery and sewing machinery.



b) Chemicals, rubber and plastics subsector The chemicals, petrochemicals, fertilizers, pharmaceuticals and rubber and plastics industries comprised within this subsector have been another of the most protected branches of the manufacturing sector even if it is a highly capital-intensive industry (see table Ch. VII- 27). As mentioned previously, this industrial branch used to enjoy widespread protection through high tariffs, import reference prices and import licences. In addition, government procurement rules provided domestic firms with a preferential advantage in public tenders.

After July 1985, import reference prices were eliminated, and import licensing requirements and import tariffs were reduced. However, even after the 1985 opening, basic chemicals industries enjoyed preferential tax credits and considerable energy subsidies. In 1987, the government suspended tax credits and reduced most energy subsidies. Initially, the basic chemicals was the industrial branch that accounted for most of the protection. However, later on, fertilizers and pesticides enjoyed higher effective rates of protection until 1993. The petrochemicals industrial branch was highly monopolised and dominated by the public sector. With the consequent modifications of the investment law and the declassification of a large number of basic petrochemicals as secondary petrochemicals, the situation changed. Now, the industry is largely privately owned and is becoming highly competitive.

Table Ch. VII-27 GDP of the Chemical Substances, Oil by Products, Rubber & Plastic Subsector, 1980-1996 (percentages) 1980 1982 1985 1989 1992 1994 1995 1996

TOTAL 100 100 100 100 100 100 100 100 Oil by-products 12.1 11.0 10.6 10.4 13.2 13.8 13.1 12.3 Basic petrochemicals 4.0 4.8 5.9 7.7 6.2 6.1 6.4 5.8 Basic Chemicals 7.8 8.0 8.5 8.6 10.4 10.2 10.6 10.7 Fertilizers 1.7 2.5 2.4 2.4 1.1 1.1 1.4 1.6 Synthetic resins & artificial fibres 10.7 9.8 11.5 12.8 8.4 8.0 8.9 9.2 Pharmaceutical products. 13.3 13.0 12.7 11.1 17.1 16.0 18.4 18.1 Soaps, detergents & cosmetics 12.0 13.1 12.2 12.3 12.4 12.4 11.7 11.3 Other chemical products. 14.7 13.8 13.6 13.0 11.8 11.9 10.9 11.0 Rubber products 11.9 11.4 11.2 10.2 6.2 5.8 5.3 5.8 Plastic products 12.2 12.6 11.7 11.5 12.4 13.3 12.3 13.1 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México, quoted in "La Economía Mexicana en Cifras 1990", p.271. and 1998, p.115. Traditionally, the pharmaceuticals industrial has been highly foreign-owned. In 1991, 65 per cent of the private market sales were done by foreign enterprises. The branch was highly regulated and pharmaceutical products’ prices were controlled by the State. The pharmaceutical industry was governed by a decree issued in 1984 that rationalized the supply of medicine, expanded domestic production of ingredients and aimed at promoting exports. Local content requirements (at least 20 per cent in 1985 gradually increasing to 50 per cent 5 years later) were established and pharmaceutical companies were required to increase exports to a minimum of 30 per cent of their total sales. In addition, companies received preferential treatment in government procurement.

On January 1993, government procurement preference was abolished and import- licensing requirements were gradually phased out. However, effective rates of protection continued high for fertilizers and pharmaceuticals. Before NAFTA’s entrance Mexican chemical exports to the U.S. faced an average import tariff of 1.46 per cent, and by 1999 it was close to zero. In 1993, U.S. chemical goods to Mexico faced an average import duty of 6.67 per cent. With NAFTA’s entry, the tariff decreased to 1.62 and by the year 2003 all imports will enter duty free.

Mexico-U.S. trade in the rubber and plastics industrial branch increased by more than 160 per cent from 1993 to 1999. U.S. rubber and plastics companies have established sister  companies in Mexico to produce moldings, rubber compoundings, automotive rubber applications, and injection-molded plastic components for monitors and television equipment. At the same time, Mexico has become a major buyer of U.S. hard rubber, tubes, pipes and hoses, and belts for machinery. U.S. exports to Mexico grew more than 150 per cent during the same period. In 1993, the average tariff paid on U.S. rubber and plastics exports to Mexico was 4.79 per cent. By 1999, the tariff had been reduced to 0.85 per cent. Other trading partners exporting rubber and plastics to Mexico faced an average import tariff of 9.5 per cent in 1999.173

Mexico has become the U.S. number one supplier of chemical products such as synthetic nylon fibres, support catalyst, sulphur compounds, sodium sulphates, alcohols, hydroquinone, ammonium, gelatin capsules, estrogens, chemical fertilizers and washing preparations. At the same time, the U.S. is Mexico’s main supplier of chemicals such as acetic acid, ethane, synthetic pigments, synthetic fibres of nylon, phohinates, pigments, silicones, fluorosilicates and lithium carbonates, among others. The industry has shown very positive signs of meeting the increasing demand for low-cost and high quality chemicals used in a variety of sectors. 174

Notwithstanding this impressive growth, the industry has been continuously recording high trade balance deficits. At the same time, its percentage of total manufacturing exports has decreased, while that of imports has been increasing. The industry’s percentage of total manufacturing GDP has been steady, while that of total manufacturing investment has varied from 6 per cent to 40 per cent from 1989 to 1996. Average remuneration has also importantly been reduced in real terms in the industry, while its total manufacturing employment has been rising (see table Ch. VII-28).

Table Ch. VII-28 Chemicals, Rubber and Plastics, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 2709 955 -1754 16.1 26.7 13.2 15 100 11 1981 3127 1224 -1903 14.2 29.9 10.6 15 101.8 1982 2329 845 -1484 17.2 24.9 14.6 16 97.9 1983 1597 1546 -51 22.4 28.4 3.1 17 75.6 1984 2291 2226 -65 22.8 31.9 2.1 18 71.4 1985 2936 2173 -763 23.3 33.8 12.4 18 74.0 13 1986 2400 1634 -766 21.4 20.7 23.3 18 69.9 1987 2668 1958 -710 22.5 18.8 49.7 18 70.5 13 1988 3518 2369 -1149 19.4 19.3 19.6 18 71.7 8.1 13 1989 4450 2300 -2150 19.5 17.6 22.1 18 25.9 76.4 13 1990 4943 2987 -1956 17.3 20.1 14.3 18 40.6 77.6 13 1991 8043 3719 -4324 17.1 11.5 29.5 18 12.2 81.3 13 1992 9536 3979 -5557 16.4 11.0 25.2 18 13.6 91.0 12 1993 10226 4282 -5944 15.5 10.0 25.3 18 16.5 95.0 15.1 12 1994 11824 4627 -7197 15.9 9.1 30.8 18 9.9 95.1 12 1995 11840 6183 -5657 17.3 9.2 485.4 17 11.8 65.1 12 1996 14727 6339 -8388 17.7 7.5 -1213.4 16 27.6 65.6 12 1997 18428 7071 -11357 17.8 7.4 140.8 15 6.4 11 1998 6918 7196 278 6.8 7.0 27.4 15 11 1999 11 2000 13.4 11 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4.

c) Food, beverages and tobacco The food, beverages and tobacco industry accounted for 25 percent of manufacturing gross output and provided employment to 1.56 million workers in 2000, 683 thousand of them in the formal sector. Between 1982 and 1988, the industry recorded surpluses in its trade balance and its percentage of total manufacturing exports was considerable. As of 1989,  however, the industry has also contributed to the current account deficit. Lately, the industry has attracted large sums of investment flows (see table Ch. VII-29).

Table Ch. VII-29 Food, Beverages and Tobacco, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 1170 772 -398 6.9 21.6 3.0 25 100 24.6 1981 1078 679 -399 4.9 16.6 2.2 24 101.6 1982 691 707 16 5.1 20.9 -0.2 26 96.0 1983 527 725 198 7.4 13.3 -11.9 28 73.6 1984 500 822 322 5.0 11.8 -10.6 27 69.3 1985 508 751 243 4.0 11.7 -4.0 26 68.6 26.8 1986 490 937 447 4.4 11.8 -13.6 28 62.8 1987 460 1313 853 3.9 12.6 -59.7 27 60.8 18.1 1988 1233 1363 130 6.8 11.1 -2.2 26 57.6 19.4 17.7 1989 2014 1268 -746 8.8 9.7 7.7 26 21.6 62.0 17.6 1990 2679 1095 -1584 9.4 7.4 11.6 26 15.3 65.3 17.7 1991 2635 1421 -1214 5.6 4.4 8.3 26 27.3 70.5 17.8 1992 3336 1365 -1971 5.7 3.8 8.9 26 20.6 76.7 18.7 1993 3356 1590 -1766 5.1 3.7 7.5 26 36.1 83.9 23.2 18.9 1994 3989 1896 -2093 5.4 3.7 9.0 26 29.8 83.9 18.6 1995 2616 2529 -87.5 3.8 3.8 7.5 28 13.8 68.9 18.7 1996 3116 2930 -185.7 3.7 3.5 -26.9 26 12.2 66.9 17.8 1997 3587 3324 -263 3.5 3.5 3.3 25 50.2 17.5 1998 3666 3482 -184 3.6 3.4 -18.1 25 16.9 1999 16.4 2000 20.7 15.5 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. While the food, beverages and tobacco has also received government’s support through tax credits and energy subsidies, effective rates of protection for non-durable consumer goods produced by this industry have been usually low and even negative. Mexico, is at present, however, a net importer of food manufactured products. Main imported products are sugar, dairy and canned products. The only item that has constantly benefited from high protection is the prepared animal feeds industrial branch.

The most important industrial branches comprised within this subsector are the following: meat and dairy products, the grinding of wheat, the grinding of corn, beer and malt, sodas and other beverages, and other food products (See table Ch. VII-30).

Table Ch. VII-30 Percentage Distribution of the Food, Beverages & Tobacco Subsector's GDP, 1980-1996

1980 1982 1985 1987 1989 1992 1994 1995 1996

TOTAL 100 100 100 100 100 100 100 100 100 Meat & dairy prod. 16.3 16.9 16.9 16.3 16.1 19.6 20.8 20.9 20.4 Fruits & vegetables 2.5 2.6 2.5 2.9 2.7 4.1 4.2 4.1 4.3 Grinding of wheat 10.0 10.1 10.0 9.6 9.7 9.3 9.2 9.4 9.2 Grinding of corn 9.9 10.1 10.8 10.9 11.1 12.4 12.2 12.5 12.4 Grinding of coffee 4.0 4.1 4.1 4.3 4.5 2.7 2.4 2.4 2.5 Sugar 8.2 7.6 9.2 10.8 9.7 3.3 3.2 3.7 3.9 Oils & edible fats 4.9 5.2 5.8 5.3 5.3 3.3 3.3 3.2 3.1 Food for animals 2.8 2.8 2.3 1.8 1.8 1.9 1.8 1.7 1.5 Other food products 11.4 11.4 10.9 11.1 11.4 17.3 17.2 17.3 17.5 Alcoholic beverages 5.9 6.0 6.3 6.0 5.9 3.8 3.1 2.7 2.8 Beer & malt 8.6 8.2 7.2 7.9 8.2 7.3 7.5 7.4 7.5 Sodas & other beverages 9.5 9.4 8.9 8.3 8.9 10.9 11.5 11.1 11.2 Tobacco 5.9 5.5 5.2 4.8 4.7 3.9 3.5 3.6 3.6 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México, cited in "La Economía Mexicana en Cifras 1990", p.259. Import tariffs levied on beverage products paid a 20 per cent tariff in 1990, while import licences had been eliminated and excise taxes were levied on certain alcoholic beverages. Before the entering of NAFTA, the U.S. charged a 2 percent tariff to Mexican beer. That same year Canada decided to exempt Mexican beer from any tariffs.

Currently, manufactured food exports showing positive growth rates are the production of beer, sodas and beverages, sugar and the production of canned and packed fruits and vegetables. Exports have expanded significantly, especially due to the impressive  performance of the beer industry. Corona is Mexico’s 28th largest exporter with foreign sales exceeding 150 million dollars a year. It employs around 40,000 workers.

d) Textiles, clothing and leather

The textile sector is divided in five parts: leather and shoes; production of synthetic (hard) fibres; production of natural (soft) fibres and all kinds of thread, tissues, and material; other textiles industries; the garments sector. From 1980 to 1996 the garments, followed by other textile industries were the two subsectors recording the highest growth (See table Ch. VII-31 and Ch. VII-32). With the exception of the maquiladora establishments, most of these enterprises were nationally owned, small-scale and run under a traditional system until 1994.

However, Mexico’s participation in the import-export of textile, clothing and leather goods was poor until 1990 and only showed a slow growth from 1991 to 1993. One of the main reasons for this is that contrary to capital-intensive manufacturing subsectors like the metal products machinery and equipment, the textiles and garments industry which is mainly a labour intensive subsector (especially its clothing branch) only received during the import- substitution period very few incentives in the form of tax credits and energy subsidies. Until 1992, no industry-specific programme was created to promote its development. The only industrial branch that enjoyed from high effective rates of protection was the production of synthetic fibres, a relatively more capital-intensive branch.175

Table Ch. VII-31 Percentage Distribution of the Textiles, Garments & Leather Subsector GDP, 1980-1996

1980 1981 1982 1983 1985 1989 1992 1994 1995 1996

TOTAL 100 100 100 100 100 100 100 100 100 100 Hard fibres & cords 30.9 30.4 29.2 30.4 31.0 32.7 20.3 19.6 20.7 20.7 Soft fibres & cords 4.5 4.3 4.5 4.4 3.4 3.9 2.1 2.2 2.5 2.2 Other textiles industries 10.4 10.4 10.3 10.6 11.0 11.8 20.1 20.9 20.5 21.0 Garments 32.4 32.3 32.1 33.2 32.0 31.9 38.2 38.9 39.0 39.3 Leather & shoes 21.8 22.7 23.8 21.5 22.6 19.7 19.2 18.4 17.4 16.8 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México, quoted in "La Economía Mexicana en Cifras 1990", p.262, and 1998, p.114 A second very important reason is that Mexico had signed a voluntary export restraint agreement (VRA) with the United States under the Multifibre Arrangement (MFA) in 1984 that had blocked the growth of the sector. The agreement in force until 1992 with provision for a further one-year extension, had established export quotas that even counted maquiladora exports against Mexico’s textile exports to the U.S. market, even though they were made of U.S. manufactured and cut material. Textile products comprised by the agreement were those made of cotton, wool fibres, as well as artificial and synthetic fibres.176 In addition, that same year the U.S. decided to impose an ad-valorem tax of 1.76 against Mexican textiles. Indeed while the production of some of the goods included in this subsector like clothing, were highly labour-intensive, Mexico could not develop its clothing industrial branch appropriately.

After July 1985, Mexico reduced tariffs on this industry’s goods to 10 per cent for fibres, 15 per cent for textiles and 20 per cent for clothing. Notwithstanding, and thanks to maquiladoras textiles, clothing and footwear industries, a small surplus was registered in its trade balance from 1983 to 1988. The surplus was highly attributed to the under valuation of the peso. However, starting from 1989 the industry showed high trade deficits due to increased national demand supported by the high value of the currency relative to the U.S. dollar (see table Ch. VII-33). 

Table Ch. VII-32 Index of the Textiles, Garments & Leather Subsector GDP, 1980-1989

1980 1981 1982 1983 1985 1988 1989

TOTAL 100 105.7 100.7 95.1 98.5 89.9 91.7 Hard fibres & cords 100 104.0 95.2 93.4 98.8 95.0 96.9 Soft fibres & cords 100 101.1 102.7 94.9 75.4 79.7 80.2 Other textiles industries 100 105.5 100.2 96.7 104.1 102.3 104.2 Garments 100 105.1 99.5 97.2 97.1 88.3 90.1 Leather & shoes 100 110.1 109.9 93.7 102.1 81.1 82.9 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México, quoted in "La Economía Mexicana en Cifras 1990", p.262 and 1998, p.114 In addition, Mexico and the U.S had signed a Bilateral Textile Agreement in February 1988 that further liberalized through the reduction of tariffs and licence permits, imports of textile machinery, spare parts and textile and clothing goods. A positive development from the bilateral agreement is that it eased the provisions of the voluntary export restraint signed previously. The new bilateral agreement included a special regime excluding products assembled in Mexican maquiladoras from U.S. formed or cut fabric. Still, 71.1per cent of all national manufacturing textile exports to the U.S. faced quotas.

Table Ch. VII-33 Textiles, Garments and Leather, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 268 185 -83 1.6 5.2 0.6 14 100 18.1 1981 404 181 -223 1.8 4.4 1.2 14 100.2 1982 270 150 -120 2.0 4.4 1.2 13 96.5 1983 47 191 144 0.7 3.5 -8.6 14 76.8 1984 99 275 176 1.0 3.9 -5.8 13 71.1 1985 144 195 51 1.1 3.0 -0.8 13 70.9 17.5 1986 136 333 197 1.2 4.2 -6.0 13 63.9 1987 172 566 394 1.5 5.4 -27.6 12 61.8 18.0 1988 452 620 168 2.5 5.1 -2.9 12 60.8 17.7 17.7 1989 812 623 -189 3.6 4.8 1.9 11 4.1 65.7 18.0 1990 1048 632 -416 3.7 4.3 3.0 11 1.1 66.7 17.8 1991 2237 2014 -223 4.8 6.2 1.5 10 4.6 70.3 17.8 1992 3023 2317 -706 5.2 6.4 3.2 9 5.3 74.7 17.9 1993 3525 2770 -755 5.3 6.5 3.2 9 3.2 77.9 24.7 17.5 1994 4167 3256 -911 5.6 6.4 3.9 9 0.5 77.8 17.6 1995 3618 4899 1281 5.3 7.3 -109.9 8 0.0 46.0 18.0 1996 4603 6339 1736 5.5 7.5 251.1 9 0.0 43.0 19.5 1997 6145 8815 2670 5.9 9.2 -33.1 9 0.0 20.3 1998 7076 9204 2128 6.9 8.9 209.7 8 21.4 1999 21.5 2000 25 21.4 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. The textiles deficit reached a negative of 911 million dollars in 1994. Clothing also showed small deficits right after the entrance of NAFTA. The income destined by Mexico to import garments sold by the U.S. increased from 144 million dollars in 1985 to 4,167 million dollars in 1994. During this period, the U.S. reduced its imports of Mexican garments and started exporting to Mexico finished garments made in the U.S. or from U. S companies in Asia.

The traditionally labour-intensive garments’ sector was not able to increase its sales, value of production and wages during this period. From 1989 to 1994 garments’ output fell by an annual average of 2.7 per cent a year, and productivity levels, wages and employment were also going down (see table Ch. VII-34). By the beginning of the 1990s, around 80 percent of garments and textile products were still produced for the domestic market, and were very affected by the internal economic crisis. 

Table Ch. VII-34 Main Indicators of the Garments' Industry, 1987-1994

Year Value of production Sales' value Wages Employment Nominal* Real** Nominal* Real** Nominal* Real** Average 1987 414969 5869 404767 5676 49834 709 24555 1988 89409 6042 846906 5712 98845 667 24825 1989 997283 5611 971690 5451 122749 688 24450 1990 1169286 5199 1161005 5146 152876 675 23863 1991 1380573 1995 1336220 4827 185116 669 23037 1992 1502203 4720 1477965 4633 217342 681 22450 1993 1418001 4056 1395877 3989 226952 648 21349 1994*** 1039163 2801 1043301 2811 171247 462 20927 *thousands of new pesos **thousands of 1978 new pesos ***third trimester source: Cámara Nacional de la Industria del Vestido (CNIV) quoted in "La Economía Mexicana en Cifras 1995", p.135. At that moment, 83 per cent of all Mexican firms in the textiles, garments and leather sector was being done in small-scale workshops belonging to the informal sector which usually did not possess any modern technology or machinery. Indeed, out of 11,265 existing economic units in 1990, 9,287 or 82.4 per cent were not registered in the fiscal department and did not cover the social security of their workers. Most Mexican textile companies could not compete internationally on the basis of productivity, quality, innovation and diversity of styles and did not have any experience in doing the marketing. Investment in technological research, development and acquisition was low, as well as income directed towards technology purchase and/or transfer.

Even before NAFTA, during the consolidation of trade period, U.S textiles and clothing made in Asia, were invading the Mexican market and Mexican garment firms were closing up or barely surviving in the informal sector with very low wages and diminishing their employment levels. The invasion of imports from the United States rapidly displaced large number of these establishments. While in 1989, national-made products still covered 91.5 per cent of domestic demand, by the end of 1994 they only covered 51.7 per cent of it. During the first months of 1995, the apparel sector suffered a further drop of almost 60 percent in internal demand.177

In 1992, the government together with the private sector finally decided to support the industry through an important restructuring programme that aimed at improving the international competitiveness of the subsector. The programme fostered the improvement of quality control, design and marketing products. Non-preferential credits were also provided to support textile and clothing exports. At the same time, the government created a specific programme to promote competitiveness and internationalisation of the footwear and leather industry.

Due to the increasing pressure that textiles, garments and leather and shoe companies were going through the process of trade liberalisation, in 1993 the government decided also to increase tariffs of goods coming from countries with which it had not concluded free trade agreements. An additional point favouring the industry’s development is that just before the entrance of NAFTA, the voluntary export restraint was terminated. As a result, the industry started recuperating quickly.

At NAFTA’s entry, Mexican textiles faced a maximum tariff of 57 per cent to enter the U.S. and of 30 per cent to enter Canada. On its side, Mexico imposed a maximum tariff of 20 per cent to both countries. Under the NAFTA, Mexico initially removed tariffs to 20 per cent of U.S. textile exports, but was going to phase out its tariffs for U.S. and Canadian-made  textiles and garments in a period of five to six years. In response, the U.S. immediately removed import quotas on 45 per cent of goods produced in Mexico and in all those that fulfil the rules of origin obligations. In 1993, the average tariff paid on U.S. footwear exports to Mexico was 3.5 per cent while Mexican footwear export to the U.S. paid a 5.42 duty.

There were strict rules of origin established though, which required that the product be «yarn and fibre forward» which means that the fabrics and their elaboration must be made in a member country to qualify as local. Certain imported fabrics in short supply in North America, though, could qualify for «tariff preference levels (TPL)» up to specific import level or tariff rate quotas. Mexico will be allowed to ship a specific amount of clothing and textiles made from foreign materials to the United States each year, and this quota will rise slightly over five years. On the other hand, the import of used clothing continued strictly restricted.

A significant outcome expected from NAFTA by Mexican producers was to reverse the trade route of textiles and clothing (Asian countries-U.S.-Mexico), reducing U.S. clothing imports from Asian countries and at the same time increasing their exports to the U.S. market, maybe by attracting Asian investment to the country. When U.S. producers started complaining and saying that NAFTA just represented a transfer of jobs from U.S. to Mexican workers, the Organisation of Trade in America (OTA) said that NAFTA was not the main threat for U.S. jobs and wages. It stated, «the threat to the U.S. apparel jobs has been there for several years and it is global, not regional». According to OTA, Asian low-cost producers have already displaced thousands of U.S. workers. As Hinojosa and Robinson believe, «American producers seem to fear, not the Mexican industry as it now exists, but the likelihood that Asian firms will provide the capital and expertise to Mexican producers and displace the strong U.S. textile market».178

Fearing this outcome, the U.S. called for the design of strict rules of origin within NAFTA that should prevent Asian countries from using Mexico as a platform for export of Asian components and sewn products to the United States. However, Asian countries reacted rapidly and anticipating the closing of the North American market, they started penetrating the Mexican industry, specialising mainly in the synthetic fibres sector. By 1994, Japan had become the third investor in Mexico after the U.S. and the United Kingdom. Taiwan, South Korea, Singapore and Hong Kong had also decided investing in the country since good and cheap labour, access to the U.S. market, low-cost energy and transport prices were enough reasons to open up.

Mexico has not been able to compete until present with the U.S. strong textiles’ industry. Mexico ranks on the 8th place as one of the leading importers of textiles in the world.179 On the other hand, Mexico is becoming rapidly an important U.S. provider of footwear and leather products along with China, Brazil, Spain and Italy. By 1999, the average tariff on Mexican footwear exports to the U.S. was 0.24 per cent only. During NAFTA’s first six years, the industry’s U.S.- Mexico trade grew close to 90 per cent reaching 2.1 billion. Currently, Mexico is home to more than 2,200 export firms and 60 maquiladoras that produce and export footwear and leather products.180

In addition, the country has been reporting strong surpluses in its clothing trade since the third trimester of 1995. Indeed, the Mexican garments industry rapidly became a winner in the free trade process with North America. Mexico became in 2000, an important supplier of clothing to the U.S., representing a 10.2 per cent share of total U.S. imports. Clothing trade balance recorded a “never seen” surplus of 5.2 billion dollars by the year 2000. Exports of clothing increased from 587 million dollars in 1990 to 8,696 million dollars in 2000. The growth of clothing exports represented 5.2 of the economy’s total merchandise exports that  same year increasing from a 1.4 per cent share in 1990. By the year 2000, Mexico had also become the fourth worldwide leading exporter of clothing after China, Hong-Kong and Italy with a 4.4 per cent share in world exports of clothing.181 (see table Ch. VII-35)

Table Ch. VII-35 Mexico's ranking on list of worldwide leading exporters and importers, 2000 Share of U.S. imports Ranking of U.S. supplier Ranking of Canada's supplier Exporter Importer World merchandise trade 13th 11th 11.20% 4th 4th manufactures 13th 10th machinery and transport equip. 8th 9th office machine and telecom equip. 12th 12th 12.80% 2nd 4th automotive products 6th 9th textiles 8th clothing 4th 12th Commercial services 27th 24th travel services 11th Fuels 13th 13th 9.40% 13th Iron and steel 15th Chemicals 13th source: Author's own calculations based on WTO data "International Trade Statistics 2001", Geneva, note: By the year 2000 Mexico was the leading merchandise and commercial services exporter and importer in Latin America, ahead of Brazil The clothing and footwear industries have been, until now, the main labour-intensive beneficiaries of Mexican trade liberalization policies. However, a large part of their output relies on informal workers and other unprotected types of jobs.

e) Basic metals

Mexican exports of steel were also subject until March 1992 to a voluntary export restraint agreement signed with the United States in 1984. Under the agreement, Mexico’s share of the U.S. steel market was limited to around 0.9 per cent. After the expiry of the VRA, the U.S. initiated anti-dumping and countervailing duty actions against Mexican steel exports. In turn, anti-dumping duties (of up to 39 per cent) were established by Mexico in February 1993. Steel exports to the U.S. market that used to represent around 20 per cent of total manufacturing exports in 1981, were importantly cut.182

The iron and steel industry that belongs to the basic metals subsector accounts for 5.3 percent of manufacturing gross output. The industry reduced employment rapidly during this period. It recorded the biggest, average fall in employment during the second period studied due not only to the above-mentioned factors, but also to the privatisation and massive restructuring of its iron and steel branches (see table Ch. VII-36).

Fifty percent of steel production used to belong to industrial parastatals (state companies). In 1986, the government decided to shut down the Fundidora Monterrey steel mill. In 1993 and 1994 the most important public steel mill companies were offered on sale to private investors, who undertook a fundamental big restructuring and a large number of the labour force was retrenched.183



Table Ch. VII-36 Basic Metals, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 2325 568 -1757 13.8 15.9 13.2 61004 1981 2823 806 -2017 12.8 19.7 11.2 6105.0 1982 1355 491 -864 10.0 14.5 8.5 6107.1 1983 541 881 340 7.6 16.2 -20.4 681.7 1984 1005 888 -117 10.0 12.7 3.8 676.3 1985 1118 641 -477 8.9 10.0 7.8 675.04 1986 823 917 94 7.3 11.6 -2.9 667.1 1987 861 1260 399 7.3 12.1 -27.9 672.74 1988 1498 1567 69 8.3 12.8 -1.2 673.84.94 1989 1776 1900 124 7.8 14.5 -1.3 6 1.6 81.1 3 1990 2020 1884 -136 7.1 12.7 1.0 6 1.3 84.8 3 1991 3786 2088 -1698 8.1 6.5 11.6 6 4.6 85.2 3 1992 4509 2074 -2435 7.7 5.7 11.0 6 1.4 98.5 2 1993 8789 2423 -6366 13.3 5.7 27.1 6 10.7 97.0 1.4 2 1994 5126 2620 -2506 6.9 5.1 10.7 6 22.6 97.1 2 1995 4897 4889 -8 7.1 7.3 0.7 5 3.1 68.3 2 1996 5949 7875 1926 7.1 9.4 278.6 5 8.2 64.6 2 1997 7283 5358 -1925 7.0 5.6 23.9 51.8 2 1998 8592 5202 -3390 8.4 5.0 -334.0 5 2 1999 2 2000 1.4 2 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. The average tariff levied on imports was 10.5 percent before the NAFTA agreement. In December 1991, an agreement between auto parts and steel producers was signed, aiming at promoting the modernisation of the industry. When NAFTA came into effect, the steel industry had just been privatised. The Mexican steel industry was no match for the efficient U.S. steel producers. Indeed, the U.S. relaxation of quotas on Mexican steel resulted in little increase in the export of finished steel products to the United States. Virtually all the increase was in low-value semi-finished products. NAFTA has actually resulted in an increase of U.S. exports of steel or steel-bearing machinery to Mexico. The United States is, in reality, a net steel exporter to Mexico.184

f) Four other manufacturing subsectors The four remaining manufacturing subsectors are participating to a less extent in the growth of exports since the opening confirming the theory that without initial government support and subsidies, it has been much harder and it has taken longer to those sectors to start significantly participating in trade. On average, these four subsectors contribute to less than 3 per cent of total exports each. In 1994, other manufacturing industries were exporting more than 10 per cent of their output, paper and paper products 8.2 per cent, non-metal mineral products 7.7 per cent, and lastly, wood and wooden products only 1.8 per cent. Among the four, the subsector that participates more importantly on manufacturing GDP is the non-metal mineral products with its growing cement industry. By 1999, the non-metal mineral products had finally started increasing its share of output exported to more than 12 per cent of output. The same was true for wood and wooden products.

For more detailed information on percentage of manufacturing investment received, average remuneration, percentage of employment and GDP, please look at the following tables:

1. Wood and wooden products (see table Ch. VII-37);

2. Paper and paper products (see table Ch. VII-38);

3. Non-metal mineral products (see table Ch. VII-39):

4. Other manufacturing industries (see table Ch. VII-40). 

Table Ch. VII-37 Wood, and Wooden Products, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 83 55 -28 0.5 1.5 0.2 41006 1981 87 59 -28 0.4 1.4 0.2 4106.0 1982 52 52 0 0.4 1.5 0.0 499.5 1983 23 82 59 0.3 1.5 -3.5 466.1 1984 37 98 61 0.4 1.4 -2.0 475.2 1985 49 72 23 0.4 1.1 -0.4 473.75 1986 48 101 53 0.4 1.3 -1.6 469.6 1987 43 135 92 0.4 1.3 -6.4 466.14 1988 81 182 101 0.4 1.5 -1.7 4 60.8 14.8 4 1989 111 197 86 0.5 1.5 -0.9 35.062.1 4 1990 174 168 -6 0.6 1.1 0.0 31.963.0 4 1991 428 444 16 0.9 1.4 -0.1 31.864.1 4 1992 550 499 -51 0.9 1.4 0.2 33.866.7 4 1993 571 574 3 0.9 1.3 0.0 3 8.7 67.8 6.4 4 1994 695 586 -109 0.9 1.1 0.5 31.067.8 4 1995 350 619 269 0.5 0.9 -23.1 30.051.0 4 1996 390 861 471 0.5 1.0 68.1 30.048.8 4 1997 461 1047 586 0.4 1.1 -7.3 30.0 4 1998 506 1103 597 0.5 1.1 58.8 3 4 1999 4 2000 6.4 3 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4.

Table Ch. VII-38 Paper, and Paper Products, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 639 79 -560 3.8 2.2 4.2 51005 1981 705 81 -624 3.2 2.0 3.5 597.5 1982 471 78 -393 3.5 2.3 3.9 692.1 1983 292 75 -217 4.1 1.4 13.0 671.9 1984 377 97 -280 3.8 1.4 9.2 666.4 1985 415 87 -328 3.3 1.4 5.3 665.15 1986 431 138 -293 3.8 1.7 8.9 659.5 1987 608 222 -386 5.1 2.1 27.0 659.85 1988 797 323 -475 4.4 2.6 8.1 6 60.0 14.8 5 1989 934 269 -665 4.1 2.1 6.8 62.062.5 5 1990 1061 203 -858 3.7 1.4 6.3 60.462.4 6 1991 1812 622 -1190 3.9 1.9 8.1 50.365.9 6 1992 2189 655 -1534 3.8 1.8 7.0 50.971.2 6 1993 2366 662 -1704 3.6 1.6 7.3 5 0.3 73.0 6.4 6 1994 3039 562 -2477 4.1 1.1 10.6 50.973.0 6 1995 2899 872 -2027 4.2 1.3 173.9 50.058.0 6 1996 2887 896 -1991 3.5 1.1 -288.0 50.056.6 5 1997 3280 1063 -2217 3.2 1.1 27.5 50.0 5 1998 3584 1084 -2500 3.5 1.0 -246.3 5 5 1999 5 2000 6.4 5 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4.

Table Ch. VII-39 Non-metal Mineral Products, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment 1980 164 128 -36 1.0 3.6 0.3 7 100 6.0 1981 202 125 -77 0.9 3.0 0.4 7 100.9 1982 117 140 23 0.9 4.1 -0.2 7 101.2 1983 41 210 169 0.6 3.9 -10.1 7 79.0 1984 73 289 216 0.7 4.1 -7.1 7 73.9 1985 103 313 210 0.8 4.9 -3.4 7 73.5 7 1986 93 375 282 0.8 4.7 -8.6 7 70.0 1987 110 447 337 0.9 4.3 -23.6 7 67.8 5 1988 161 521 360 0.9 4.2 -6.2 7 68.3 5 1989 228 567 339 1.0 4.3 -3.5 7 1.2 70.2 5 1990 311 525 214 1.1 3.5 -1.6 7 1.6 74.3 5 1991 568 836 268 1.2 2.6 -1.8 7 15.8 81.1 5 1992 716 919 203 1.2 2.5 -0.9 7 39.1 88.8 5 1993 820 1125 305 1.2 2.6 -1.3 7 0.7 93.5 5 1994 1010 1215 205 1.4 2.4 -0.9 7 0.9 93.5 4 1995 910 1405 495 1.3 2.1 -42.5 7 1.9 75.8 4 1996 1264 1718 454 1.5 2.0 65.7 7 0.3 68.6 4 1997 1462 2025 563 1.4 2.1 -7.0 70.1 4 1998 1512 2162 650 1.5 2.1 64.0 7 4 1999 3 2000 3 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4. 

Table Ch. VII-40 Other Manufacturing Industries, 1980-2000 (millions of current dollars and percentages) /'4%*#0&+5' 64#&' PERCENTAGE OF TOTAL % of total % of total Average % of total % of formal M A N U F A C T U R I N G manufacturing manufacturing remuneration manufacturing manufacturing +/21465 ':21465 EX - IM +/21465 ':21465 EX - IM GDP investment Index (1980 = 100) employment employment 1980 103 44 -59 0.6 1.2 0.4 31002 1981 136 50 -86 0.6 1.2 0.5 3101.6 1982 76 36 -40 0.6 1.1 0.4 396.1 1983 19 75 56 0.3 1.4 -3.4 256.0 1984 39 75 36 0.4 1.1 -1.2 371.7 1985 65 68 3 0.5 1.1 0.0 369.12 1986 50 64 14 0.4 0.8 -0.4 365.2 1987 60 68 8 0.5 0.7 -0.6 261.93 1988 132 90 -42 0.7 0.7 0.7 256.41.93 1989 254 108 -146 1.1 0.8 1.5 2 9.8 57.6 3 1990 325 127 -198 1.1 0.9 1.4 2 2.0 55.6 3 1991 555 701 146 1.2 2.2 -1.0 2 0.5 55.4 3 1992 644 649 5 1.1 1.8 0.0 3 0.9 52.1 3 1993 750 840 90 1.1 2.0 -0.4 3 2.4 54.1 2.3 3 1994 1112 989 -123 1.5 1.9 0.5 2 4.1 54.1 3 1995 1709 1306 -403 2.5 1.9 34.6 3 9.4 50.7 3 1996 3011 1406 -1605 3.6 1.7 -232.2 3 7.1 49.7 3 1997 3194 1696 -1498 3.1 1.8 18.6 37.3 3 1998 3044 1780 -1264 3.0 1.7 -124.5 3 3 1999 3 2000 2.6 3 source: Author's own calculations based on Sistema de Cuentas Nacionales data compared with the Ministry of Health data on Asegurados al IMSS por división y grupo de actividad económica; La Economía Mexicana en Cifras 1995" (NAFINSA), p.41, p.104, p. 321-322, 327-328; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58, 109-110, p.455-456, p.461-462; and, "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994"; Ministry of Commerce and Industrial Promotion (SECOFI), 1994, annex, table 4.

C. The tertiary or commerce and services sector

1. Some facts

The Commerce sector in Mexico comprises wholesale and retail trade, restaurants and hotels, while the services sector includes 3 major subsectors: transport and communication covering also storage and travel agencies; private services comprising financial, insurance and real estate; and finally, community, social, and personal services embracing educational, medical, research, social assistance, and finally, defence, public administration and public works.

The Mexican economy has been a tertiary sector economy since the early 1970’s and has continuously increased this trend since then. By the end of 2000, the majority of its labour force was concentrated in the services and commerce sector (55.3 per cent). In addition, the commerce and services sector has taking the lead in GDP growth: from representing 60.1 per cent in 1980 to 68.8 per cent in 1998. Since most services and commerce subsectors are relatively more labour intensive than other sectors in the economy (ex: manufacturing), the author thinks that this positive trend should continue in the future (see table Ch. VII-41).

Notwithstanding the importance of the tertiary sector in the Mexican economy, it is less studied and known than other sectors like the industrial, especially the manufacturing, sector. There exists very little comparable specific data through the years. One of the main reasons for this could be that a large part of the labour force in the tertiary sector is found in the informal economy. In fact, one of the main employers of this sector is the tourism industry that represents a very important source of foreign exchange, as well as of employment.



Table Ch. VII-41 Commerce and Services Sector Indicators, 1980-2000 (millions of current dollars) MERCHANDISE TRADE % ot total % of total % of total % of total Average Remuneration % of total YEAR IM EX EX-IM imports exports GDP investment Index 1980 = 100 employment 1980 207 3 -204 1.1 0.0 60.1 15.4 100 53.8 1981 210 6 -204 0.8 0.0 60.3 28.8 104.0 1982 145 8 -137 1.0 0.0 60.9 37.8 96.9 1983 62 9 -53 0.7 0.0 62.1 10.5 76.8 1984 59 14 -45 0.5 0.1 61.9 10.7 73.0 1985 131 8 -123 0.9 0.0 61.1 31.5 73.0 1986 105 61 -44 0.8 0.4 61.7 19.6 66.3 1987 87 72 -15 0.7 0.4 61.3 36.4 65.0 1988 57 63 6 0.3 0.3 61.4 67.3 67.1 50.1 1989 216 100 -116 0.8 0.4 61.1 59.6 70.7 1990 289 278 -11 0.9 1.0 60.7 63.8 73.1 1991 482 196 -286 1.0 0.5 61.0 70.5 78.6 1992 516 139 -377 0.8 0.3 61.3 66.4 85.4 1993 7765 118 -7647 10.7 0.2 61.4 50.8 92.5 51.2 1994 1112 134 -978 1.4 0.2 61.4 39.2 95.6 1995 1709 168 -1541 2.4 0.2 70.0 41.0 71.0 1996 3011 202 -2809 3.4 0.2 59.5 39.9 67.6 1997 3194 198 -2996 2.9 0.2 68.0 36.3 1998 1726 390 -1336 1.4 0.3 68.8 2000 55.3 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's National Employment Surveys (NES) source: INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1995" (NAFINSA), p.97; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. From 1980 to 2000, the Commerce, restaurants and hotels sector created the biggest number of jobs: 7 million. Detailed data only available starting from 1988, shows that from 1988 to 2000, the two subsectors within this sector providing the largest bulk (1.85 million) was retail trade (a non-export-oriented subsector); and to a lesser extent an foreign investment-related subsector receiving large flows of foreign investment (hotels and restaurants) that created 760 thousand jobs. Wholesale trade only created 642 thousand new jobs during the same period (see table Ch. VII-42). 

Table Ch. VII-42 Total (Formal and Informal) Employment by Economic Sector, 1980-2000 (thousands) 1980 1988 1993 2000 1988 1988 2000 2000 Total Difference Difference Non export- Export- Non export- Export- Difference Non export Export oriented or oriented oriented or oriented oriented or oriented or non foreign or foreign non foreign or foreign non foreign foreign investment- investment- investment- investment- investment investment related related related related related related sectors sectors sectors sectors 1988-2000 1988-2000 1988-2000 T O T A L 22066 28128 32833 38984 22317 5811 28265 10718 10856 5948 4907 AGRICULTURE 5701 6616 8843 7061 6616 7061 445 445 MINING 513 260 171 156 260 156 -104 -104 MANUFACTURING 2580 5548 5078 7547 1999 Non export-oriented Food, beverages and tobacco 1077 1181 1561 1077 1561 484 484 Wood, wood prods; paper & paper prods.* 1650 657 971 1650 971 -679 -679 Non-metal mineral products** Export-oriented Textiles, garments and leather 985 1256 1887 985 1887 902 902 Chemicals, rubber and plastics 454 766 1010 454 1010 556 556 Basic metals 277 72 105 277 105 -172 -172 Metal products, machinery & equip.*** 1000 1031 1812 1000 1812 812 812 Other manufacturing industries 105 115 201 105 201 96 96 CONSTRUCTION 1308 1528 1879 2528 1528 2528 1000 1000 ELECTRICITY 116 130 99 189 130 189 59 59 COMMERCE, RESTAURANTS & HOTELS 1751 5430 6894 8687 3257 Wholesale trade 448 735 1090 448 1090 642 642 Retail trade 3897 4883 5752 3897 5752 1855 1855 Restaurants and Hotels 1085 870 1322 1085 1322 237 237 Preparation, sale of food in public places 406 523 523 523 523 SERVICES 10096 8616 9868 12817 4201 Transport, Storage & Communications 684 1062 1362 1731 1062 1731 669 669 Finance, Insurance & Real Estate 412 395 1080 1561 395 1561 1166 1166 Community, Social & Personal Services 2451 4633 4976 6822 4633 6822 2189 2189 Other Services**** 4763 1294 1168 965 1294 965 -329 -329 Public administration and Defense 1786 1232 1283 1739 1232 1739 507 507 sources: Author's own calculations based on 1970 and 1980 Census data published in ILO's Yearbook of Labour Statistics; 1988, 1993 and 2000 comes from INEGI's NES *Wood and wood products totals are grouped with paper and paper products total employment **NES do not provide any information as to where they place non-metal mineral products employment. If it is included in the wood and paper industries, then the totals increase ***NES group other manufacturing industries employment with metal products machinery and equipment employment; Since the metal products machinery and equipment industry is such an important export-oriented subsector, a division was made considering other manufacturing industries total to represent 10% of the NES given figure ****NES 1988 groups hotels and restaurants data together ****1970 Other services data include community, social and personal services employment, as well as finance, insurance and real estate and public administration and defense 1980 Other services data include some community, social and personal services that were later separated in the NES note: in blue all export-oriented or foreign investment-related economic sectors or subsectors Services was the sector that created the highest number of jobs (formal as well as informal) between 1988 and 2000: 4.2 million. The largest number of jobs was created in a non-foreign investment related sector: the community, social and personal services sector (2.2 million jobs). The finance, insurance and real estate, a sector closely related to foreign investment liberalisation and the liberalisation of other professional services, provided 1.2 million more jobs in 2000 than in 1988. Transport, storage and communications, another foreign investment-related sector created 650 thousand jobs during this 12-year period.

When we compare formality levels in different sectors, it is important to underline that informality has grown even more significantly in the commerce and services sector than in the manufacturing sector. While the commerce and services sector has been the more apt to provide most of the jobs since the middle of the 1970’s, a big part of them have been in the informal sector. By 1988, only 3.8 million commerce and services jobs were registered in social security registries out of a total of 14 million (27 per cent) appearing in the NES. Twelve years later, the situation had slightly improved: 6.5 million jobs were considered formal out of a total of 21.5 million (30.2 per cent). The highest informal occupations in the commerce and services sector are in retail trade: street and home vendors distributing and commercialising imported goods, maintenance and repair services, security and property surveillance, domestic work, cleaning, and other personal services.

GDP of the community, social and personal services represented almost one fourth of total (22 per cent), while the financial, insurance and real estate services was catching up very quickly most probably due to the large quantity of foreign investment that was coming into the stock market, plus the privatisation of the banking and insurance subsectors. The wholesale, retail trade, restaurants and hotels also accounted for 21 per cent of GDP in 1998 (see table Ch. VII-43). 

Table Ch. VII-43 Percentage Annual Change in GDP by Economic Sector, 1982-1998

ECONOMIC SECTOR 1982 1985 1987 1989 1992 1994 1995 1998 AGRICULTURE, CATTLE, FORESTRY & FISHING -2.0 3.8 1.4 -2.2 -1.0 2.0 1.8 -4.5 MINING 8.7 -0.1 5.3 -0.7 1.8 1.6 -2.7 5 MANUFACTURING -2.7 6.1 3.0 7.2 2.3 3.6 -4.9 5.8 CONSTRUCTION -7.1 2.7 2.8 2.1 7.8 6.4 -23.5 2.6 ELECTRICITY, GAS & WATER 9.7 8.3 3.7 7.7 3.0 7.7 2.1 5.4 WHOLESALE & RETAIL TRADE, RESTAURANTS & HOTELS -0.9 1.1 0.6 3.8 3.6 2.8 -15.5 5.6 TRANSPORT, STORAGE & COMMUNICATIONS -7.5 2.8 2.9 4.2 7.6 7.8 -4.9 7.8 FINANCE, INSURANCE & REAL ESTATE 5.0 3.6 3.6 2.9 3.7 5.2 -0.3 4.6 COMMUNITY, SOCIAL & PERSONAL SERVICES 3.5 -0.2 0.1 1.4 0.6 1.9 -2.3 2.7 TOTAL -0.6 2.6 1.9 3.4 2.8 3.5 -6.2 4.3 source: Author's own calculations based on NAFIN: "La Economía Mexicana en Cifras 1995", A17 p.97, and 1998, p.105-106 note: in blue all export-oriented or export-related economic sectors Compared to the manufacturing sector, the services and commerce has been recording very low deficits in goods’ trade and in commercial services’ trade, and never represented such a heavy drain to the trade balance and the currents account as the manufacturing sector did until and after the 1994 Stock Market crisis and the rescuing of the banking system, with the exception of course of debt payment. The promotion of trade in services came later than that of manufacturing goods: only during the second half of the 1990s. While investment in manufacturing has been lately declining, the services and commerce sector has relatively attracted, especially from 1988 to 1993, large investment shares. However, investment levels are still lower than those attracted by the manufacturing sector. Again, compared to the manufacturing sector, the commerce and services has never received such a large support from the government (with the exception of the 1994 crisis when the government rescued the banking system from bankruptcy), but is contributing 3 times as much to GDP. The tertiary sector also provides, on average, a higher remuneration than the manufacturing sector. In addition, it provides three times as many jobs as manufacturing. However, as mentioned during the informal sector section, a large majority of informal workers are concentrated in this sector.

Again, compared to manufacturing exports that represented 106.1 million of U.S. dollars in 1998, exports of Mexican services are still not participating in world trade at that scale: only represented 13.7 million dollars in 2000. While still representing a low trade share compared to merchandise, by the year 2000, Mexico was considered the leading exporter, as well as importer of commercial services in Latin America according to the WTO International Trade Statistics 2001.

The growth of merchandise imports generates new job opportunities in the transport and commercial subsectors through air, land and sea transport, warehousing, and distribution. The commercialization of this merchandise also generates additional jobs. A large number of transnational commercial companies, for example, have arrived to the country to supply intermediate and consumption goods: Sears, Woolworth, JCPenney and others from the U.S.

2. Trade Development of Services

During the Uruguay Round negotiations, Mexico supported the creation of a framework agreement on services based on the most-favoured nation principle. The new trade in services classification of the General Agreement of Trade in Services (GATS) divides private services into communications services, construction services, computer and information services, financial services, as well as insurance services, royalties and licence fees, business services, and personal, cultural and recreational services. Travel services cover primarily the goods  and services acquired from an economy by business and personal travellers during visits of less than one year. Transportation services cover sea transport, air transport, and supporting, auxiliary and other transport services. Government services include transactions by embassies, consulates, military units and defense agencies. Other private services cover insurance services, royalties and licence fees, and other business services. The GATS covers providing a service, distribution and marketing, commercial presence or/and presence of natural persons. However, the GATS only provides for the movement of highly skilled personnel.

Foreign direct investment in the services sector is directed towards the subsectors of real- estate rentals, financial, insurance services, restaurants and hotels, professional, specialised, technicians and personnel services, and communications frequently located in the three largest cities such as Mexico city, Guadalajara and Monterrey, in the Mexico-U.S. border, and in beach resorts (see figure Ch. VII-3).

Figure Ch. VII-3 Foreign Investment by Economic Sector, 1980-1997

100

INDUSTRY 80

SERVICES 60

WHOLESALE & HOTELS & 40 RESTAURANTS

MINING 20

AGRICULTURE 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

-20 source: Author's own calculations based on "Inversión Extranjera y Empleo en México", STPS-SECOFI, table 8; "Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994", SECOFI, table 4. From 1980 to 1996, the total trade balance of the 4 largest divisions of tradable commercial services (travel, transport, government services, and other private services) has been negative, especially as a consequence of transport and other private services that have reported large deficits, such as insurance and freight payments that have grown considerably. On the other hand, Mexico ranks 11th on the list of world leading exporters of travel services and since 1982, travel services have recorded surpluses. The principal surplus on labour factor services is tourism. The foreign exchange balance of tourist activity recorded a peak of up to 3.7 billion U.S. current dollars in 1997 (see tables Ch. VII-44 and Ch. VII-45).

The tourist industry employed 6 million Mexicans nation-wide in 1996. During the harshest devaluations of the peso, the industry grew at a very fast pace. The number of hotels, restaurants and shops opened for tourists’ delight in most border towns and beach areas have been mushrooming, especially in those cities like Cancún, Puerto Vallarta and Manzanillo. 

The Mexican government has sponsored many tourist projects with the objective of generating foreign exchange and promoting growth poles through the development of the tourist industry in specific areas. According to Sernau (1995), tourism provides a large number of jobs, but most of them are seasonal and temporary. The nature of jobs in the tourist sector attracts mostly itinerant young workers who eventually return to home locations, frequently with little acquired training or savings. In addition, tourist workers may earn wages that are higher than their counterparts elsewhere but lower relative to their inflated living costs. Improved English skills are often the major lasting benefit for future employment of these young workers.185

Table Ch. VII-44 Trade Balance of Commercial Services, 1980-2000, (millions of U.S. dollars)

TOTAL Travel Transport Government Services Other Private Services* Exports Imports Ex-Im Exports Imports Ex-Im Exports Imports Ex-Im Exports Imports Ex-Im Exports Imports Ex-Im 1980 4591 6514 -1923 3202 3061 141 445 1836 -1391 208 173 35 736 1444 -708 1981 4983 8489 -3506 3334 4063 -729 477 2274 -1797 301 208 93 871 1944 -1073 1982 4136 6066 -1930 2660 2209 451 425 1670 -1245 325 179 146 726 2008 -1282 1983 4087 4477 -390 2750 1583 1167 472 1231 -759 338 177 161 527 1486 -959 1984 4839 5235 -396 3323 2168 1155 570 1333 -763 364 159 205 582 1575 -993 1985 4808 5524 -716 2950 2259 691 578 1336 -758 372 180 192 908 1749 -841 1986 4591 5194 -603 3027 2179 848 544 1249 -705 452 193 259 568 1573 -1005 1987 5437 5310 127 3539 2364 1175 665 1284 -619 507 183 324 726 1479 -753 1988 6084 6281 -197 4049 3202 847 690 1481 -791 675 201 474 670 1397 -727 1989 7208 7879 -671 4821 4247 574 691 1957 -1266 812 226 586 884 1449 -565 1990 8094 10323 -2229 5527 5520 7 892 2511 -1619 872 260 612 803 2032 -1229 1991 8869 10958 -2089 5959 5812 147 901 2853 -1952 993 283 710 1016 2010 -994 1992 9275 11959 -2684 6084 6107 -23 980 3225 -2245 1125 317 808 1086 2310 -1224 1993 9517 12046 -2529 6167 5562 605 938 3326 -2388 1221 275 946 1191 2883 -1692 1994 10321 13043 -2722 6363 5338 1025 1066 4287 -3221 246 652 -406 1252 2677 -1425 1995 9780 9717 63 6179 3171 3008 1164 3424 -2260 195 695 -500 1377 2199 -822 1996 10901 10819 82 6934 3389 3545 1412 4178 -2766 207 849 -642 1497 2171 -674 1997 11182 12615 -1433 1998 11662 13012 -1350 1999 11737 14473 -2736 2000 13752 17363 -3611

source: Author's own calculations based on "Services Statistiques sur les Echanges Internationaux 1970-1994, 1987-1996", OECD, p.346-347. Totals 1997-2000 from World Indicators, World Bank. *"Other Private Services" cover insurance services, royalties and license fees, and other business services note: The new trade in services classification "GATS" divides other private services into communications services, construction services, computer and information services, financial services, as well as insurance services, royalties and license fees, business services, and personal, cultural and recreational services Definitions: Transportation services cover sea tranport, air transport and supporting, auxiliary and other transport services Travel services cover primarily the goods and services acquired from an economy by business and personal travellers during visits of less than one year. Governement services include transactions by embassies, consulates, military units and defense agencies

Table Ch. VII-45 Foreign Exchange Balance of Tourist Activity, 1980-2000 (millions of dollars) Receipts Expenditures Receipts Expenditures For. Ex. Balance Entries Exits Entries-Exits Employment % of total % of total exports % of total imports (current US $) (current US $) Receipts-Expenditures (thousands) (thousands) (thousands) (thousands) GDP 1980 24 15 3202 3061 141 11945 3322 8623 1571 1981 23 17 3334 4063 -729 12031 3959 8072 1668 1982 9 10 2660 2209 451 11518 2671 8847 1722 1983 9 10 2750 1583 1167 12549 1971 10578 1868 1984 10 10 3323 2168 1155 12954 2697 10257 1971 1985 9 9 2950 2259 691 11907 2730 9177 2391 1986 11 10 3027 2179 848 12659 2470 10189 2811 1987 11 10 3539 2364 1175 13831 2366 11465 3425 1988 11 9 4049 3202 847 14140 7965 6175 3885 3.8 1989 11 10 4821 4247 574 14962 7317 7645 4620 4.0 1990 11 11 5527 5520 7 17176 7357 9819 4793 4.2 1991 12 10 5959 5812 147 16067 7713 8354 5295 4.6 1992 11 8 6084 6107 -23 17146 11226 5920 5541 5.1 1993 10 7 6167 5562 605 16440 10185 6255 5661 5.1 1994 9 6 6363 5338 1025 17182 12029 5153 6009 5.3 1995 7 4 6179 3171 3008 20241 8450 11791 5911 4.9 1996 6 3 6934 3389 3545 21405 8848 12557 5729 4.5 1997 6 3 7593 3891 3702 19351 8910 10441 6027 4.8 1998 6 3 7493 4209 3284 19392 9637 9755 1999 5 3 7223 4541 2682 19043 10352 8691 2000 5 3 8295 5499 2796 20643 11081 9562 source: Author's own calculations based on World Bank; World Bank Development Indicators Database and Secretaría de Turismo, Indicadores de la Actividad Turística and Encuesta Nacional de Empleo y Capacitación en el Sector Turismo, tomo I, p.22 Employment in services can be divided, more than in other sectors, between two large categories of workers: high-wage middle class professional, management, and technical white-collar positions in finance, and banking subsectors, and low-wage workers mainly in clerical, miscellaneous office work, and sales’ positions. Average wages are relatively higher in services than in agriculture and manufacturing. The highest wages paid to workers in the services sector are in the community, social and personal services (a non-foreign investment  related sector). Then, wages are also relatively higher in two sectors indirectly or directly related to the growth of trade and investment flows: transport, storage and communications, and in finance, insurance and real estate. The lowest wages in commerce and services are those perceived by workers in restaurants and hotels and in wholesale and retail trade (see table Ch. VII-46).

Table Ch. VII-46 Index of Average Remuneration per Worker by Economic Sector, 1980-1996 (1980= 100) ECONOMIC SECTOR 1980 1981 1982 1985 1987 1988 1989 1992 1994 1995 1996 AGRICULTURE 100 106 95 75 70 60 57 49 51 38 36 MINING 100 102 91 72 61 58 57 59 55 39 34 MANUFACTURING 100 103 99 73 66 66 71 83 87 60 58 CONSTRUCTION 100 101 89 67 58 51 49 51 53 39 38 ELECTRICITY, GAS & WATER 100 102 105 64 61 51 51 59 65 50 49 WHOLESALE & RETAIL TRADE, HOTELS & REST. 100 101 91 69 58 59 64 75 81 59 56 TRANSPORT, STORAGE & COMMUNICATIONS 100 105 96 76 69 78 80 90 95 74 71 FINANCE, INSURANCE & REAL ESTATE 100 104 98 73 71 64 68 91 103 74 67 COMMUNITY, SOCIAL AND PERSONAL SERVICES 100 106 103 74 62 67 71 86 104 78 76 TOTAL AVERAGE 100 103 96 71 64 62 63 72 77 57 54 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1998" (NAFINSA), p.55; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. data were deflated by the consumer price index. note: data on wholesale and retail trade could not be segregated In blue all export oriented or export-related economic sectors Mexico’s trade in capital factor services has been constantly in deficit since the early 1970s mainly due to large interest payments on foreign debt. From 1980 to 1998, Mexico was paying on average 10 billion dollars a year on factor services. By the end of the 20th century, Mexico had an external debt representing 150.2 billion dollars, almost doubled the 1982 external debt. On the other hand, the transfers of remittances of Mexican workers in the United States have recorded significant surpluses. Annually, migrants’ remittances have rapidly increased and by the year 2000, represented 6.5 billion dollars in the current account (see table Ch. VII-47).

Table Ch. VII-47 Remittances, 1980-2000

Year Current US millions $

1980 698 1981 859 1982 844 1983 984 1984 1127 1985 1157 1986 1290 1987 1478 1988 1897 1989 2213 1990 2492 1991 2414 1992 3070 1993 3332 1994 3475 1995 3673 1996 4224 1997 4865 1998 5627 1999 5909 2000 6572 source: The World Bank; World Bank Indicators



VIII. The Impact of Trade Liberalisation on Wages, Income Distribution and Poverty

A. Liberalization effects on wages

1. General

Since the real wage or labour income is by far the most important source of income and represents workers’ purchasing power, it is important to study how they fared during the trade liberalization period covered. This part of the study reveals how important it is to increase educational levels of workers at a fast rate in the country in order to quickly improve productivity and real wages. It is important to remember that workers are also consumers and that if their wages stagnate, national private consumption suffers, too. In a latter section, data permits us to see that these low real wages have resulted in sluggish private consumption.

The author’s calculations of average remuneration per worker in real value (nominal wages deflated by the consumer price index in 1980 pesos) 186 show that by the 1985 opening real wages had lost, on average, 29 per cent of their 1980 value. More or less real wages in all sectors had lost the same percentage points. The lost in real value of wages was considered more equally distributed at that moment. The only sector that decreased more than the others was electricity, a State-owned sector that was decreasing wages significantly in order to keep past employment levels. By 1989, though, real wages continued their fall and had lost, on average, an additional 8 percentage points. At that moment export-oriented or foreign investment-related sectors like manufacturing and transport storage and communications were recording wages higher than average. By 1994, real wages in these same export sectors, plus the finance, insurance and real estate had incredibly recuperated and were providing the highest wages in the market. Manufacturing real average salaries had attained 86.6 per cent of their 1980 level and finance, insurance and real estate wages were equal to its 1981 levels. That year, a real difference could be seen between export sectors and non-export sectors (see table Ch. VIII-1).

Table Ch. VIII-1 Index of Average Remuneration per Worker by Economic Sector, 1980-1996 (1980= 100) ECONOMIC SECTOR 1980 1981 1982 1985 1987 1988 1989 1992 1994 1995 1996 AGRICULTURE 100 106 95 75 70 60 57 49 51 38 36 MINING 100 102 91 72 61 58 57 59 55 39 34 MANUFACTURING 100 103 99 73 66 66 71 83 87 60 58 CONSTRUCTION 100 101 89 67 58 51 49 51 53 39 38 ELECTRICITY, GAS & WATER 100 102 105 64 61 51 51 59 65 50 49 WHOLESALE & RETAIL TRADE, HOTELS & REST. 100 101 91 69 58 59 64 75 81 59 56 TRANSPORT, STORAGE & COMMUNICATIONS 100 105 96 76 69 78 80 90 95 74 71 FINANCE, INSURANCE & REAL ESTATE 100 104 98 73 71 64 68 91 103 74 67 COMMUNITY, SOCIAL AND PERSONAL SERVICES 100 106 103 74 62 67 71 86 104 78 76 TOTAL AVERAGE 100 103 96 71 64 62 63 72 77 57 54 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1998" (NAFINSA), p.55; Banco de México, Indicadores Económicos in "La Economía Mexicana en Cifras 1992", p.149 and "La Economía Mexicana en Cifras 1990", p.525. data were deflated by the consumer price index. note: data on wholesale and retail trade could not be segregated In blue all export oriented or export-related economic sectors In 1995, however, after the terrible 1994 financial crisis, average real wages per worker even in export-oriented sectors hit their lowest level ever: almost half the value of 1980. Mexico’s real wage became then one of the lowest in the world. The contraction of wages affected with the harshest intensity workers in sectors not directly participating in trade or participating to a much less extent than before: agriculture, mining and construction. Real  wages in the agricultural sector were the ones that deteriorated the most and the ones that kept falling at a very rapid pace from 1989 onwards even if the rest of the economy recuperated.

By 1996, construction, electricity, gas and water, mining and agriculture wages did not seem to regain land and continued being very negatively affected. For example, agricultural wages by 1996 had impressively gone down to represent only 36 per cent of their 1980 real value. Trade seemed to be promoting the rapid development of a modern, capital-intensive, high-wage industrial sector in contrast to a very poor traditional, low-waged agricultural sector. The decline in agricultural real wages was estimated to have a serious impact on a large number of poor peasants who depended largely on their wage incomes, and at the same time to have had a positive impact on the income of capital owners of big farms. The only non-foreign investment related sector that showed signs of recuperating much quicker than the rest was the community, social and personal services.

The same type of index with manufacturing sector data on real remuneration per worker divided by subsector, indicated that in 1996 the highest wages perceived by manufacturing workers were in two important capital-intensive manufacturing subsectors (chemicals, rubber and plastics and basic metals); and in two non-export-oriented or import-competing subsectors (non-metal mineral products and food, beverages and tobacco). The lowest real remuneration per worker was provided by a labour-intensive export-oriented sector (the textiles, garments, leather and shoes), followed by wood and its derivatives, and other industries. That same year, the important metal products, machinery and equipment subsector was providing wages that represented only 52 per cent of their 1980 value (see table Ch. VIII- 2).

Table Ch. VIII-2 Index of Average Real Remuneration in Manufacturing Subsector per Worker, 1980-1996 ( base 1980=100) NON-EXPORT ORIENTED SUBSECTORS EXPORT-ORIENTED SUBSECTORS Food, Wood & Paper, Non-metal Textiles, Chemicals Basic Metal prod., Other AVERAGE beverages & wooden editorial & mineral garments & rubber & metals machinery industries tobacco products printing products leather plastics & equipment 1980 100 100 100 100 100 100 100 100 100 100 1981 102.8 101.6 106.0 97.5 100.9 100.2 101.8 105.0 104.2 101.6 1982 99.5 96.0 99.5 92.1 101.2 96.5 97.9 107.1 103.7 96.1 1983 77.3 73.6 66.1 71.9 79.0 76.8 75.6 81.7 80.7 56.0 1984 72.5 69.3 75.2 66.4 73.9 71.1 71.4 76.3 75.5 71.7 1985 72.8 68.6 73.7 65.1 73.5 70.9 74.0 75.0 76.6 69.1 1986 66.9 62.8 69.6 59.5 70.0 63.9 69.9 67.1 71.1 65.2 1987 66.4 60.8 66.1 59.8 67.8 61.8 70.5 72.7 70.7 61.9 1988 66.1 57.6 60.8 60.0 68.3 60.8 71.7 73.8 71.2 56.4 1989 70.5 62.0 62.1 62.5 70.2 65.7 76.4 81.1 76.3 57.6 1990 73.0 65.3 63.0 62.4 74.3 66.7 77.6 84.8 79.6 55.6 1991 76.9 70.5 64.1 65.9 81.1 70.3 81.3 85.2 84.2 55.4 1992 83.4 76.7 66.7 71.2 88.8 74.7 91.0 98.5 92.5 52.1 1993 86.6 83.9 67.8 73.0 93.5 77.9 95.0 97.0 95.6 54.1 1994 86.6 83.9 67.8 73.0 93.5 77.8 95.1 97.1 95.7 54.1 1995 59.9 68.9 51.0 58.0 75.8 46.0 65.1 68.3 53.9 50.7 1996 57.6 66.9 48.8 56.6 68.6 43.0 65.6 64.6 51.7 49.7 source: Author's own calculations based on Consumer Price Index quoted in INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1995" (NAFINSA), p.41; quoted from Banco de México, Indicadores Económicos; 1992", p.149 and 1998, p.58. note: deflated with consumer price index 1980=100 In fact, wages lost so much of their real value and were kept so low that other types of labour flexibility and the reform of the labour code were not even urgently needed in the country. The daily average minimum wage significantly fell over the period 1980 to 2000. In dollar terms, it represented 6.06 U.S. current dollars in 1980. By 1989, the average minimum wage perceived in U.S. dollars value had been reduced to 3.30 dollars. By the year 2000, it had recovered part of its 1980 value, but attained only 60 per cent of it. However, it should be noticed that by the 1985 opening, minimum wages had already fallen rapidly, and  by the year 2000, the 1985 levels were finally reached and slightly surpassed (see table Ch. VIII-3).

Table Ch. VIII-3 General Daily Minimum Wage in Nuevos Pesos and Dollars, 1980-2000

National Economic Region National average m.w. AverageABCin U.S. dollars 1980 0.14 0.16 0.15 0.14 6.06 1981 0.18 0.21 0.19 0.17 6.98 1982 0.28 0.32 0.29 0.27 3.69 1983 0.43 0.49 0.45 0.39 2.84 1984 0.66 0.75 0.69 0.61 3.52 1985 1.02 1.16 1.06 0.94 3.40 1986 1.85 2.07 1.90 1.69 2.70 1987 4.23 4.66 4.31 3.88 2.62 1988 7.15 7.88 7.30 6.57 3.13 1989 8.43 9.28 8.60 7.75 3.30 1990 9.96 10.99 10.16 9.16 3.44 1991 11.44 12.60 11.66 10.52 3.75 1992 12.08 13.30 12.32 11.12 3.90 1993 13.06 14.27 13.26 12.05 4.20 1994 13.97 15.27 14.19 12.89 4.02 1995 16.71 18.26 16.96 15.41 2.50 1996 21.13 23.07 21.38 19.52 2.73 1997 24.30 26.45 24.50 22.50 3.06 1998 29.95 32.33 29.95 27.88 3.28 1999 31.91 34.45 31.90 29.70 3.34 2000 35.12 37.90 35.10 32.70 3.71 note: there are three minimum wages based on the costs of living of economic regions. source: Author's own calculations based on Mexican Bulletin of Statistical Information several years. It is important to mention that wages in Mexico started suffering a reduction (in real terms) even before the process of trade liberalisation started in 1985. After the continuous devaluations of the currency, workers and peasants were expected to "tighten their belts" in order to contribute to the stabilization of the Mexican economy. The government, through the Pact for Stability and Economic Growth and through the “National Tripartite Commission To Set Wages”, kept nominal wages stagnant while the large devaluations of the currency reduced workers' real wages. Negotiations between the federal government and the government affiliated labour confederation, the CTM, resulted in the imposition of wage- ceilings and restraints. Since 1987 with the Pact of Economic Solidarity, government’s labour policy was more inclined to favour business interests and gave enterprises the liberty to adjust nominal wages (with the exception of minimum wages which continued to be established by the National Commission on Wages and renewed every certain time).187

As mentioned on chapter III, the stabilisation policy included measures to keep real wages low as a means to slow down inflation. However, closely accompanying the implementation of trade liberalisation measures, were the policies in search of competitiveness worldwide and the modernisation of the economic sector where one of the most important measures identified to compete in the global labour market, was the maintenance of low wages.

Under the Pacts for Stability and Economic Growth, the tripartite commission to set wages adjusted them to expected inflation, but actual inflation was periodically higher than expected inflation. Besides, the commission to set wages tended to separate the calculation of  wages from the cost of living. As a consequence, real wages deteriorated rapidly. Consequently, whenever there were additional economic crisis in the country, the government reacted by freezing or lowering real wages.

Later, with the new trade liberalisation of the economy the government tried to «sell the country» advertising as its main comparative advantage its low-waged labour force. The Government argued that if the country wanted to stop the fall in employment, wages had to stay low. This measure undervalued the labour performed by the national work force. Restrictions were eased concerning the adjustment of wages to provide for a minimum standard of living for a family, and employers were given more liberty to adjust wages according to market demand in order to keep costs down. Given the large supply of unskilled labour, a drastic fall in real wages followed and the country started producing a growing volume of exports with continually declining costs.

In a comparison of manufacturing wages on dollars per man-hour done by the U.S. Department of Labor, between Mexico and 4 Southeast Asian countries, Mexican wages were the lowest. While they had represented almost doubled the value of these countries in 1975, by 1995 there were wide disparities (see table Ch. VIII-4 and figure Ch. VIII-1). U.S. DoL made the same type of comparison between Mexico and the U.S. In 1997, U.S. manufacturing wages represented 11.2 times more than Mexican wages (see table Ch. VIII-5).

Table Ch, VIII-4 Comparison of Hourly Manufacturing Wages in Mexico, Hong Kong, Taiwan, South Korea, 1975-1995 (dollars per man-hour) Mexico Hong Kong Taiwan South Korea Mexico/SouthEast Asia % 1975 1.47 0.76 0.4 0.32 198.2 1990 1.58 3.2 3.93 3.71 42.5 1991 1.84 3.58 4.36 4.61 42.8 1992 2.17 3.92 5.09 5.22 44.2 1993 2.4 4.29 5.19 5.64 46.3 1994 2.47 4.61 5.49 6.4 42.9 1995 1.51 4.82 5.82 7.4 23.7

note: SouthEast Asia includes Hong Kong, Taiwan, South Korea and Singapore source: U.S. Department of Labor Given the rapid opening of the economy in Mexico and its lack of competitiveness in the majority of its products, it is probably true that a bigger fall of manufacturing formal employment could have been expected if wages had stayed at their high 1980 levels. The combination of the trade liberalisation policies, as well as those aiming at attaining competitiveness and modernising the economy, attracted investors that opened up its doors in the country offering new jobs for Mexicans and at the same time limited retrenchments. Besides, the fact that wages were kept so low, probably kept other types of wages flexibility and employment flexibility down since the number of casual workers in the formal sector did not seem to have increased enormously. On the other hand, the working class lost great part of its purchasing power.

In 1993, after Salinas promised in the negotiations of NAFTA’s labour side agreement that in the future Mexico would raise the minimum wage directly proportional to the average growth of the economy’s productivity, for the first time in the annual tripartite economic pact reached, a bonus productivity increase was included in the wage increase negotiations. The value of the bonus was to be decided in each firm by a bilateral committee that would determine worker's productivity, but it was calculated to be around 3 per cent. For minimum wage workers, the normal wage increase was fixed at 7 per cent, including a fixed wage  increase of 5 per cent. Most Mexican firms took the 7 per cent increase as the norm and did not establish the bilateral committee to calculate productivity bonuses.188

Figure Ch. VIII-1 Comparison of Manufacturing Hourly Wages in Mexico, Hong Kong, Taiwan and South Korea, 1975-1995

8

7

6

5

Mexico 4 Hong Kong Taiwan South Korea 3

2

1

0 1975 1990 1991 1992 1993 1994 1995 source: U.S. Department of Labor

A labour market aspect noticed to be contributing to this trend is that there stills exists in Mexico a relatively large supply of low-skilled workers compared to the number of jobs offered in the formal sector. One of the main reasons that firms have been able to find enough workers to fill formal as well as informal jobs at such low wages’ rates is that supply of low- skilled workers is larger than needed in the formal Mexican labour market. Most workers are just happy to accept lower wages if they can just find a job. A million young workers continue entering the market each year. Firms have found the ratio of applicants to openings greater, and since workers have found that jobs are harder to come by, a downward pressure on wages has been installed. On the other hand, low wages offered by firms have had as a result a large turnover of workers and have had a large impact on emigration levels. Lured by wages 11.2 times higher in the U.S., some of these workers leave the country.

The downward pressure on real wages might have had an impact on their consumption habits. Most low-income workers belonging to the formal sector or those in the informal sector buy their goods in the “black market” where informal self-employed persons sell smuggled cheap goods from countries like China in every street in Mexico.



Table Ch. VIII-5 Relative Comparison of Mexican and U.S. Hourly Manufacturing Wages in U.S. dollars, 1990-1997

MEXICO U.S. MEXICO/U.S.

1990 1.58 14.91 10.60%

1991 1,84 15,58 11,8%

1992 2.17 16.09 13.50%

1993 2,40 16,51 14,5%

1994 2,47 16,86 14,7%

1995 1.51 17,20 8,8%

1996 1.57 17.59 8.90%

1997 1,62 18,12 8,9%

source: U.S. Department of Labor note: Includes salaries, fringe benefits and social security Even during relatively prosperous times, real wages on average, were still kept very low. A way to see how low labour costs were achieved through low salaries is to compare the wage share in national income from 1980 to 1985 and then to the latest data available. In 1980, real wages represented 36 per cent of GDP. By the opening of the economy to trade in 1985, they had already lost almost 8 percentage points. Between 1985 and 1989, real wages recuperated one percentage point. But, real wages attained their lowest level in 1988. After the consolidation of trade, real wages started recuperating their share and almost accounted for their 1980 level in 1994. By 1996, the latest data available recorded a 29.1 percentage share of real wages in total GDP (see table previously mentioned Ch. VIII-1).

Wages’ flexibility appeared in Mexico as part of the whole package of employment flexibility and modernization of the labour market under the slogan of increasing productivity and competitiveness within Mexico’s new trade liberalized context. Wages’ flexibility could be identified in different indicators. First, as payments obtained per hour worked or per a specific task finished (piece-work), as was explained in the previous chapter. Second, payments were received according to productivity. Third, workers were provided with other types of remuneration. In the ENESTyC survey, manufacturing export-oriented firms had a bigger proportion of flexible wage components than non-export establishments. The emphasis put on compensating workers in order to provide them incentives and have a highly productive labour force was shown to be more important in those industries introducing or hoping to introduce competitive products into the national market and in those highly and medium export-oriented industries more exposed to liberalisation measures. In general, export-oriented firms also paid higher average wages than other industries.

This positive outcome compared to national industry, does not take into consideration how wage differentials have intensified with the liberalisation of the economy. Even if export oriented industry is providing the highest wages, it is important to go into the data to see the percentage of workers that are improving those averages. As will be seen in the next  sections, even if export oriented industry started providing on average the highest wages, only a small percentage of workers were receiving them. Especially after 1989, with the accentuation of the process of trade liberalisation, important variations in wages across workers according to educational and occupational levels have appeared. Wage variation among workers in the tradable-goods sector rose more than in the non-tradable goods sector since workers with higher levels of skill and education were in demand. Among manufacturing workers in the export sector, the percentage of variation in wages that is explained by human capital is very high.189

The majority of non-export oriented sectors (with the exception of agriculture and restaurants and hotels) were providing a higher number of minimum wages to their workers than export-oriented ones. This was the case of mining, electricity, construction, community, social and personal services, public administration and defense, and the category of non- specified sectors). According to the National Employment Surveys by the year 2000 in the mining sector 54.3 per cent of all workers received wages’ categories of 3 to 5 minimum wages (19.6 per cent) and of 5 to 10 minimum wages (34.7 per cent). Manufacturing, was providing to the larger number of its workers (57.4 per cent), a lower number of minimum wages: to 34.4 per cent of workers with 1.1 to 2 minimum wages and 23 per cent of workers with 2.1 to 3 minimum wages. In wholesale and retail trade, the situation was very similar: the largest number of workers was remunerated within the categories of 1.1 to 3 minimum wages in the year 2000. In transport, storage and communications, as well as in finance, insurance and real estate the majority of workers were also earning between 1.1 and 3 minimum wages. But, the number of workers perceiving 3.1 to 5 minimum wages was also very significant (see table Ch. VIII-6).

Table Ch. VIII-6 Percentage Income Level by Economic Sector 1988-2000 TOTALS 1 m.w. than Less From 1.1 to 2 m.w. From 2.1 to 3 m.w. From 3 to 5 m.w. From 5.1 to 10 m.w. m.w. than More 10 remunerated Not Not specified 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 100 100 23.5 16.0 48.4 28.6 10.8 18.0 6.0 13.6 2.0 7.3 0.6 3.0 5.4 10.6 3.1 2.9 AGRICULTURE, CATTLE, FORES 100 100 40.9 29.0 29.0 22.7 5.1 6.3 5.4 2.9 3.3 1.4 0.5 0.7 11.9 33.8 4.0 3.1 MINING 100 100 2.7 2.0 26.2 14.9 34.9 13.8 18.8 19.6 7.2 34.7 1.4 12.2 0.0 0.4 8.7 2.2 MANUFACTURING 100 100 20.7 13.2 55.7 34.4 9.4 23.0 5.5 13.4 1.9 5.6 0.6 2.7 3.1 5.5 3.0 2.3 ELECTRICITY 100 99 2.3 1.4 47.8 12.2 34.3 24.5 11.6 35.6 0.4 18.6 0.1 3.2 0.0 0.3 3.9 3.2 CONSTRUCTION* 100 100 28.7 6.1 53.2 38.7 8.5 27.9 5.2 17.0 1.3 5.1 0.2 1.8 1.1 1.5 2.0 1.8 WHOLESALE AND RETAIL TRADE 100 100 26.2 16.6 38.9 29.2 9.0 16.6 5.4 11.8 1.9 6.1 0.7 2.7 15.3 13.6 2.6 3.3 RESTAURANTS AND HOTELS 100 100 31.4 17.2 38.8 35.4 6.6 15.6 4.6 10.8 1.2 4.8 0.4 1.4 15.1 12.5 1.9 2.2 TRANSPORT, STORAGE & COMM 100 100 10.6 4.7 54.8 23.5 17.7 25.6 9.1 23.6 3.2 13.4 0.8 5.6 0.6 0.8 3.2 2.7 FINANCE, INSURANCE & REAL ES 100 100 9.6 5.3 45.4 21.5 20.0 21.0 12.3 19.1 4.8 15.7 2.1 9.8 0.6 1.2 5.2 6.4 COMMUNITY, SOCIAL & PERSON 100 100 32.0 18.3 46.6 29.2 10.1 17.2 4.9 17.9 1.0 10.6 0.3 2.9 2.2 1.2 2.9 2.7 PUBLIC ADMINISTRATION & DEF 100 100 7.5 2.3 72.8 16.8 10.3 31.1 4.7 27.2 1.5 13.7 0.3 5.8 0.0 0.1 3.3 3.0 NOT SPECIFIED 99 100 0.2 1.0 10.4 6.3 9.6 3.8 19.1 13.3 32.2 37.3 12.0 28.5 0.4 0.1 14.9 9.3 source: INEGI's Encuestas Nacionales de Empleo 1988, and 2000 note: 1988 data only covers "more urbanised areas" During the whole period studied, wages were kept low in order to attract foreign investors. The government, though, continues implementing these policies without considering the long-term effects on the country’s economic growth. Low wages, being the major source of income of most households, prevent poor Mexican children and adolescents from continuing their studies and having better working options in the future. In addition, the flip side of low wages is a low purchasing power. Obviously, the fall in real wages affects sales of some products and slows down the domestic economy. The Mexican market requires a stable and growing middle class to be able to increase its internal demand. The creation of protected and well-paid jobs is the basis for improving future consumption levels.

Mexican workers are not spoiled at all. They work long working weeks, labouring long working shifts, often with not breaks, to receive wages that do not even permit them to pay  rent, food and clothing expenses. This harsh situation has a lot of influence on the high migration rates, as well as criminality rates recorded in the country.

2. Wage differentials by employment status

The majority of employers (61 per cent of them) reported in 2000 perceiving from 3.1 to more than 10 minimum wages. There was obviously a major amelioration of their income levels. Twelve years before, the majority of them (69 per cent) had belonged to the categories of 1.1 to 5 minimum wages. This was not the case of self-employed persons or own-account workers that did not improve their income levels at all. The large majority of them continued earning between less than 1 to 3 minimum wages even if the minimum wage had lost a large part of its real value.

Piece-work workers earned a lower remuneration than salaried or waged employees/workers. While in 2000, only 11 per cent of all salaried or waged workers were earning less than 1 minimum wage, 24 per cent of piece-work workers were obtaining such a low remuneration. In addition, 75 per cent of all salaried/waged workers were receiving from 1.1 to 5 minimum wages. Only 64 per cent of all piece-work workers were earning the same number of minimum wages (see table Ch. VIII-7).

Table Ch. VIII-7 Income Level by Employment Status and Sex 1988-2000 (horizontal percentage) TOTALS Less than 1 m.w. From 1.1 to 2 m.w. From 2.1 to 3 m.w. From 3 to 5 m.w. 5 to 3 From From 5.1 to 10 m.w. More than 10 m.w. Not remunerated Not specified 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 100 100 24 16 48 29 11 18 6 14 2 7 1 3 5 11 3 3 EMPLOYERS 100 100 8 4 32 12 19 16 18 23 11 20 6 18 0 0 7 8 SUBCONTRACTORS 101 0 43116326 0 010 SELF-EMPLOYED 100 100 38 34 38 24 12 13 6 11 2 5 1 2 0 6 3 4 SALARIED OR WAGED EMPLOYEES/WORKE 100 100 22 11 57 36 11 23 6 16 2 9 0 3 0 0 3 2 PIECE-WORK CONTRACT WORKERS 100 100 31 24 43 31 13 19 6 14 1 6 0 2 0 0 5 3 NON-PAID WORKERS 100 100 0 0 0 0 0 0 0 0 0 0 0 0 100 100 0 0 COOPERATIVE MEMBERS & OTHER 100 97 20 8 39 12 10 10 2 27 5 20 0 4 1 0 24 17

MALE 100 100 19 13 50 28 12 20 8 15 3 8 1 4 4 9 3 3 EMPLOYERS 100 100 6 4 31 11 19 16 18 23 12 20 6 19 0 0 7 8 SUBCONTRACTORS 100 0 43116326 0 010 SELF-EMPLOYED 100 100 28 27 43 23 15 15 7 12 3 6 1 2 0 8 3 5 SALARIED OR WAGED EMPLOYEES/WORKE 100 100 19 10 57 35 11 24 7 17 2 9 1 4 0 0 3 2 PIECE-WORK CONTRACT WORKERS 100 100 24 13 49 33 15 24 6 17 1 8 0 2 0 0 5 3 NON-PAID WORKERS 100 100 0 0 0 0 0 0 0 0 0 0 0 0 100 100 0 0 COOPERATIVE MEMBERS & OTHER 100 97 21 8 35 6 12 10 1 29 6 23 0 5 0 0 24 15

FEMALE 100 100 32 21 45 29 8 15 3 11 1 6 0 2 9 13 2 2 EMPLOYERS 100 100 18 6 34 17 21 15 15 20 6 20 3 14 0 0 3 7 SUBCONTRACTORS 0 0 SELF-EMPLOYED 100 100 59 49 28 26 6 9 4 7 1 3 0 1 0 1 2 3 SALARIED OR WAGED EMPLOYEES/WORKE 100 100 29 14 56 38 9 21 3 15 1 8 0 2 0 0 3 2 PIECE-WORK CONTRACT WORKERS 100 100 60 55 23 26 6 8 5 6 1 2 0 1 0 0 5 3 NON-PAID WORKERS 100 100 0 0 0 0 0 0 0 0 0 0 0 0 100 100 0 0 COOPERATIVE MEMBERS & OTHER 95 120 15 10 56 80 0 0 0 0 0 0 0 0 3 0 21 30 source: Author's own calculations based on INEGI's Encuestas Nacionales de Empleo 1988, P. 115 and 2000, P. 237. 3. Wage differentials by educational level

Wages’ flexibility in terms of providing workers with other types of remuneration like bonuses had still meagre, but positive implications for those qualified workers that had acquired a certain level of education and/or those that received training. These workers normally receive a higher wage with a good percentage of their remuneration as bonuses, living allowances, life insurance, etc. For uneducated workers that did not receive training and that did not adapt to new market demands, wages’ flexibility only represented a negative trend in their wages.

While in 1988, 53 per cent of college graduates received from 1.1 to 2 minimum wages, by 2000, their situation had slightly improved. If the fact that wages lost half of their 1980  value is considered, then only the jump from 3 to 5 or higher number of wages will be taken as a positive sign. In 2000, 24 per cent of college graduates received 3.1 to 5 minimum wages, 13 per cent of them 5.1 to 10 minimum wages and only 3 per cent more than 10 minimum wages. In the case of university or postgraduate degree workers, while 34 per cent of them were earning 1.1 to 2 minimum wages in 1988, only 9 per cent were in that same situation 12 years later. Additional workers belonging to this educational level were earning from 3.1 to 5 minimum wages (25 per cent), 5.1 to 10 minimum wages (26 per cent) and more than 10 minimum wages (15 per cent) by the year 2000. Even if their improvement does not seem to be impressive, again, it is important to remember that most probably part of their remuneration is flexible, in the form of bonuses, etc (see table Ch. VIII-8).

Table Ch. VIII-8 Income Level by Educational Attainment and Sex 1988-2000 (horizontal percentage) TOTALS Less than 1 m.w. From 1.1 to 2 m.w. From 2.1 to 3 m.w. From 3 to 5 m.w. 5 to 3 From From 5.1 to 10 m.w. More than 10 m.w. Not remunerated Not specified 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 T O T A L 100 100 24 16 48 29 11 18 6 14 2 7 1 3 5 11 3 3 NO FORMAL EDUCATION 100 100 53 38 34 27 4 10 2 4 1 1 1 0 5 18 2 3 1 TO 3 YEARS OF PRIMARY SCHOOL 100 100 40 29 44 32 7 13 2 7 1 2 0 1 4 13 2 3 4 TO 5 YEARS OF PRIMARY SCHOOL 100 100 36 24 44 31 8 13 3 7 1 2 0 1 8 19 2 3 COMPLETE PRIMARY SCHOOL (6yrs) 100 100 28 18 53 35 7 19 3 10 1 3 0 1 5 13 2 2 TECHNICAL TRAINING 10020521241063 1 TO 2 YEARS OF SECONDARY SCHOOL 100 100 29 17 48 32 5 19 3 10 0 3 0 1 12 18 2 1 COMPLETE SECONDARY SCHOOL (3yrs) 100 100 24 11 54 35 8 23 4 14 1 5 0 1 7 9 2 2 SUBPROFESSIONAL TRAINING 100 100 12 7 62 24 13 25 5 25 1 11 0 2 3 4 3 3 1 TO 3 YEARS OF HIGH SCHOOL 100 100 13 8 51 27 15 23 6 19 2 9 1 3 8 8 4 3 COLLEGE DEGREE 100 100 9 5 53 22 21 26 6 24 2 13 1 3 5 3 3 3 UNIVERSITY & POSTGRADUATE DEGREE 100 100 6 3 34 9 22 13 19 25 8 26 2 15 2 2 7 6 MALE 100 100 19 13 50 28 12 20 8 15 3 8 1 4 4 9 3 3 NO FORMAL EDUCATION 100 100 41 32 44 32 6 12 2 5 1 1 1 0 3 14 3 3 1 TO 3 YEARS OF PRIMARY SCHOOL 100 100 30 25 53 33 10 16 2 9 1 3 0 1 1 10 2 3 4 TO 5 YEARS OF PRIMARY SCHOOL 100 100 29 20 51 32 9 16 4 9 1 3 0 1 4 17 2 3 COMPLETE PRIMARY SCHOOL (6yrs) 100 80 22 13 59 33 9 2 4 13 1 4 0 1 2 11 2 3 TECHNICAL TRAINING 100 12 53 18 10 3 0 0 3 1 TO 2 YEARS OF SECONDARY SCHOOL 100 100 26 14 53 31 6 21 4 12 0 4 0 1 10 16 2 2 COMPLETE SECONDARY SCHOOL (3yrs) 100 100 21 8 56 33 9 25 5 17 1 6 0 1 5 8 2 3 SUBPROFESSIONAL TRAINING 100 100 11 5 57 21 18 25 8 27 2 14 0 3 2 2 3 3 1 TO 3 YEARS OF HIGH SCHOOL 100 100 13 6 50 25 16 24 7 21 2 10 1 4 7 7 5 3 COLLEGE DEGREE 100 100 9 3 51 19 23 26 9 28 3 15 0 5 3 2 3 2 UNIVERSITY & POSTGRADUATE DEGREE 100 100 5 2 30 8 22 12 22 23 9 28 3 19 2 2 7 6 FEMALE 100 100 32 21 45 29 8 15 3 11 1 6 0 2 9 13 2 2 NO FORMAL EDUCATION 100 100 69 48 19 20 1 5 2 2 0 0 0 0 8 24 1 1 1 TO 3 YEARS OF PRIMARY SCHOOL 100 100 62 38 23 29 2 7 1 3 1 1 0 0 10 20 1 1 4 TO 5 YEARS OF PRIMARY SCHOOL 100 100 50 34 27 30 5 8 1 2 0 1 0 0 16 23 1 2 COMPLETE PRIMARY SCHOOL (6yrs) 100 100 43 26 38 38 3 12 2 4 0 1 0 0 12 17 2 2 TECHNICAL TRAINING 1002552921092 1 TO 2 YEARS OF SECONDARY SCHOOL 100 100 44 25 31 35 3 12 0 4 0 1 0 1 19 23 4 1 COMPLETE SECONDARY SCHOOL (3yrs) 100 100 34 18 47 40 4 19 2 7 0 2 0 1 11 11 2 2 SUBPROFESSIONAL TRAINING 100 100 13 8 66 25 10 26 3 23 0 9 0 1 4 5 3 3 1 TO 3 YEARS OF HIGH SCHOOL 100 100 16 12 55 32 11 21 1 15 2 5 0 1 10 11 3 3 COLLEGE DEGREE 100 99 9 7 57 26 18 27 2 19 1 10 1 2 9 4 2 5 UNIVERSITY & POSTGRADUATE DEGREE 100 100 10 4 46 11 21 16 12 30 2 24 0 8 4 4 5 5 source: Author's own calculations base on INEGI's Encuestas Nacionales de Empleo 1988, 1991, 1993, 2000. Note: 1988 data only covers "more urbanised areas"; 2000 data groups technical training with subprofessional training

4. Wage differentials by occupation

During the first phase of trade opening, according to Revenga (1995) from the World Bank, trade liberalization from 1985 to 1988 was paralleled with a sharper increase in the wage differential between skilled and unskilled workers.190 It is true that within the manufacturing sector, a larger number of wage differentials were created intensifying inequality and concentrating wage income among the higher income earners.

In the 1992 ENESTyC survey, these trends were confirmed. Within the manufacturing formal sector, three export-oriented subsectors offered the highest average remuneration to permanent and casual full-time workers: the chemicals industry (6.7 times the minimum wage), followed by the basic metals industry (6.1 times the minimum wage) and metal  products machinery and equipment (5.6 times the minimum wage). The two industries that offered lower average remuneration were the food, beverages and tobacco (4.4 times the minimum wage) and the textile, clothing and footwear industry (3.9 times the minimum wage). Clothing is one of the most poorly paid industries and one that reports high levels of informality.

It is a fact that export-oriented industry was offering at this moment, on average, relatively higher wages than national non export-oriented industry. Later, average manufacturing wages were only 4 percentage points higher than total non export-oriented average. Yet, more wage differentials seem to have been created during this period (mainly through flexible types of remuneration) intensifying inequality between manufacturing workers and concentrating wage incomes among the higher wages earners. Also, those groups of workers most closely associated with the increasing export orientation of the economy were precisely those among whom wage differentiation was most intense.191

National competitive industries that devote large part of their production to exports have in fact widened their number of wage categories. Overall, in 1992, 18 per cent of manufacturing establishments had increased their number of wage categories since 1989, across all industries. The industry where there was the highest increase was the basic metals industry, then the chemicals industry. Those industries that offered the best remuneration were mainly those that were also increasing their number of wage categories in order to adapt labour productivity to labour costs. With the exception of the food, beverages and tobacco industry, the widening of wage categories was the general rule.

In 1992, average manufacturing wages and basic salaries represented 76 per cent of total remuneration for workers of all occupational categories; while flexible wages accounted for the remaining 24 per cent. This 24 per cent can be divided into: 3 per cent overtime, 17 per cent fringe benefits and 4 per cent other remuneration (productivity, quality, attendance and punctuality bonuses, profit sharing and other social benefits). These percentages varied by industry division. For example, the proportion of wages and basic salaries in total remuneration was lower in export-oriented industries like the basic metals industry and the metal products, machinery and equipment and the chemicals industry which in turn provided a high percentage of fringe benefits, overtime and other remuneration. On the contrary, other non-export industries like the wood industry had a higher proportion of its remuneration as wages and basic salaries and a low proportion as fringe benefits, overtime and other remuneration (see table Ch. VIII-9 and figure Ch. VIII-2).



Table Ch. VIII-9 Percentage of Type of Remuneration in the Manufacturing Sector by Sex, Average Remuneration and Number of Times the Minimum Wage, as of March 1992 TYPE OF REMUNERATION T O T A L AVERAGE NUMBER OF Remuneration REMUNERATION TIMES THE Permanent Wages MINIMUM & Casual and basic Fringe Other (current pesos) WAGE GENDER AND SUBSECTOR workers salaries Overtime Benefits Remuneration

Food, beverages & tobacco 100 76 3 16 5 1395 4.8 Textiles, garments & leather 100 81 2 14 3 1380 4.8 Wood & wood products 100 84 3 11 3 1254 4.3 Paper & paper products 100 76 5 13 7 1566 5.4 Chemical subst., rubber & plastic 100 73 3 19 4 2149 7.4 Non-metal mineral prod. 100 75 5 14 6 1620 5.6 Basic metals 100 69 4 23 4 1802 6.2 Metal prod., machinery & equip. 100 73 4 19 5 1803 6.2 Other manufacturing ind. 100 81 3 11 5 1318 4.5

MALE 100 75 3 17 5 1627 5.6

Food, beverages & tobacco 100 83 2 13 2 887 3.1 Textiles, garments & leather 100 81 2 16 1 842 2.9 Wood & wood products 100 82 3 10 4 1284 4.4 Paper & paper products 100 84 2 11 3 850 2.9 Chemical subst., rubber & plastic 100 76 3 18 3 1400 4.8 Non-metal mineral prod. 100 81 3 14 2 1124 3.9 Basic metals 100 68 1 27 4 1695 5.8 Metal prod., machinery & equip. 100 73 4 18 5 1110 3.8 Other manufacturing ind. 100 81 3 12 4 909 3.1

FEMALE 100 78 3 15 3 1030 3.5 source: Author's own calculations based on ENESTyC survey tabs 252b, 252c and 141b Notes: Other remuneration includes productivity, quality, attendance and punctuality bonuses, profit sharing and other social benefits like supplies aid for house rent, aid for transport, aid for school material, aid for food, savings fund and life insurance The monthly minimum wage was 290 nuevos pesos (working 6 days a week) in March, 1992 or 93.6 dollars at an exchange rate of 3.1 dlls for 1 nuevo peso

Figure Ch. VIII-2 Gender Difference of Average Monthly Remuneration by Manufacturing Subsector as of March, 1992

8.0

7.0

6.0

Women 5.0 Men

4.0

3.0

2.0

1.0

0.0 Men Women Food, Wood & Paper & Non-metal Textiles, Chemical Basic metals beverages & wood paper mineral prod. Metal prod., garments & subst., rubber tobacco products products machinery & leather 0QPGZRQTV QTKGPVGF & plastic equip. 'ZRQTVQTKGPVGF

source: Author's own calculations based on ENESTyC survey tabs 252b, 252c and 141b

Managerial, professional and supervisors seem to be the most benefited from trade liberalisation since income wages have become more concentrated among the higher-paid strata. The explanation here could be the introduction of technology and a rapid trend towards a capital-intensive mode of production. The ENESTyC survey data permits a comparison  between managers and unskilled workers remuneration. In 1992, managerial workers received, on average, 7,258 nuevos pesos (25 minimum salaries), and unskilled workers earned only 817 nuevos pesos (2.8 minimum salaries) per month: a ratio of almost 9 to 1. Between technicians, clerical, supervisors, skilled, semi-skilled and unskilled workers the wages’ differentials were small. However, managers' salaries were double the average for those of professionals (see table Ch. VIII-10 and figure Ch. VIII-3).

Table Ch. VIII-10 Average Manufacturing Remuneration by Occupation divided by Sex and Size of Establishment as of March 1992 (current pesos) MANAGERIAL ROFESSIONAL ECHNICAL LERICAL UPERVI- TOTAL SOR SKILLED SEMI- NSKILLED AVERAGE SKILLED REMUNERATION T O T A L 7'258 3'101 1'762 1'618 1'919 1'151 1'051 817 1'323

LARGE 12'163 4'177 2'225 2'284 2'615 1'380 1'346 1'064 1'702

MEDIUM 9'319 4'018 2'020 1'762 2'079 1'318 1'153 917 1'509

SMALL 5'837 3'007 1'753 1'486 1'630 1'161 1'036 720 1'241

MICRO 1'711 1'204 1'049 939 1'350 743 668 565 841

MALE 7'491 3'252 1'789 1'736 1'971 1'223 1'122 887 1'467

LARGE 12'371 4'301 2'260 2'408 2'677 1'448 1'429 1'188 1'881

MEDIUM 9'555 4'193 2'086 1'863 2'186 1'430 1'246 974 1'673

SMALL 6'012 3'090 1'801 1'602 1'688 1'240 1'093 779 1'372

MICRO 2'025 1'424 1'011 1'072 1'333 772 722 606 942

FEMALE 5'166 2'594 1'636 1'467 1'599 746 764 671 950

LARGE 8'691 3'498 1'999 2'032 2'065 816 969 799 1'164

MEDIUM 6'945 3'271 1'636 1'620 1'521 946 859 803 1'110

SMALL 4'354 2'680 1'393 1'369 1'327 799 825 601 921

MICRO 676 927 1'515 848 1'483 421 403 481 606 source: Author's own calculations based on ENESTyC survey tabs 140b and 251 note: the monthly minimum wage was 290 nuevos pesos (working 6 days a week) in March, 1992 or 93.6 dollars at an exchange rate of 3.1 dlls for 1 nuevo

Occupational wage differences also varied to a great extent by size of establishment. The biggest difference found between managerial and unskilled workers remuneration was in large establishments where managerial earned 12,163 nuevos pesos (42 minimum salaries) and unskilled only (3.6 minimum salaries). In all the industries interviewed, micro-sized establishments paid the least. The survey evidence confirmed a direct relationship between the size of the firm and remuneration: the smaller the firm, the lower the remuneration. This fact has been generally evidenced by other authors like Main and Reilly (1989) in Great Britain and Brown and Medoff in the U.S.192 (see figure Ch. VIII-4)



Figure Ch. VIII-3 Average Manufacturing Wage Differentials by Occupation, as of March 1992

8'000

7'000

6'000

5'000

4'000

3'000

2'000

1'000

0 MANAGERIAL PROFESSIONAL TECHNICAL CLERICAL SUPERVISOR SKILLED SEMI-SKILLED UNSKILLED

source: Author's own calculations based on ENESTyC survey tabs 140b and 251

Seven years after the integration of Mexico to NAFTA, there has not been a raise of real wages for the majority of manufacturing workers, though. The downward pressure on wages has been especially significant for less-skilled workers. The relative returns to human capital become more favourable to the most skilled and educated. The evolutionary process of policies with their promotion of capital-intensive production units within an intra-industry, intra-firm trade with the U.S. has contributed to generating a low demand of unskilled formal employment and a large demand of semi-skilled and skilled, and as a consequence has lowered down real wages. The majority of manufacturing workers receive between two and three minimum wages per month. Mexican wages, especially for direct or production labour (unskilled, semi-skilled and skilled) that represent 70 percent of workers, continue being very low. This could have long-term negative consequences if there is not a change in training and education opportunities available. Efficiency and production levels will not be able to be sustained in the future if this trend continues.

Data seems to indicate a reverse trend: wage of unskilled labor has fallen in relation to that of skilled labor. Why has the wage of skilled labor increased more than that of unskilled labor? According to Hanson193, some explanations for this paradox can be proposed.



Figure Ch. VIII-4 Average Manufacturing Wage Differentials by Size of Establishment as of March 1992

1'800

1'600

1'400

1'200

1'000

800

600

400

200

0 LARGE MEDIUM SMALL MICRO

source: Author's own calculations based on ENESTyC survey tabs 140b and 251 1. The liberalization of international trade came together with an increase in foreign capital inflows. This foreign investment was the product of an outsourcing trend in foreign firms, which could have augmented the demand for skilled labor more than the increase in demand of unskilled labor caused by the trade in goods.

2. Mexico’s comparative advantage with respect to developed nations is its unskilled labor. However, compared to other nations (especially China and countries in South Asia), its global comparative advantage could actually be skilled labor.

3. Trade protection was initially higher in the less-skill intensive industries and, as a consequence of liberalization tariffs were reduced by more in these sectors.

5. Wage differentials by gender

It is important to consider if women workers with the same educational level perceive lower wages than their male counterparts. For example, always considering percentage share participation of workers according to sex as the average, the percentage of university and postgraduate degree male workers non-remunerated went down from 1988 to 2000. The opposite trend was true for women workers. It is important to always take the gender distribution as the average and to measure the changes from there. This measurement gives a fairer analysis. While women of all education levels’ average percentage share in non- remunerated work was 54 per cent in 1988, 41 per cent of women university graduates belonging to this category were not receiving any payment for their work. Twelve years later,  on average, the percentage share of women in that category represented 43 per cent, but the percentage of non-remunerated women workers with a university or postgraduate degree had increased to 56 per cent of total (see table Ch. VIII-11).

Table Ch. VIII-11 Income Level by Educational Attainment and Sex 1988-2000 (vertical percentage) TOTALS m.w. 1 than Less m.w. 2 to 1.1 From m.w. 3 to 2.1 From From 3 to 5 m.w. 5 3 to From m.w. 10 to 5.1 From m.w. than 10 More Not remunerated Not specified 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000 1988 2000

MALE 67 66 54 54 69 65 76 72 83 72 88 72 94 82 46 57 74 74 NO FORMAL EDUCATION 59 65 46 55 76 74 89 82 48 83 89 84 98 89 36 52 82 88 1 TO 3 YEARS OF PRIMARY SCHOOL 68 72 50 63 83 74 91 86 90 88 74 86 92 85 22 56 81 88 4 TO 5 YEARS OF PRIMARY SCHOOL 69 69 56 56 80 70 79 83 92 90 86 82 88 77 37 63 84 82 COMPLETE PRIMARY SCHOOL (6yrs) 71 66 55 50 79 63 87 8 85 84 87 85 95 86 34 55 77 76 TECHNICAL TRAINING 33 19 34 49 73 64 67 1 43 1 TO 2 YEARS OF SECONDARY SCHOOL 79 75 68 62 86 72 89 84 99 90 82 91 100 84 65 68 66 89 COMPLETE SECONDARY SCHOOL (3yrs) 74 69 63 50 77 65 87 75 87 84 94 86 94 86 58 60 80 72 SUBPROFESSIONAL TRAINING 37 36 33 24 34 32 50 34 58 39 72 48 62 56 23 19 33 40 1 TO 3 YEARS OF HIGH SCHOOL 78 70 73 54 76 65 83 73 94 77 77 82 98 89 70 60 85 72 COLLEGE DEGREE 61 57 61 39 58 49 66 55 84 65 74 64 40 78 33 41 68 41 UNIVERSITY & POSTGRADUATE DEGREE 74 63 61 52 66 57 75 57 85 57 92 67 96 81 58 44 82 70

FEMALE 33 34 46 46 31 35 24 28 17 28 12 28 6 18 54 43 26 27 NO FORMAL EDUCATION 41 35 54 45 24 26 11 18 51 16 9 15 3 5 64 48 18 12 1 TO 3 YEARS OF PRIMARY SCHOOL 32 28 50 37 17 26 9 14 10 11 26 14 8 14 77 44 19 12 4 TO 5 YEARS OF PRIMARY SCHOOL 31 31 44 44 20 30 21 17 8 10 14 17 13 22 63 37 17 18 COMPLETE PRIMARY SCHOOL (6yrs) 29 34 45 50 21 37 13 21 15 15 13 15 5 13 66 45 23 24 TECHNICAL TRAINING 67 81 66 51 28 36 33 99 56 1 TO 2 YEARS OF SECONDARY SCHOOL 21 25 32 38 14 28 11 16 2 9 15 8 0 16 35 32 34 11 COMPLETE SECONDARY SCHOOL (3yrs) 26 31 37 50 23 35 13 25 13 16 6 14 6 14 42 40 20 28 SUBPROFESSIONAL TRAINING 63 64 67 76 66 68 50 66 42 61 28 52 38 44 77 80 66 60 1 TO 3 YEARS OF HIGH SCHOOL 22 30 27 46 24 35 17 27 6 23 23 18 2 10 30 40 15 28 COLLEGE DEGREE 39 43 39 61 42 51 34 45 15 34 26 35 60 22 67 57 34 59 UNIVERSITY & POSTGRADUATE DEGREE 26 37 44 48 34 43 25 43 15 43 8 33 4 19 41 56 18 30 source: Author's own calculations base on INEGI's Encuestas Nacionales de Empleo 1988, 1991, 1993, 2000. Note: 1988 data only covers "more urbanised areas"; 2000 data groups technical training with subprofessional training

According to the Income-Expenditure Household Surveys of 1984 and 2000, the percentage of women with complete junior high had increased from representing 10.1 per cent in 1984 to 21.2 per cent in 2000. The percentage of women with complete high school levels had also increased from 4.0 per cent in 1984 to 7.1 per cent in 2000. The same comparison with complete university and postgraduate level women resulted in an increase from 1.9 per cent in 1984 to 5.8 per cent in 2000 (see table Ch. VIII-12).

Table Ch. VIII-12 Educational Level of the Population older than 20 divided by Sex, 1984 and 2000 (thousands and percentages) TOTAL without any incomplete complete incomplete complete incomplete complete incomplete complete education elementary elementary junior high junior high high school high school university university & postgraduate 1984 Horizontal % Total 99 18.7 33.2 20.6 3.6 9.4 2.3 3.9 4.1 3.3 Men 100 16.2 32.9 19.9 4.9 8.7 3.3 4.0 5.2 4.8 Women 100 21.3 34.1 21.5 2.4 10.1 1.5 4.0 3.2 1.9 vertical % Men 54.0 41.0 46.7 45.7 64.9 44.0 66.4 47.9 59.7 69.4 Women 46.0 59.0 53.3 54.3 35.1 56.0 33.6 52.1 40.3 30.6

2000 Horizontal % Total 100 12.0 20.1 20.1 3.4 20.4 2.9 7.3 6.0 7.9 Men 100 10.1 19.2 19.2 3.9 19.5 3.7 7.6 6.7 10.2 Women 100 13.6 21.0 20.8 2.9 21.2 2.3 7.1 5.3 5.8 vertical % Men 49.7 39.5 44.5 44.7 53.7 44.7 58.4 48.5 52.5 60.5 Women 50.3 60.5 55.5 55.3 46.3 55.3 41.6 51.5 47.5 39.5 source: Author's own calculations based on INEGI; Income-Expenditure Household Survey 1984(p.5), 1989 (p.6), 1994 (p.7) and 2000 (p.8-9). note: the Mexican educational system is divided in primary school or elementary from 1st to 6th grade, three years of secondary school or junior high, three more years of preparatory or high school, and four to five years of licence or B. A. degree, plus a two-year Master's degree, and a three to five years Ph.D degree.



If a horizontal distribution of workers per educational level is made, the majority of male workers (74 per cent in 1988 and 70 per cent in 2000) with a university degree and higher moved from the three categories of 1.1 to 5 minimum wages in 1988 to the next three categories of 3.1 to more than 10 minimum wages by the year 2000. The majority of women workers (79 per cent in 1988 and 70 per cent in 2000) with the same educational level moved, but only to the category behind: from 2.1 to 10 minimum wages maximum. In addition, while 19 per cent of all male workers with a university degree were earning more than 10 minimum wages, only 8 per cent of all female workers with the same educational level were earning the same amount (see table previously mentioned Ch. VIII-8).

Piece-work done by women workers is also less remunerated than that of their male counterparts doing the same type of work. In 2000, only 13 per cent of all piece-work male workers received less than one minimum wage. The majority (55 per cent) of women workers with this employment status were earning such a low remuneration. The same trend was true with higher categories of number of wages. Twenty-four per cent of male counterparts were receiving from 2.1 to 3 minimum wages. On the other hand, only 8 per cent of women with the same category of contract were receiving the same number of wages (see table previously mentioned Ch. VIII-7).

By 1999, gender wages’ differentials between occupations still proved to be large in Mexico compared to 1992 data. If the data were divided by the number of minimum wages, the difference between occupations was striking. While men managers or directors earned 12.5 times the minimum wage on average, women managers earned only less than 6.9 times the minimum in 1999. In the professional category the difference was also important and in the rest of the occupations, men earned throughout more than women (see table Ch. VIII-13 and figure Ch. VIII-5).

Table Ch. VIII-13 Type of Remuneration in Manufacturing by Occupation and Sex, Average Remuneration and Number of Times the minimum wage, 1992-1999 (percentages) AVERAGE NUMBER OF TIMES T O T A L WAGES/ OVERTIME FRINGE SOCIAL OTHER MONTHLY THE MONTHLY BASIC SALARIES BENEFITS SECURITYREMUNERATION REMUNERATION MINIMUM WAGE CONTRIBUTION (in dollars) 1992 1999 1992 1999 1992 1999 1992 1999 1999 1992 1999 1992 1999 1992 1999

MALE 100 100 75 69 3 3 17 13 12 5 4 525 518 5.6 5.9

Directors 100 100 85 67 0 0 13 21 9 2 3 2237 1095 23.9 12.5 Employees 100 100 75 70 3 2 18 11 13 3 5 735 780 8 8.9 Specialized worker 100 100 69 70 6 4 18 10 12 7 4 401 435 4.3 5.0 Unskilled workers 100 100 72 68 5 4 16 11 14 7 4 317 294 3.4 3.3

FEMALE 100 100 78 73 3 2 15 10 12 3 3 332 376 3.5 4.3

Directors 100 100 90 80 0 0 8 9 10 2 1 1054 605 11.2 6.9 Employees 100 100 80 71 2 1 15 11 13 3 4 535 609 6 6.9 Specialized worker 100 100 77 73 5 3 15 9 12 3 3 284 309 3.0 3.5 Unskilled workers 100 100 76 68 4 4 15 11 14 5 3 232 246 2.5 2.8

source: Author's own calculations based on ENEStyC 1992 survey tabs 249 & 138b, and ENESTyC 1999 tables c5.11 and c4.12 notes: Other remuneration includes productivity, quality, attendance and punctuality bonuses, profit sharing and other social benefits like supplies aid for house rent, aid for transport, aid for school material, aid for food, savings fund and life insurance; in 1999, data left out these The monthly minimum wage in 1992 was 290 nuevos pesos (working 6 days a week) or 93.6 dollars at an exchange rate of 3.1 dlls for 1 nuevo peso The monthly minimum wage in 1999 represented 842.8 nuevos pesos (working 6 days a week) or 87.79 dollars at an exchange rate of 9.6 dlls for 1 nuevo peso Average remuneration was calculated by dividing remuneration by the number of workers Directors include managerial; Employees include professionals, technicians, clerical, supervisors and skilled workers; Specialised workers include semi-skilled workers, and finally General workers include unskilled workers. 

Figure Ch. VIII-5 Gender Difference of Average Monthly Remuneration by Occupation (in dollars)

2500

2000

1992 1500 1999

1000

500

0 Directors Employees Directors MALE's AVERAGE MALE's Employees Unskilled workers Unskilled Specialized workers FEMALE's AVERAGE Unskilled workers Unskilled Specialized workers source: Author's own calculations based on ENEStyC 1992 survey tabs 249 & 138b, and ENESTyC 1999 tables c5.11 and c4.12

In those establishments surveyed by ENESTyC, female average remuneration represented only 63.3 per cent of men's average remuneration in 1992 and 72.5 per cent seven years later. The biggest gap was found within managerial staff. Women occupying directorate posts earned in 1992, on average, only 47.1 per cent of what men occupying the same type of posts earned. Remuneration differences seemed to be getting relatively lower by 1999, especially at the managerial level. Seven years later, female directors were obtaining 55.2 per cent of male’s average remuneration per month. At lower occupational skill levels, these differences were showing a more positive trend by 1999: unskilled female workers were getting, 83.6 per cent of what their male counterparts were earning (see table Ch. VIII-14 and figure Ch. VIII-6).

Table Ch. VIII-14 Female's Average Remuneration in the Manufacturing Sector as a Percentage of Male's by Occupation, 1992-1999 (Male's Average Remuneration = 100) 1992 DIRECTORS E M P L O Y E E S SPECIALISED UNSKILLED T O T A L WORKERS WORKERS

47.1 72.7 70.7 73.1 63.3 1999 DIRECTORS E M P L O Y E E S SPECIALISED UNSKILLED T O T A L WORKERS WORKERS

55.2 78.0 71.0 83.6 72.5 source: Author's own calculations based on ENEStyC 1992 survey tabs 249 & 138b, and ENESTyC 1999 tables c5.11 and c4.12 Directors include managerial; Employees include professionals, technicians, clerical, supervisors and skilled workers; Specialised workers include semi-skilled workers, and finally Unskilled workers include all other workers. 

Figure Ch. VIII-6 Female's Average Remuneration in the Manufacturing Sector as a Percentage of Male's, 1992, 1999

90.0

80.0

70.0

60.0

50.0 1992

40.0 1999

30.0

20.0

10.0

0.0

DIRECTORS EMPLOYEES SPECIALISED UNSKILLED source: Author's own calculations based on ENEStyC 1992 survey tabs 249 & 138b, and ENESTyC 1999 tables c5.11 and

Women’s average remuneration as a percentage of men’s by manufacturing subsector also varied considerably and it was found that male-female wage differentials were wider in highly export-oriented industries in 1992. However, later versions of ENESTyC did not provide the same type of data to be able to compare gender wages’ differentials within a longer time frame. In the two most important export-oriented industries (chemicals and metal products, machinery and equipment) where women were more concentrated, they earned a lower percentage of total wages compared to men. There, women only earned between 62 and 65 per cent of the average male wage (see table previously mentioned Ch. VIII-9 and figure Ch. VIII-2).

To have a clearer view of these differences, the 1992 data were divided by the number of minimum wages. In 1992 while men earned on average 6.2 times the minimum wage in the metal products, machinery and equipment subsector, women received only half of that: 3.8 times the minimum wage. The same finding in the chemicals industry confirmed this trend. While men earned on average 7.4 times the minimum wage, women received only 4.8 times the minimum wage in this industry (see table Ch. VIII-15 and figure Ch. VIII-7).

Arguments used to justify the male/female earnings gap comprise legitimate market- related factors, such as length of work experience, college major194 and number of career interruptions for family reasons. However, there is controversial evidence about employers systematically rewarding women differently than men with respect to pay and promotions for the simple fact of being women. As it was seen before, these differences cannot be attributed to a lower education since. Alarcón and McKinley argue that if Mexican female and male urban workers were paid solely according to their educational attainments, females might be expected to have higher wages since they normally have more education. While 9 percent of Mexican women workers had primary-level technical education and almost 24 percent of them had secondary-level technical education, the corresponding percentages for men were only 3.3 percent and 9.3 percent in 1992. Some factors that could explain this difference is  that despite having a higher educational level, women workers are obliged to say no to overtime and normally work fewer hours than men because of family reasons. In 1992 women workers had less continuous on-the job experience (21 per cent) than men and worked 17 per cent fewer hours.195

Table Ch. VIII-15 Female's Average Remuneration as a Percentage of Male's divided by Manufacturing Subsectors as of March, 1992 (men's remuneration = 100) FEMALE'S AVERAGE REMUNERATION SUBSECTORS

T O T A L 63.3

Food, beverages & tobacc 63.5 Wood & wood products 67.1 Paper & paper products 82.0 Non-metal mineral prod. 69.4

Textiles, garments & leath 61.6 Chemicals, rubber & plas 65.2 Basic metals 94.1 Metal prod., mach.& equip 61.5 Other manufacturing ind. 68.9 source: Author's own calculations based on ENESTyC survey tabs 250b, 250c and 141b

Women seem to have benefited from labour flexibility trends since this new policy created a higher demand for their labour. On the other hand, flexibility meant for them, more than for male colleagues, a precarious employment status and a continuous concentration in low remunerated, low occupations and low-skilled jobs. The advancement of women in the labour force is slower than men. In order to request better wages, workers normally need to work extra hours, and take training courses after work. The fact that many women are unable to stay late due to family responsibilities sometimes impedes their professional advancement and better remuneration. Childbearing and rearing years are, in fact, associated with women's impossibility to obtain a continuous work experience and their concentration in the lowest occupational levels. Mexico's female employment is higher between the ages of 18 to 24, declining during the childbearing age, and then increasing once again later on. Another important factor is the number of children. If women have only one child, their participation rate barely changes; the majority continue working. Women with two or more children, however, usually quit their economic activity for some years or for the rest of their lives.196 

Figure Ch. VIII-7 Female's Average Remuneration as a Percentage of Male's by Manufacturing Subsector as of March, 1992 (male's remuneration =100)

Non-export oriented 0 102030405060708090100

Food, beverages & tobacco

Wood & wood products

Paper & paper products

Non-metal mineral prod.

Export-oriented

Textiles, garments & leather

Chemicals, rubber & plastics

Basic metals

Metal prod., mach.& equip.

source: Author's own calculations based on ENESTyC survey tabs 250b, 250c and 141b

6. Other remuneration indicators

As mentioned before, within the classification of "other remuneration" any employee benefits that are either payments in kind or deferred are included. Employers usually provide workers with three kinds of bonuses (productivity, quality and attendance and punctuality), as well as profit sharing and social benefits. In general, attendance and punctuality are the most frequently offered bonuses, followed by productivity bonuses, and then quality bonuses.

Productivity bonuses are very important in those industries like textiles, garments, leather and shoes where remuneration is obtained per piece worked. The emphasis on providing more bonuses and hence making wages more flexible is more important in those industries introducing competitive products into the national market and/or in those export-oriented industries more exposed to liberalisation measures. By size of industry, it is large (47per cent), then small (31 per cent), medium (16 per cent) and lastly micro (6 per cent) establishments that give the highest percentage of all three types of bonuses.

Profit shares and other social benefits represented, in 1992, 52 per cent of non-wage remuneration. Other social benefits obtained by workers are: supplies, aid for house rent, aid for transport, aid for school material, aid for food, savings fund, and life insurance.

Large establishments offer more social benefits than medium, small and micro establishments. But large, medium and small-size establishments usually provide their workers with life insurance, and a savings fund; while micro-size establishments provide their highest share of additional benefits in aid for food. This is not surprising given that most micro establishments are owned and run within family circles. In 1992, the average percentage of profits shared among workers was positively related to the size of the firm: the  larger the firm, the higher the profit share. In general, those manufacturing industries that have been successful in competing with foreign products and/or which have industrial branches destined to export part or most of their production are the ones that have been introducing more flexible types of remuneration.

B. Purchasing power and prices’ fluctuations

So far, we have seen the changes in real wages in different sectors of the economy: export-oriented as well as non-export-oriented. Now, let us consider the effect of trade liberalization in the fluctuation of prices and in the dynamism of private consumption. Trade should, normally, affect consumption possibilities by enlarging the range of choice (the love of variety theory) and making trading countries’ residents better off by reducing prices of goods. However, changes in relative prices of goods have very strong effects on the relative earnings of workers. Since trade changes relative prices, international trade can have strong income-distribution effects. One of the main reasons for this umbiguous increase in inequality is that international trade promotes only exporting sectors.

Another factor to consider in this section is that consumer prices are generally free (with the exception of those controlled by the government like the price of tortillas), while producer prices depend on long-term contracts, as well as the international price of commodities and are sometimes artificially maintained by a large number of subsidies and guarantees.

Taking these factors into consideration a comparison was made between the general producer price index and the consumer price index,197 where real differences were noticed from 1982 to 1994. Prices for consumers increased at a much higher speed than those for producers. The trend was really marked after the 1985 opening. Between the important inflationary years of 1986 and 1988, for example, the general producer price index stayed behind by almost 2000 points. After the consolidation of trade (between 1990 and 1994) this trend was increasingly extremely discriminatory against consumers: going from 2,902 percentage points in 1990 to 6,638 in 1994. The situation has become more egalitarian since 1997 when the difference represented less than 200 points. In 1998, the difference between the consumer price index and the producer price index had slightly widened again, but it had improved a lot compared to only 4 years before (see table Ch. VIII-16). 

Table Ch. VIII-16 General Price Index of Exports and Imports and Index of Exchange Terms, 1980-2000 (1980=100) YEAR General Consumer General Price General Price Index of Producer Price Index of Index of Exchange Price Index Exports Imports Terms Index 1980 100 100 100 100 100 1981 125.5 127.9 1982 197.7 203.3 1983 394.1 410.5 1984 644.8 679.2 1985 1001.0 1071.4 1986 1796.7 1995.4 1987 4407.2 4625.9 1988 8783.7 9907.1 66.0 127.5 51.8 1989 9904.8 11889.2 71.7 133.4 53.8 1990 12157.4 15059.1 76.8 136.2 56.4 1991 14477.7 18473.1 70.7 136.5 51.9 1992 16220.0 21336.1 70.9 137.5 51.5 1993 17283.9 23417.6 68.8 139.8 49.4 1994 18384.4 25048.2 36.8 142.5 49.7 1995 35441.4 39300.3 74.8 150.4 49.8 1996 47614.9 50196.1 76.0 150.9 50.4 1997 57694.5 57860.8 75.3 151.8 49.6 1998 62945.4 63616.9 71.6 151.1 47.4 1999 74091.9 2000 71043.6 source: NAFIN: La Economía Mexicana en Cifras 1995, p.261; and 1998, p.415 and 438 At the same time, the general price of exports was compared to the general price of imports. While the general price index of exports increased by 5.6 points from 1988 to 1998, the general price of imports only increased by 23.6 points during the same period of time. Considering that the devaluation of the Mexican currency was very important during this period, differences between exports and imports seemed fully justified. Then, the producer price index was compared to internal demand. In this case, total internal demand increased at a higher speed than the general producer price index, and was compared to the private consumption index that was advancing more rapidly than fixed capital formation and the growth of exports (see table Ch. VIII-17). Table Ch. VIII-17 Producer Price Index and Internal Demand, 1980-1994 (1980=100) YEAR General I n t e r n a l D e m a n d Producer Fixed Price TOTAL Private Capital Exports Index Consumption Formation

1980 100 100 100 100 100 1981 125.5 127.9 127.8 138.3 114.0 1982 197.7 197.1 195.3 200.9 200.6 1983 394.1 387.7 391.5 375.4 424.7 1984 644.8 647.2 663.0 605.5 633.4 1985 1001.0 1014.8 1051.7 922.7 935.7 1986 1796.7 1881.1 1966.5 1668.8 1395.2 1987 4407.2 4551.5 4737.8 4085.3 3720.8 1988 8783.7 9381.9 9637.1 8731.8 5938.0 1989 9904.8 10470.7 10916.5 9354.2 7212.8 1990 12157.4 12763.3 13525.4 10908.8 9275.2 1991 14477.7 15585.1 16627.7 13057.9 9209.7 1992 16220.0 17552.1 18867.7 14380.9 9881.0 1993 17283.9 18883.8 20240.7 15610.2 9672.6 1994 18384.4 19962.7 21435.5 16415.1 10876.1 source: NAFIN: La Economía Mexicana en Cifras 1995, p.261 

The author also did a comparison between the consumer price index and types of expenditure. Prices of basic goods like clothing, footwear and accessories kept above the average consumer price index even after the trade opening and the consolidation of trade: from 1980 to 1993. The same development was true for furniture and household accessories, as well as transport cost. Other services prices started to go down as of 1991. Food, beverages and tobacco, furniture and household accessories, health and personal care and transport have shown a rapid increase again starting from 1997 (see table Ch. VIII-18).

Table Ch. VIII-18 Index of Consumer Prices by Type of Expenditure, 1980-2000 (1980=100) YEAR Consumer Food Clothing Furniture Health Price Beverages Footwear Housing and and Transport Education Other Index and and Household Personal and Services Tobacco Accesories Accesories Care Loisirs 1980 100 99.1 113.4 96.0 103.7 97.8 122.1 102.7 106.3 1981 127.9 125.1 146.3 124.0 133.2 129.3 110.0 130.7 142.9 1982 203.3 192.0 234.2 188.1 209.2 206.5 200.6 205.9 241.5 1983 410.5 367.0 508.2 335.3 468.8 443.1 473.6 414.3 498.3 1984 679.2 641.9 820.2 511.2 772.4 734.8 745.7 658.1 875.6 1985 1071.4 1025.8 1318.2 748.4 1164.6 1182.3 1159.5 1019.6 1534.9 1986 1995.4 1904.6 2410.7 1349.8 2151.4 2200.7 2259.7 1896.6 2910.3 1987 4625.9 4402.2 5603.3 2660.7 5266.3 5616.7 5561.0 4490.8 6751.4 1988 9907.1 9224.2 12204.8 5946.9 11261.8 11257.6 11751.4 10148.6 15381.8 1989 11889.2 11094.9 13006.4 9181.0 11802.3 12830.9 12474.1 12587.9 19699.0 1990 15059.1 16709.7 16762.3 13395.8 17218.1 14382.7 13658.8 12183.5 15171.7 1991 18473.1 20068.6 19640.3 17541.3 20036.1 17536.3 17010.2 15454.8 18418.0 1992 21336.1 22323.0 21834.5 20679.8 22117.6 20504.5 21333.6 18803.7 21012.9 1993 23417.6 23793.3 23768.3 23021.8 23810.8 23049.4 23425.1 22503.3 23382.5 1994 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 1995 39300.3 34872.1 31945.2 32237.1 35694.0 35040.5 35546.4 31982.8 31660.4 1996 50196.1 49382.3 43223.7 41979.6 48454.8 47352.9 46586.9 40537.8 40896.7 1997 57860.8 61721.1 56756.3 54489.4 61528.4 60558.1 62579.5 50760.7 52158.7 1998 63616.9 69295.1 62728.8 58572.5 67380.5 68406.2 68105.4 55034.9 58470.8 1999 74091.9 2000 71043.6 source: NAFIN: La Economía Mexicana en Cifras 1995, p.261; and 1998, p.438 in red prices above average consumer price index The same type of comparison was made by economic sector of origin. Strangely agricultural prices that were supposed to be going down rapidly because of cheap imports, started showing a very significant increase from 1990 to 1993 as a result of liberalised prices and the reduction of subsidies. In GATT’s Mexico Trade Policy Review of 1993, the government had announced that since the international price of maize was $132.50 US and the domestic producer price was 226.6, the consumer will benefit from lower prices of the most important crop in the country. Prices of agriculture goods slightly improved in 1995, only to increase again between 1996 and 1998. The prices of our main exports at present, manufacturing goods, have not decreased internally either. From 1982 to 1993, they kept above average consumer price index. This was not the case with other industries or services that only showed sporadically increases above the general consumer price index (see table Ch. VIII-19). 

Table Ch. VIII-19 Index of Consumer Prices by Economic Sector of Origin, 1980-1998 (1980=100) YEAR Consumer AGRICULTURE COMMERCE TRANSPORT FINANCE COMMUNITY Price CATTLE MANUFACTURING ELECTRICITY RESTAURANTS STORAGE INSURANCE AND SOCIAL & Index FORESTRY & & HOTELS & COMMUNICATIONS REAL ESTATE PERSONAL FISHING SERVICES 1980 100 101.6 100.7 96.7 92.0 102.8 1981 127.9 131.5 127.8 114.0 118.0 135.4 1982 203.3 177.4 204.6 162.1 189.8 212.6 1983 410.5 331.3 446.6 356.3 364.0 394.1 1984 679.2 543.9 742.7 628.8 555.1 627.5 1985 1071.4 854.7 1178.4 878.6 809.8 988.2 1986 1995.4 1598.7 2204.1 1849.5 1789.1 1734.0 1987 4625.9 3559.6 5500.3 3328.9 4854.8 3667.8 1988 9907.1 7561.8 11661.8 6838.1 10528.7 8328.0 1989 11889.2 10317.5 12046.0 7577.1 11831.9 12096.9 1990 15059.1 18260.2 17201.9 13150.3 15354.6 12849.7 13425.8 11973.0 1991 18473.1 20564.6 20220.2 19036.6 18711.0 16632.0 17759.2 15404.7 1992 21336.1 22818.9 22040.2 22393.1 21304.0 20990.4 21040.5 19061.7 1993 23417.6 24099.1 23759.8 23570.4 23630.7 23316.4 23244.7 22493.3 1994 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 1995 39300.3 35871.1 35202.4 31171.8 31543.2 32921.1 32719.0 30759.2 1996 50196.1 52007.9 47533.6 40114.7 40295.1 43471.9 42194.2 37485.9 1997 57860.8 63623.0 60328.0 54222.4 51477.6 59267.6 53466.4 46833.2 1998 63616.9 64107.7 66428.9 49875.3 58260.7 65153.2 58835.5 51409.2 1999 74091.9 2000 71043.6 source: NAFIN: La Economía Mexicana en Cifras 1995, p.261; and 1998, p.411-412 in red prices above average consumer price index Data on prices for paper, editorial and printing, non-metal mineral products and basic metals were not available. Non-export oriented manufacturing subsectors like the wood and wooden products kept prices above average, as well as food, beverages and tobacco for certain years. What is interesting to see is that the most benefited capital-intensive subsectors by the trade opening, the metal products and equipment, and the chemical, substances, rubber and plastics have also kept prices above the average consumer price index. Some of the reasons for this increase could be that exporting subsectors were at the same time importing capital goods and were investing in infrastructure and technology. At the same time, their goods started prizing in international markets. The only subsector that has rapidly shown after the trade opening lower prices with cheap imports of textiles entering from the U.S. was the relatively labour-intensive textiles, garments and leather subsector (see table Ch. VIII-20).

Table Ch. VIII-20 Index of Consumer Prices by Manufacturing Subsector of Origin, 1980-1998 (1980=100) Non-export oriented Export-oriented YEAR Consumer TOTAL Food, Wood & Paper, Non-metal Textiles, Chemical Basic Metal Other Price beverages wooden editorial mineral garments substances metals products manufacturing Index & tobacco products & printing products & leather rubber machinery & industries & plastics equipment 1980 100 100.7 98.5 101.7 112.0 93.2 98.3 1981 127.9 127.8 123.2 133.7 144.5 116.2 121.1 1982 203.3 204.6 197.2 213.8 228.9 181.1 201.9 1983 410.5 446.6 380.0 454.4 489.8 430.7 478.2 1984 679.2 742.7 676.0 718.5 807.5 743.1 768.7 1985 1071.4 1178.4 1083.8 1157.7 1310.0 1136.3 1204.2 1986 1995.4 2204.1 2015.7 2175.1 2394.8 2138.0 2297.0 1987 4625.9 5500.3 4697.7 5900.9 5580.8 5489.4 5832.8 1988 9907.1 11661.8 9765.6 12573.5 12967.9 11139.9 11861.8 1989 11889.2 12046.0 11328.9 13291.3 13049.1 10317.5 12243.3 1990 15059.1 17201.9 16231.2 17659.0 17007.7 17909.5 1991 18473.1 20220.2 19888.3 20840.1 19913.3 20239.0 1992 21336.1 22040.2 22142.6 22844.0 21992.3 22142.6 1993 23417.6 23759.8 23670.6 24196.6 23845.9 23795.8 1994 25048.2 25048.2 25048.2 25048.2 25048.2 25048.2 1995 39300.3 35202.4 34644.7 32652.9 31869.8 37908.7 37522.7 35592.0 1996 50196.1 47533.6 48681.5 42231.3 43643.8 53106.5 49309.2 47599.4 1997 57860.8 60328.0 60899.5 53483.7 57556.5 71386.2 62453.0 58652.7 1998 63616.9 66428.9 67760.7 58866.8 63564.6 77678.5 67314.3 63688.6 1999 74091.9 2000 71043.6 source: NAFIN: La Economía Mexicana en Cifras 1995, p.261; and 1998, p.438 in red prices above average consumer price index The ILO compiled a study in which they calculated the purchasing power of wages in Latin American countries. In the case of Mexico, while the number of monthly wages needed to buy a low priced car in 1995 represented 22 minimum wages, by the year to 2000 a worker had to save 11 additional monthly wages to buy exactly the same type of car.198 

Government policy of keeping inflation down lowered workers' real wages enormously, but on the other hand, did not control prices of goods and other services. As a result, there seems to be a significant price distortion in Mexico. Formal sector prices have not significantly been reduced. Informal sector street-vendors are the only ones that sell goods either locally produced by other informal sector workers or illegally smuggled from Asian countries at reasonable prices for the majority of the workers.

So, even if real wages were frozen or their value held constant, all other expenses increased enormously resulting in a substantial fall in workers’ income. The situation has forced many workers to work a double shift/day, to work overtime or to continue working from Monday morning to Sunday evening. Not even economic recovery and/or the control of inflation (from 1995 onwards) proved sufficient to ameliorate their purchasing power. As it was mentioned before, some of the micro enterprises within the informal sector do not even exchange the national currency when doing business, but try surviving by bartering between themselves. This gives an idea of how difficult the situation is for workers and poor employers in the informal sector and how this can affect national private consumption levels.

C. General effects on income distribution

Since labour income is by far the most important source of spending power for ordinary people, the effects on wages were studied in the previous sections, now it is important to look at income distribution. While there was a slight improvement in the distribution of income and inequality, accompanied by a reduction of poverty from 1963 to 1981, there was a subsequent deterioration between 1982 and 2000.

Table Ch. VIII-21 Income Distribution by Deciles and Quintiles, 1984-1989-1994-2000

DECILES 1984 1989 1994 2000 I 1.6 1.6 1.6 1.5 II 2.8 2.8 2.8 2.6 III 3.8 3.7 3.7 3.6 IV 4.9 4.7 4.6 4.6 V 6.2 5.9 5.7 5.7 VI 7.7 7.3 7.1 7.1 VII 9.5 9.0 8.7 8.8 VIII 12.4 11.4 11.3 11.2 IX 17.2 15.6 16.1 16.1 X 34.1 37.9 38.4 38.7

QUINTILES 1984 1989 1994 2000 I 4.4 4.4 4.4 4.2 II 8.7 8.5 8.3 8.2 III 13.8 13.2 12.7 12.8 IV 21.9 20.4 20.1 20.1 V 51.3 53.6 54.5 54.8 source: Author's own calculations based on INEGI's Income-Expenditure Household Survey 1984 (p.19-20), 1989 (p.37-39), 1994 (p.41-43) and 2000 (p.59).



Some of the factors that could have caused this increase in income differentials and inequality could be the following:

¾ A trade liberalization process benefiting only a few;

¾ Recurrent economic recessions;

¾ The economy’s inability to provide enough employment or the government’s inability to create enough jobs;

¾ Insufficient social programmes;

¾ Low negotiation power of workers;

¾ Unequal access to international markets and financing;

¾ Low quality of the public educational and training system.

Figure Ch. VIII-8 Lorenz curve, 1984-2000 100

90

80

70

60

50 1984 2000 40

30

20

10

0 I II III IV V VI VII VIII IX X source: Author's own calculations based on INEGI's Income-Expenditure Household Survey 1984 (p.19-20), 1989 (p.37-39), 1994 (p.41-43) and 2000 In order to have a clearer view of the situation, INEGI’ s Income and Expenditure Surveys from 1984, 1989, 1992 and 1994 were studied. They indicate that while in 1984, the poorest 20 per cent of households in extreme poverty received 4.4 per cent of national income, the richest 20 per cent, held 51.3 per cent of the total. Sixteen years later, the national income for the poorest 20 per cent of the population had decreased to represent 4.2 per cent only, and the richest 20 per cent had increased their percentage share by 3.5 points, up to 54.8 per cent of total. There were significant share reductions in all deciles from the I to the IX deciles during the whole period covered. The only decile that increased its share was that of the wealthiest ten per cent of the population. By 2000, the wealthiest 10 per cent of the population owned 25.8 times than the poorest ten per cent. In Western Europe such a relation is supposed to go from one to ten. The deciles that lost more purchasing power were deciles V to IX where their percentage distribution of income concentration shrank from 0.5 per cent to .8 per cent in an increasing order from 1984 to 2000. The Gini coefficient shows how the  concentration of wealth became more accentuated during this decade. While in 1984 the Gini coefficient199 represented 0.452 per cent, in 2000 it increased to up to 0.4811 per cent (See table Ch. VIII-21 and figure Ch. VIII-8).

It is also important to mention that disparities among different regions of the country have been increasing. One example of this is that the northern region is six times more developed and industrialised than the poorer south and than some areas of the central region. Income differentials between urban and rural areas have been also widening. Rural income was less than half the income of urban areas in 1994. A selected percentage of owners of capital, whether it be industrial, commercial, or financial capital have been also faring well under the policies of economic liberalisation. Self-employed professionals with a very high level of education, such as doctors, engineers and lawyers, have been improving their level of income relative to lower skilled providers of services. In sum, better-off workers and business people, the richest stratum of self-employed and highly educated professionals have increased their income levels.200

The minimum cost of living for the average worker’s family of four is six times the current minimum wage, even when considering only indispensable needs of a working class family in terms of food, clothes and housing. But, the 2000 income-expenditure household survey revealed that 61 per cent of the total number of households had a household income of less than six times the minimum wage with at least 6 members of the family living in that household. Prices of basic goods and of public utility services have continued augmenting, while wages have continued to lag behind (see table Ch. VIII-22).

Table Ch. VIII-22 Number of Minimum Wages Received by Average Income Households per Trimester and Percentages of Total Households and Total Current Income, 1984, 1989, 1994, 2000 Number of total total 1984 deflated average total total 1989 deflated average minimum no. of income average trimester income % of total % of total no. of income average trimester income % of total % of total income per per household income per per household wages households (1000 n.p.) household in 1980 prices households income households (1000 n.p.) household in 1980 prices households income 0.00 to 0.50 532641 7896 14824 22 3.7 0.4 236070 53667 227335 19 1.5 0.1 0.51 to 1.00 2536966 91208 35952 53 17.4 4.4 1121073 641412 572141 48 7.0 1.2 1.01 to 1.50 1842841 106577 57833 85 12.7 5.1 1397996 1266485 905929 76 8.8 2.3 1.51 to 2.00 1960905 157854 80501 119 13.5 7.6 1780698 2198314 1234524 104 11.2 4.0 2.01 to 3.00 2781997 316681 113832 168 19.1 15.3 2932599 5129215 1749034 147 18.4 9.3 3.01 to 4.00 1678475 277265 165189 243 11.5 13.4 2245164 5556356 2474811 208 14.1 10.1 4.01 to 5.00 970745 203282 209408 308 6.7 9.8 1672818 5346486 3196095 269 10.5 9.7 5.01 to 6.00 613801 159487 259835 383 4.2 7.7 1139576 4476706 3928396 330 7.1 8.1 6.01 to 7.00 436184 133066 305069 449 3.0 6.4 773932 3615779 4671960 393 4.9 6.5 7.01 to 8.00 324738 112848 347505 512 2.2 5.4 597525 3225247 5397677 454 3.7 5.8 8.01 & more 882574 509063 576794 849 6.1 24.5 2058085 23709415 11520134 969 12.9 42.9 TOTAL 14561867 2075227 142511 210 100 100 15955536 55219082 3460810 291 100 100

Number of total total 1994 deflated average total total 2000* deflated average minimum no. of income average trimester income % of total % of total no. of income average trimester income % of total % of total income per per household income per per household wages households (1000 n.p.) household in 1980 prices households income households (1000 n.p.) household in 1980 prices households income 0.00 to 0.50 72790 33613 461780 18 0.4 0.0 0.51 to 1.00 606990 577052 950678 38 3.1 0.4 704089 1546366 2196265 31 3.0 0.3 1.01 to 1.50 1028238 1556319 1513579 60 5.3 1.0 1140788 4365235 3826509 54 4.9 0.8 1.51 to 2.00 1376297 2889282 2099316 84 7.1 1.8 1617132 8671097 5362022 75 6.9 1.6 2.01 to 3.00 3174961 9565669 3012846 120 16.3 5.9 3168118 24170756 7629374 107 13.5 4.4 3.01 to 4.00 2794421 11942998 4273872 171 14.4 7.3 3067379 32848221 10708889 151 13.1 6.0 4.01 to 5.00 2017324 11116281 5510409 220 10.4 6.8 2570763 35602368 13848950 195 10.9 6.5 5.01 to 6.00 1701503 11488000 6751678 270 8.8 7.1 2001027 34157238 17069854 240 8.5 6.2 6.01 to 7.00 1226939 9851678 8029477 321 6.3 6.1 1732887 35290873 20365363 287 7.4 6.4 7.01 to 8.00 911357 8440327 9261274 370 4.7 5.2 1258989 29691943 23583957 332 5.4 5.4 8.01 & more 4529458 95242276 21027301 839 23.3 58.5 6223580 341174633 54819675 772 26.5 62.3 TOTAL 19440278 162703495 8369402 334 100 100 23484752 547518730 23313797 328 100.0 100.00 source: Author's own calculations based on INEGI; Income-Expenditure Household Survey 1984 (p.21), 1989 (p.40), 1994 (p.44), and 2000 (p.65). note: total current income is composed of monetary and non-monetary income. Monetary income can be divided in remuneration, enterprise rent, property rent, production cooperatives, transfers, & other current income. Non-monetary income can be divided in autoconsumption, in-kind payments, gifts and estimation of house rent. *2000 ENIGH's survey does not make the division between less than 1 minimum wage and 0.00 to 0.50 minimum wages, anymore. In a study made by Alarcón, per capita public consumption expenditure was reduced in real terms between 1984 and 1989 more than 30 per cent. She used as her basic unit of measurement per capita income since she argued that total household income would not consider that poor households are larger in size than richer households, and could actually underestimate or would not capture income inequality within the deciles themselves. Her Gini coefficients calculations were based on individual observations rather than on grouped data  and households were ranked by per capita income rather than by household income. Average per capita income decreased more importantly in her study than in the table presented before.

Middle class Mexicans have seen their incomes and standard of living drop since 1982. A decrease in wage income is compensated in many households with other sources of income mainly in informal sector activities. Thus, one of the effects of the restructuring of the economy and of the changing in income level of the population, has resulted in:

1. an increase in the number of jobs performed by its members;

2. an increase in the number of household members working or in search of a monetary income, and,

3. an increase in the number of people living in a single household.

It was believed that the 1985 trade liberalisation and the entering of NAFTA will improve wages in Mexico for the large numbers of unskilled workers and that the consequent improvement in the standard of living of the population would mean a better income distribution. However, the problems of marginalized sectors and extremely unequal distribution of wealth and income worsened after 1984.

The decrease in real wages, combined with high interest rates and the facilities provided by the government to import capital goods, had as a consequence a transfer of income from wage earners to strong industrialists’ profits in the export-oriented sectors. So, the income generated by the part of the Mexican economy that was expanding, was captured by the owners of large capital, while the part of the economy that was suffering from a contraction, was destined to the poor. In 2000, only ten percent of the population had a purchasing power equivalent to the average purchasing power in an industrialised country. The Mexican government made income distribution even worse by removing part of the safety net provided by transfer payments to the poorer segments of the population.

The most quoted measurement of income inequality is, without doubt, the Gini Index mentioned before. In fact, its theoretical fundament (the Lorenz curve) and its construction are widely accepted. However, its calculation requires an Income-Expense Survey with comprehensive statistical information, which in the case of Mexico is only sporadically obtained (every four years) by the INEGI. As a consequence, a complete series of the Gini Index is not feasible for the country. For this reason, an alternate indicator of inequality is needed in order to assess to effects of the trade liberalization process. A proxy that could be used instead is the Theil Measure for Mexico. An attractive alternative is a recent measure proposed by the UTIP (University of Texas Inequality Project)201.

The UTIP measure is based on the Theil Index, which is an inequality indicator based on the information theory. This index has all the desirable properties of an inequality measure: it is symmetric, replication invariant, mean independent and Lorenz-consistent. In addition, it is also decomposable202.

The UTIP group applies the Theil Index to data of the manufacturing sector: the between- group dispersion of employment and wages and its evolution over time is used to obtain an inequality indicator. Even though it only focuses on one sector, it has been found that it is correlated to standard measures like the Gini Index203.

The main advantage of the UTIP Theil measure for this work is the availability of a continuous time series for the period covered by the liberalization process in Mexico (indeed,  since this measurement is only based on industrial surveys, it can be calculated monthly from the 60s up to today). The variable will be called UTIP Inequality Measure. Since it is a measurement of wage dispersion between groups, and an increase means a raise in inequality.

Since the end of the 60s until the mid-1970s, the UTIP Inequality Measure index showed a significant decreasing tendency, or a decrease in inequality, due to the economic, industrial and social policies which were undertaken during this period. The sporadic unstable economic situation of the mid-70s caused a temporal raise in inequality which could be rapidly controlled by the end of the decade. However, the debt crises that commenced in 1982 set off an important deterioration in income equality. After years of continuous increases, even after the trade opening and trade consolidation periods, the index finally stabilized during the beginning of the 1990s, only to be pressured upwards again by the economic catastrophe that started at the end 1994 (see figure Ch. VIII-9). Only recently (since the year 2000) has the inequality index become steady again and it is even showing a slight downward trend.

As it was explained, this variable takes into account the dispersion on the number of employees in the manufacturing industries and their remunerations. Even though it only covers one sector of the economy, it follows closely the more complete inequality measurements and, therefore, can be used as an adequate indicator.

In fact, the neoliberalisation model seems to be promoting the opening and development of large and strong economic units (mainly those producing for the export-market), and forgets about the development of a large number of enterprises. Most of those that are on the “winning side” are capital-intensive. The whole process is creating accumulation of capital, centralisation and the promotion of oligopolies. The same experience seems to be taken place in agriculture and in the commerce and services sector. As a result, the new model of development is reinforcing gross capital and big trusts and weakening those that have very little or the “losers” of the game. The large benefits obtained by the most protected sectors of the economy do not trickle down in the form of higher wages to the large number of unskilled workers and peasants. As a result, vulnerable groups, in particular women, children and the poorest sectors of society in particular have in effect paid the price for the reforms in Mexico. 

Figure Ch. VIII-9 UTIP Inequality Measure, 1968 - 2000

0.025 UTIP Inequality Measure

12-period moving average 0.020

0.015

0.010

0.005

0.000 68 68 69 70 71 72 73 73 74 75 76 77 78 78 79 80 81 82 83 83 84 85 86 87 88 88 89 90 91 92 93 93 94 95 96 97 98 98 99 00 Year source: University of Texas Inequality Project, Austin Texas, http://utip.gov.utexas.edu Later, it was probably Mexico’s obsession to reduce inflation, to promote foreign investment flows and to create an image of exchange rate stability that, in effect, suppressed the beneficial effects of trade liberalisation. The search for profits in Mexico caused both the accumulation of wealth and more poverty. While the purchasing power of the minimum average real wage went down by 26 percent from 1982 to 1994, prices continued increasing. The purchasing power accumulated over the previous 50 years, before 1982, had been wiped out and was in 1996 half of what it was in 1980.

The contraction of agricultural production and the accompanying decrease of share of income generated by agriculture and livestock activities also contributed importantly to workers’ income decline. The deregulation of agriculture and the opening of borders to cheaper agricultural products, without a policy of adjustment and measures of support for this sector created more poverty and migration to the U.S. and northern regions of the country. A lifting of agricultural price controls had also adverse consequences on equity. The drastic contraction of agricultural prices, especially maize, had a negative impact on the income of the majority of poor producers in the rural sector and led poorer families to keep a larger proportion of their crops for consumption within the household.

Agricultural wage and non-wage incomes deteriorated sharply from 1989 onwards. Landless agricultural workers were mainly affected through the contraction of employment and wages while the income of small-scale producers dropped as a result of the decrease in output prices. The sharp decline of the agricultural sector meant that an increasing proportion of extreme poverty got concentrated in rural areas. In 1994, 80 per cent of the population living in extreme poverty was concentrated in rural areas.204

A theory presented by Lustig and Ros state that another «important source of inequity in the distribution of adjustment costs during the crisis of the 80s arose from portfolio shifts since the rich protected and even expanded their wealth simply by transferring their capital abroad (capital flight was estimated at about U.S. 36 billion dollars between 1981 and 1988)».205 It is fact that the wealthy and relatively prosperous persons who transferred their assets abroad were protected from any negative changes in their economic status and brought back their capital only when they could take advantage of high interest rates, devaluations of  the peso, and speculation in the Mexican stock exchange. The majority of persons who did not have any savings or capital did not have that option.

In addition, a significant factor mentioned to be affecting negatively the income of medium and poor sectors is the tax system that has mainly played a regressive redistributional role, in spite of recent reforms. According to Buzaglo, the effective tax rate on high incomes appears to be very low, due to both legislative measures and administrative faults.206

However, by far, the most important question affecting inequality and creating a worsening in the distribution of income in the country is the increased value added, enjoyed during the trade liberalisation period by the most protected sectors of the economy, which did not end up being passed on to workers in the form of higher wages.207 A growing marked deterioration in the distribution of income was noted when the government’s trade regime altered the allocation of resources across sectors by reducing real wages, transferring resources from primary activities to the industrial sector and maintaining output prices high to benefit industrialists at the expense of consumers.

It is true that wages had plummeted and subsistence had become more difficult for those who earned the least since the 1982 crisis. It is also true that the stabilisation of the Mexican economy had already represented a high social cost for the population, especially for medium and low classes for whom wages became the largest source of income and who suffered from the contraction of the economy, inflation and high interest rates. Nevertheless, the continuous reduction of real wages with the liberalisation of the economy had the purpose of making Mexican exports more competitive, but at the same time impoverished even more the Mexican worker. The Mexican economic model seems to be designed to benefit only the most advanced and favoured sectors of society, while the rest of the population has been suffering from a declining quality of living. The poor, and the middle class, are bearing a higher share of the costs of the debt crisis and trade liberalisation.

Without trade union and government support, wages will be unlikely raised. In addition, the private sector redistributive mechanisms are almost inexistent in the country since the large number of workers on precarious employment status, or in the informal sector, does not receive profit sharing or any social benefits. There are not, any other mechanisms in which the private sector contributes to reduce poverty, either. Under these conditions, labour does not receive its fair share of income gains from the productivity increases that result from free trade since full employment has not and will not be achieved soon and no other positive pressures exercise on the labour market to improve workers’ remuneration.208

As mentioned before, the country seems to be following international trends towards the reduction of labour protection lead by the U.S. economy that is highly ruled by very powerful and large capitalists interested in obtaining large benefits in the short-term and leading the world towards such low levels of labour protection seen during the XIX century. In Mexico, there definitely seems to be a regression on advances made on the subject during the latest decades.

D. Poverty levels

According to the Statistical Abstract of Latin America published by UCLA, The percentage of total households below the poverty line in Mexico had increased from accounting 34 per cent of the total number of households in 1984 to 43 per cent in 1996, and  recorded a slight amelioration by 1998 (38 per cent of total households). The percentage of total households below the indigence line had also increased from representing 11 per cent of total households in 1984 to 16 per cent in 1996 and again showing a slight amelioration (13 per cent) in 1998 (see table Ch. VIII-23).

Mexico’s population below the poverty level had increased by 1994 to represent 52 per cent of total population, but had slightly gone down by 1996 if compared to its 1989 levels. The percentage of the population considered in extreme poverty had increased from 18.7 per cent to 21.8 per cent in 1994, but had kept almost at its same level as in 1989: 18.4 per cent. Poverty increased not only in terms of the number of people living below the threshold of extreme poverty, but also in terms of the contraction of income among the poor.

By 1998, the average household income in urban areas was almost twice that in rural areas: 2.68 and 1.63 minimum wages, respectively. The incidence of indigence was also higher in rural areas (19 per cent), while it was only 6 per cent in urban areas. Poverty in rural areas is concentrated in regions with large indigenous populations.

The percentage of households with below average income had gone up in urban areas from representing 70 per cent to 75 per cent of total. In rural areas the percentage below average rural income had slightly been reduced. These results are most probably due to the growing internal migration from rural to urban areas where poverty is just being transferred from one area to the other.

After the first economic pact of 1987, the State promised to invest most of the 27 billion dollars obtained from the privatisation of state companies to finance social programs in education, housing and health within the National Solidarity Program (SOLIDARIDAD or PRONASOL).209 Starting from December 1988, the government implemented this major programme of poverty alleviation destined to combat extreme poverty in indigenous regions, dry regions near the desert inhabited by peasants and in poor suburbs of big cities. The programme had the purpose of alleviating the impact on the poor of the reduction of income and employment caused by the debt crisis and the adjustment measures. SOLIDARIDAD  comprised health, nutrition, education, infrastructure and productive projects. The programme encouraged the active participation of beneficiaries both in selecting and implementing the projects.

SOLIDARIDAD stressed programmes to improve education, nutrition and health as well as the provision of water, sewage and electricity. SOLIDARIDAD activities could be divided into four major categories: food subsidies for vulnerable groups, provision of credit or the allocation of resources to targeted social groups, health and education support and finally, and development of infrastructure in poor communities.

During its first three years SOLIDARIDAD helped 6 million persons obtain health basic facilities, and 8 million water installations. More than 10,000 communities were provided with electricity, streets were paved in more than 3,000 communities and 14,000 kilometres of roads were constructed or repaired. Schools were constructed to include 1.4 million children in the educational system, 250,000 scholarships were provided and 50,000 other schools were repaired. A production fund supported 600,000 peasants and 190,000 producers of coffee. In addition, communal shops were installed in very poor communities, providing basic inexpensive products to needy persons.210

SOLIDARIDAD was recognised to be a major effort to alleviate poverty. However, it lacked sufficient budget relative to the 41 million persons considered below the poverty level in 1990. It represented only 5.4 per cent of total social expenditures or around 0.7 per cent of GDP in 1989 and 1 per cent in 1991. It provided services only to 14 to 19 per cent of people below the poverty line.

However, fifteen years after the trade opening, there are still no visible signs of real improvement of social inequality. It is true that the country is so big and the percentage of poor and extremely poor is so significant that major programs like SOLIDARIDAD will have to continue in place for at least 10 more years until its positive results can be really felt.

It seems that the process of wage flexibility continues having very negative welfare effects on the poor and middle-income population. A negative real wage reduction is of crucial importance on the prevalence of poverty. Until now, it has been hard to solve social problems in the short-run, but if the economic situation continues to worsen combined with frequent crisis like the one in December 1994, it will be impossible even in the long run.

The majority of the poor are dependent on their work to obtain income and the slow rate of formal employment creation was an important factor that contributed to an increase in poverty, plus, of course, the reduction of wages. Since it is difficult for poor people to find a job because they often have a low formal educational level, once in employment, they are most of the time badly remunerated, and it is harder for them to aspire to upward mobility.211

While the percentage of poor people continues to increase in Mexico, the percentage of those extremely rich or multi-millionaire in dollars increases, too. While in 1989, only 7 Mexicans were considered in the «Forbes» list of the five-hundred fortunes bigger than a thousand million (one billion) U.S. dollars, by the end of 1994, there were already 25 Mexicans in the list. The richest of them had a personal fortune of 6.6 billion dollars. Putting the fortunes of these 25 persons together represented an amount of 45 billion dollars or more than one-fourth of 1994’s Mexican GDP.

Mexico is the classic example of what happens to income distribution in a context of achieving international competitiveness mainly by compressing wages and coercing  independent unions, believing that the concentration of income and favouritism to large capital is the only way to improve economic growth. Reducing real wages as much as possible are not the correct policies either for promoting social stability and security. This trend should be stopped. It is scary to see how crime levels and drug trafficking levels are mounting in many regions of the country, especially in big cities. Kidnapping rates, for example, have attained levels never seen before in Mexico city.

Other points of view like that of Lustig, argue that there was no advantage in having a nice clinic and a big school if family income was so low that it was not possible to bring food intake to the acceptable nutritional income. She recommends other, according to her, more efficient ways of helping through direct transfers such as food for education programs, before starting with programs of infrastructure building like SOLIDARIDAD. She states: «Extreme poverty could be eliminated in Mexico if an equivalent amount to 0.25 per cent of Mexico’s GDP was fully redistributed to the poor every year in direct transfers».212

As Lustig says, nutritional needs of those in extreme poverty and maybe those in moderate poverty should be covered by anti-poverty programmes and transfers. The author agrees with Lustig, but also believes that a major nation-wide programme of public works or creation of employment could be an additional mean to combat poverty. But for these programs to be instituted, constant growth is needed for at least 10 years. The State will not be able to distribute a piece of the cake to the needy or to ask the private sector to distribute part of its benefits with the creation of more jobs, if the economy suffers again from a depression.

Sustained economic growth accompanied with a growth of real median family income is a powerful weapon against poverty. However, economic growth’s benefits do not always “trickle down” to benefit the poor. Safety nets are necessary to provide an improvement in the distribution of income and a reduction of poverty levels. The social goal of a more equitable distribution of income should be of paramount importance not only to the Government, but also to the Mexican private sector benefiting from trade liberalisation and to policy makers.

Significant antipoverty programs like SOLIDARIDAD should continue providing support to the temporarily poor and the persistently poor. Since the temporarily poor need a brief cushion of financial support to make up for income lost because of some event such a job lost during a recession, an illness, or an accident, social support programs and an unemployment insurance should be created. In the case of the persistently poor who obtain very little earnings from work and thus are not likely to qualify for the above-mentioned programs, a combination of job training programs to provide them with a better marketable skill combined with income maintenance programs such as Aid to Families with Dependent Children and Food Stamps could provide the necessary safety net for a large number of the population. However, it is important to remember that most Mexicans would prefer to have a job, than to depend on Food Stamps. Mexican workers do not have a culture of receiving financial aid to survive, they would prefer to work and earn their living.

However, special programs should be created to support with lodging and food the homeless, the elderly and the disabled who are found in thousands wondering in the streets of all urban and rural Mexican areas. 

IX. Results of a Simple Econometric Model

A. Introduction

One of the main concerns of this work is to find the effect that the economic liberalization, which started in 1985 and continues today, has had on employment and on Mexican labour force’s income. Although the theoretical and observed relation has already been exposed, a basic econometric model with the available information will be presented in this section to support and strengthen the relevant hypothesis.

Estimating an econometric model is not a straightforward task in Mexico. The structure of the main sources of statistical data in the country has only recently been reorganized in order to comply with international standards and to provide reliable information. In this process, some of the methods used to obtain and process the data, as well as the way results used to be presented, have changed considerably. This means that most of the series show some type of inconsistency, particularly if they cover a time period before the 1990s.

Since this work approaches the whole liberalization process in Mexico, any study must include data from at least the mid-1980s. For the reasons stated above, econometric analysis is very restricted. However, some relations can still be estimated with the information available and they are presented in this chapter. In particular, the impact that trade liberalization of goods has had on employment, both as an aggregated measure and as a variable separated by economic sectors. Furthermore, the influence of foreign investment on general employment will be estimated. Finally, the UTIP Theil Measure for Mexico (explained further down) will be compared to the progress of trade liberalization during the relevant time period.

B. Data

1. Employment

One of the most important variables for this study is also one of the most problematic to obtain: employment levels. With the exception of sporadic years (1988, 1991, 1993, 1995, and 2000) when formal National Employment Surveys were carried out, the main source of statistical information in Mexico, the INEGI, has no continuous data on employment. However, as previously mentioned, the Social Security Institute in the country (IMSS) provides a monthly measurement of the number of persons registered. Although this is only a limited proportion of total employment (formal employment), it is the only measurement continuously available comprising the whole liberalization period in Mexico. Having said this, monthly IMSS data will be averaged further on to obtain the annual observations. The variable, Employmentt, will then only cover formal employment and will be measured in thousands of insured workers. In addition to the aggregated total, data from the IMSS will be divided according to economic sectors. The variables will be named as follows: EmploymentPrimaryt, EmploymentIndustryt, EmploymentCommercet and EmploymentServicest. 

2. Gross Domestic Product

The total GDP was obtained from the national statistics department (INEGI) and was later converted to millions of US dollars. Its label during this section will be GDPt. The gross domestic product will be divided into the main four economic sectors, which will become the four following variables: GDPprimaryt, GDPindustryt, GDPcommercet and GDPservicest.

3. International Trade

As stated before, one of the most significant changes in the Mexican economy during the last two decades has been the process of liberalization, particularly in relation to the international trade of goods. For the purpose of this study, the sum of exports and imports will be used as an indicator of the progress of trade liberalization of goods. They will be shown in relative terms, as a proportion of the total GDP of the same year. There are, however, three existing alternatives for foreign trade data:

• total exports and imports of goods • non-maquila exports and imports of goods • non-oil exports and imports of goods

The first option is the most comprehensive, taking into account all trade of goods. On the other hand, the second alternative excludes the exports and imports from the maquila sector, an important provider of formal employment. Finally, the third possible choice does not include the oil industry, which could introduce distortions due to its nature and its government control. From these three alternatives, the third one is taken to be the most appropriate, because it includes all trade that could be affecting the level of formal -employment and excludes the anomalous oil industry, which does not have a direct impact on jobs, is publicly- owned, is not ruled by a “normal” market behaviour and has not been affected by the liberalization change from the mid-80s. This variable will be represented by Tradet.

It is important to mention that there is no consistent indicator of the international trade divided by sector during the whole time-period covered, due to changes in methodology that took place in 1991. For these reasons, the variable Tradet will be used as an indicator of the progress of trade of goods both for the whole economy and for the sectorial divisions.

4. Foreign Investment

This is one of the series most easily obtained, since it has been constantly measured by several Government dependencies. Only the Foreign Direct Investment will be included, a  variable obtained from the Capital Account of the Balance of Payments. It will be represented by FDIt and will be measured in millions of US dollars. As with the previous variable, data for the foreign investment divided by sector is unavailable periodically. In these circumstances, the aggregated variable FDIt will be used as an indicator of foreign investment both for the whole economy and for the sectorial partitions.

5. Inequality

The best account of income inequality is provided by the Gini Index. However, its calculation requires an Income-Expenditure Survey, which is carried out only sporadically by the INEGI. A proxy that could be used instead is the UTIP Theil Measure for Mexico. As it was explained in a preceding chapter, this variable takes into account the dispersion on the number of employees in the manufacturing industries and their remunerations. Even though it only covers one sector of the economy, it follows closely the more complete inequality measurements, and, therefore can be used as an adequate indicator. It is a monthly variable which will be averaged to obtain the annual observation represented by Theilt. A positive change in the Theil Measure denotes an increase in income inequality.

For all these variables, the 16 annual observations considered the time span period from 1985 to 2000, inclusive.

C. Models used

1. Trade and Formal Employment

The most basic model included will be a simple linear regression that links the level of total employment with the amount of external trade, of the form

ln (Employmentt) = β0 + β1 ⋅ Tradet + εt (1.1)

where εt is the error of the regression, β0 and β1 are the coefficients to be estimated. Although simple, this model will calculate a measure of the correlation of both variables.

As it has been constantly remarked through this work, most of the liberalization process has taken place during an era of recurrent economic crises. To take account of these episodes of recession and recovery, the variable GDPt will be included in the equation as a determinant of employment. This alternative model is articulated as

ln (Employmentt) = β0 + β1⋅Tradet + β2 ⋅ ln (GDPt) + εt (1.2)

where, as before, εt is the error term and β0, β1 and β2 are the coefficients to be estimated.



2. Trade and Formal Employment per Sector

To expose the way in which international trade affects formal employment in the different sectors of the Mexican economy, the variable Employment will be divided into its four sectorial components. As it was exposed before Tradet will be used as a proxy of the progress of the trade process and it will be kept for all the regressions, since it is unavailable in the relevant sectorial divisions. The four regressions to be estimated will be the following:

ln (EmploymentPrimaryt) = β10 + β11 ⋅ Tradet + ε1t (2.1.1)

ln (EmploymentIndustryt) = β20 + β21 ⋅ Tradet + ε2t (2.2.1)

(2.3.1) ln (EmploymentCommercet) = β30 + β31 ⋅ Tradet + ε3t

(2.4.1) ln (EmploymentServicest) = β40 + β41 ⋅ Tradet + ε4t

where ε1t, ε2t, ε3t and ε4t are the error terms for each regression and the eight β are the coefficients to be estimated.

Again, to take into account the state of the economy in each broad sector, the variable GDPt will be included, but this time separated into its four main divisions. The correspondent equations are included below.

ln (EmploymentPrimaryt) = β10 + β11 ⋅ Tradet + β12 ⋅ ln (GDPprimaryt) + ε1t (2.1.2)

ln (EmploymentIndustryt) = β20 + β21 ⋅ Tradet + β22 ⋅ ln (GDPindustryt) + ε2t (2.2.2)

(2.3.2) ln (EmploymentCommercet) = β30 + β31 ⋅ Tradet + β32 ⋅ ln (GDPcommercet) + ε 3t (2.4.2)

ln (EmploymentServicest) = β40 + β41 ⋅ Tradet + β42 ⋅ ln (GDPservicest) + ε4t

where ε1t, ε2t, ε3t and ε4t are the four error terms and the twelve β are the coefficients that will be estimated.

3. Foreign Investment and Formal Employment

As stated previously, it is important to study not only the liberalization process in Mexico in terms of goods and services, but also in terms of investment flows. In order to put into evidence the joint behaviour of this variable and formal employment, the following equation will be estimated. 

ln (Employmentt) = α0 + α1 ⋅ ln (FDIt) + εt (3.1)

where, as before, εt is the error term of the regression equation and α0 and α1 are the two coefficients to be estimated.

4. Income Inequality and Trade

The relation between trade and income inequality can also be measured in the same way as the previous regressions. In this case, both our measurements of the progress of trade liberalization and the level of foreign direct investment will be included in separate equations.

ln (Theilt) = γ10 + γ11 ⋅ Tradet + ε1t (4.1)

ln (Theilt) = γ20 + γ21 ⋅ Tradet + γ22 ⋅ ln (GDPt) + ε2t (4.2)

(4.3) ln (Theilt) = γ30 + γ31 ⋅ ln (FDIt) + ε3t

where ε1t, ε2t and ε3t are the error terms and the seven γ are the coefficients that will be estimated and presented in the following section.

D. Results

The preceding econometric relations were estimated with the sample of 16 annual observations (1985-2000). The results are included in this section, in the same order as they were presented before.

For the first two models, which relate trade and formal employment, the results are summarized in the first econometric model (see table Ch. IX-1). The number in parenthesis below each estimated coefficient refers to the p-value of its corresponding t-test.

The estimate of regression 1.1 shows that trade and formal employment are indeed related. Both coefficients are highly significant, a fact that can be supported with an adjusted- R2 of over 75%. So, according to this regression, there exists a significant, positive correlation between the progress of the trade and the level of formal employment which means that the growth in trade is being accompanied by a rise in formal employment levels.

Concerning equation 1.2, the results are even more conclusive. Now both regressors yield positive coefficients, both with p-values below the 5% limit, and the adjusted coefficient of determination settles above 90%. This regression shows that, even when the effect of the economic situation is taken into account, the amount of international trade of goods has a positive correlation with formal employment.



Table Ch. IX-1 Econometric model 1 Trade and Formal Employment

2 Regression Constant Tradet ln (GDPt) R -adj

8.7194 5.6026 1.1 0.7605 (0.0000) (0.0000)

4.1210 2.8046 0.3462 1.2 0.9399 (0.0001) (0.0004) (0.0000)

The second set of regressions relates trade with the level of formal employment divided in its four broad sectors: primary, industry, commerce and services. With this separation, it will be possible to analyze the different scenarios that accompanied the liberal policies undertaken by the Mexican economy since the mid-1980s. The results are included in the second econometric model (see table Ch. IX-2).

The primary sector, as it was mentioned in a preceding chapter, had a negative reaction to the increase in trade. The regression 2.1.1 shows that the variable Tradet is negatively correlated with formal employment. Even if the behaviour of the sector’s GDP is taken into account, the estimates of equation 2.1.2 produce equivalent results.

The situation of the other three economic sectors (industry, commerce and services) is the opposite of the primary sector. The regressions show that the increase in international trade came together with a raise on formal employment in each sector. If the effect of the sector’s GDP is considered in the equation, the conclusions remain unchanged. It can be argued that the industrial sector was the main gainer from the trade liberalization, since the data shows that its level of formal employment was the most correlated with the increase in international trade. This sector is followed by services and then by commerce.

Table Ch. IX-2 Econometric Model 2 Trade and Formal Employment per Sector

2 Regression Constant Tradet ln (GDPt per R -adj 6.2829 -1.9394 2.1.1 0.5241 (0.0000) (0.0007)

8.0152 -1.2435 -0.1612 2.1.2 0.7011 (0.0000) (0.0126) (0.0108)

7.7557 4.9884 2.2.1 0.7010 (0.0000) (0.0000)

2.2.2 3.8880 2.6522 0.3215 0.8279 

(0.0057) (0.0147) (0.0058)

7.0743 4.0222 2.3.1 0.7140 (0.0000) (0.0000)

3.2199 2.1535 0.3234 2.3.2 0.9465 (0.0000) (0.0001) (0.0000)

7.5322 5.3409 2.4.1 0.7500 (0.0000) (0.0000)

4.0608 2.3727 0.2856 2.4.2 0.9436 (0.0000) (0.0011) (0.0000)

To analyze the joint behaviour of investment and formal employment, equation 3.1 was proposed in the previous section. When this relation is estimated with the 16 observations available, the following results were obtained:

ln (Employmentt) = 6.5084 + 0.3130 ⋅ ln (FDIt)

(0.0000) (0.0000)

The numbers in parenthesis are the p-values of the t-tests for the estimated coefficients and show that both are statistically significant. In fact, the R2 statistic is equal to 0.8186 for this regression. Thus, it can be concluded that the level of foreign direct investment as a measure of investment flow had a positive, significant correlation with the level of formal employment.

For the final group of equations, the estimated coefficients are summarized in the third econometric model (see table Ch. IX-3). As it was previously argued, the increase in international trade has translated into an augmentation of the income inequality in the country, as it is measured by the UTIP Theil Measure. The coefficient is equal to 0.0774 and it is highly significant, producing an adjusted-R2 of 0.9353.

If the effect of the state of the economy (as measure by the national GDP) is introduced, a very similar conclusion can be drawn. The estimated coefficients of equation 4.2 are evidence that the behaviour of national production did not have a significant effect on the distribution of income among the population (because its coefficient is not statistically different from zero). As before, the progress of the trade was accompanied by a significant raise in income disparity.

Finally, regression 4.3 shows the expected outcome that an increase in investment flow does not distribute evenly and, as a consequence, it is positively correlated with income inequality. The adjusted-R2 of 0.7827 proves that this connection is statistically valid.



Table Ch. IX-3 Econometric Model 3 Liberalization and Income Inequality

2 Regressi Constant Tradet Ln ln (FDIt) R -adj on (GDP ) 0.00663 0.07740 4.1 6 1 0.9353 (0.0000) (0.0000)

0.00335 0.07540 0.00024 4.2 8 6 7 0.9323 (0.7305) (0.0000) (0.7363)

- 0.00390 4.3 0.020320 8 0.7827 (-0.0005) (0.0000)

E. Conclusion

From the econometric models estimated in this chapter, some general statements can be inferred about the impact of trade and foreign investment on the Mexican economy.

• International trade and investment has been accompanied by a statistically significant increase in the level of formal employment. • However, this development has not been equally distributed in the economy. In fact, it has been detrimental for the primary sector and positive for the rest of the economy. The biggest winners have been the industrial and services sectors. • Another result that supports the hypothesis that trade augments income inequality is the positive correlation between the amount of international trade or foreign direct investment and the Theil Measure of inequality.



X. Workforce’s Health Protection, Education and Training

A. Public expenditures on education and health

In this chapter, the author will provide information on such issues as education, training, social security, technology transfer and other factors indirectly related to labour force protection. While it is true that it was not an easy task to try to directly link these issues to trade liberalization, all of them are indirectly related and should be significantly considered when establishing adjustment policies facilitating the transition towards trade liberalization. In fact, Mexico’s experience shows that adjustment to trade liberalization was made more difficult, not only because the country was suffering serious economic problems, but also because the government made little provisions for assisting displaced workers and did little to enhance the education and skills of workers who had to change jobs. Mexico’s experience shows that while a liberal trade policy benefits a country, it is only one – and not the most important – determinant of the rate of economic growth and rising living standards. Good governance and a good educational system are clearly more important.

Table Ch. X-1 Public Sector Expenditures on Education and Health, 1980-2000 Public Primary and High School Technical Per Capita Spending Junior High and University and Specialised Health Social Expenditures on Education Schools Level Schools % of GDP Institutions and Institutions % of GDP Index 1980 5.3 1.5 1981 5.4 1.6 100 1982 5.0 1.7 1983 4.4 1.9 1984 4.1 1.8 66 1985 4.0 1.8 1986 4.0 1.9 1987 3.0 2.0 1988 2.8 61.9 34.1 4.0 1.1 1989 2.9 64.4 31.8 3.8 1.1 59 1990 2.8 65.7 30.7 3.6 1.2 1991 2.9 66.2 30.2 3.6 1.3 1992 3.4 68.7 28.0 3.3 1.4 1993 4.0 68.5 29.1 2.4 1.6 1994 4.3 69.3 28.3 2.4 1.6 74 1995 3.9 68.5 28.8 2.7 1.5 1996 3.7 68.5 28.8 2.6 1.3 1997 3.8 68.5 28.8 2.7 1.3 1998 4.0 68.2 29.0 2.8 1.4 1999 4.2 68.5 28.9 2.6 1.5 2000 4.1 70.5 28.2 1.3 1.5 source: Author's own calculations based on World Bank Development Indicators Database and INEGI; Sistema de Cuentas Nacionales de México, Indicadores Macroeconómicos del Sector Público 1988-2000; INEGI; Estadísticas de Contabilidad Nacional, Cuentas de Producción del Sector Público, 1980-1993 After the 1982 crisis, public spending on education as a percentage of GDP had to be reduced importantly: from representing 5.4 per cent in 1980 to its lowest peak of 2.8 per cent in 1988. Starting from the consolidation of trade period, public spending on education started increasing up to 1994 when it represented 4.3 per cent of GDP. After the 1994 crisis, its percentage was reduced, but almost recuperated its 1994 levels by 1999. Around two-thirds of public spending on education was concentrated on primary and junior high level schools where the percentage share had been increasing from representing 61.9 in 1988 to 70.5 per cent in 2000. Spending on high school and university levels, as well as technical and specialised schools was proportionally decreasing: from 34.1 per cent in 1988 to 28.2 per cent in 2000 for the first and from 4.0 per cent to 1.3 per cent for the latter, respectively. On the other hand, public spending on health slowly continued increasing during the crisis from representing 1.5 per cent in 1980 to 2.0 per cent in 1987. As of 1988, this percentage declined  to 1.1 and has since then slowly recuperated to represent 1.5 per cent in 2000 (see table Ch. X-1).

Table Ch. X-2 Educational Level of the Population older than 20 divided by Sex, 1984 and 2000 (thousands and percentages) TOTAL without any incomplete complete incomplete complete incomplete complete incomplete complete education elementary elementary junior high junior high high school high school university university & postgraduate 1984 Horizontal % Total 99 18.7 33.2 20.6 3.6 9.4 2.3 3.9 4.1 3.3 Men 100 16.2 32.9 19.9 4.9 8.7 3.3 4.0 5.2 4.8 Women 100 21.3 34.1 21.5 2.4 10.1 1.5 4.0 3.2 1.9 vertical % Men 54.0 41.0 46.7 45.7 64.9 44.0 66.4 47.9 59.7 69.4 Women 46.0 59.0 53.3 54.3 35.1 56.0 33.6 52.1 40.3 30.6

2000 Horizontal % Total 100 12.0 20.1 20.1 3.4 20.4 2.9 7.3 6.0 7.9 Men 100 10.1 19.2 19.2 3.9 19.5 3.7 7.6 6.7 10.2 Women 100 13.6 21.0 20.8 2.9 21.2 2.3 7.1 5.3 5.8 vertical % Men 49.7 39.5 44.5 44.7 53.7 44.7 58.4 48.5 52.5 60.5 Women 50.3 60.5 55.5 55.3 46.3 55.3 41.6 51.5 47.5 39.5 source: Author's own calculations based on INEGI; Income-Expenditure Household Survey 1984(p.5), 1989 (p.6), 1994 (p.7) and 2000 (p.8-9). note: the Mexican educational system is divided in primary school or elementary from 1st to 6th grade, three years of secondary school or junior high, three more years of preparatory or high school, and four to five years of licence or B. A. degree, plus a two-year Master's degree, and a three to five years Ph.D degree. Notwithstanding the cuts on public spending, some achievements were made during the period studied. This fact could be explained by the great importance Mexican families, even poor, give to education. Most families give high priority to education since they consider it a means to go out of poverty. By 2000, illiteracy of the population older than 20 years old was reduced to 12 per cent, on average, nationwide from having represented 18.7 per cent in 1984. Complete university and postgraduate levels also increased during this same period from 3.3 per cent of total 20 years old and older population to 7.9 per cent in 2000. The same positive trend could be seen with complete junior high and high school levels that doubled in only 16 years. In turn, incomplete elementary or primary education levels decreased, as well as incomplete junior high levels (see table Ch. X-2 and figure Ch. X-1).

Figure Ch. X-1 Educational Level of the Population older than 20 by Gender, 1984

80.0

70.0

60.0

50.0

40.0 Men Women

30.0

20.0

10.0

0.0 without any incomplete complete incomplete complete incomplete complete high incomplete complete education elementary elementary junior high junior high high school school university university & postgraduate source: Author's own calculations based on INEGI; Income-Expenditure Household Survey 1984(p.5), 1989 (p.6), 1994 (p.7) and 2000 (p.8- However, compared to its two North-American partners, this progress was too slow. While no later data was available from UNESCO Statistical Yearbook, by 1990 the U.S. had  only 1.2 per cent of its population aged 25 years and over with no schooling, and 45.2 per cent of its population that had attained a level of education higher than secondary level. The percentages for Canada covering the same issues were 1.0 per cent and 21.4 per cent, respectively. Mexico lagged behind with 18.8 per cent of its population aged 25 years and over with no schooling and only 9.2 per cent of its population attaining a post-secondary level education.213 According to Lustig (1996), since poverty has a significant impact on the educational level of the population, the average years of schooling in the 1980s increased only half the increase of the previous decade.214 The 1980s and early 1990s slow advancement in educational attainment was, in turn, a vicious cycle causing more poverty.

The study of other important indicators on education from 1991 to 1999 is also important since a strong relation can be seen between poverty levels, low wages and labour force participation at a young age. The author could not find comparable data before 1991. Thus, it was impossible to compare these indicators to the period before the trade opening, and even to the later opening and consolidation periods. The 1991-1999 data provided the following conclusions:

1. The 12 years and older population that did not continue studying had increased, in general, by 4 percentage points. Out of this total, those persons that did not continue studying for economic reasons had increased from representing 27.4 per cent in 1991 to 28.6 per cent in 1999;

2. The percentage of the total population that reported starting a remunerated or non-remunerated activity while studying had increased from 18.4 per cent in 1991 to 19.3 per cent in 1999;

3. The 12 to 14 years old employed children had slightly gone down from representing 3.4 per cent in 1991 to 3.2 per cent in 1999;

4. The 15 to 19 years old employed persons out of total employed had also been reduced from representing 14.7 per cent in 1991 to 11.2 per cent in 1999.

5. The percentage of manufacturing workers that started work between the age of 10 to 14 years old was five times as higher than average (19.7 per cent). The number of manufacturing workers that started to labour between 15 and 17 years old was two and half times higher than average national records. It should be mentioned here that the workers interviewed did not specify that they had started working in manufacturing-related activities at that early age (see table Ch. X-3).

Other surveys like the “National Survey on Manufacturing Workers 1993” and the “Characteristics of Employed Personnel and Training Requirements of Mexican Manufacturing Establishments 1988” provide information on the educational level of manufacturing workers. 

Table Ch. X-3 Other Important Indicators of Education related to Labour Force Participation 1991-1999

1991 1993 1995 1997 1999 Population that did not continue studying* 66.0% 68.0% 69.0% 70.0% 70.3% divided by reason not to continue: Economic reasons 27.4% 26.1% 26.2% 31.3% 28.6% Family reasons 8.6% 10.6% 13.6% 10.1% 10.8% Did not want to 44.4% 45.2% 44.0% 45.0% 46.6% There was no school nearby 5.0% 5.4% 5.0% 3.7% 3.7% Other reasons 14.5% 12.5% 11.0% 9.8% 10.1

Population that started working while studying 18.4% 18.1% 18.3% 19.1% 19.3%

Employed 12 to 14 years old (thousands) 1083 1269 1278 out of total employed 3.4% 3.8% 3.2%

Employed 15 to 19 years old (thousands) 4602 4787 4455 out of total employed 14.7% 14.2% 11.2%

Employed in manufacturing that started working between 10 and 14 years old 19.7% between 15 and 17 years old 34.2%

source: INEGI; Encuesta Nacional de Educación, Capacitación y Empleo, 1991. 1993, 1999, and Encuesta Nacional a Trabajadores Manufactureros, 1993, p.33 *population 12 years and older out of total population Between 1988 and 1993, the percentage of manufacturing workers with no formal education or illiterate almost stayed the same (2 per cent). The percentage of workers with complete primary or elementary school decreased from representing 36.6 per cent in 1988 to 21.9 per cent in 1993. On the other hand, workers with complete secondary or junior high school augmented from representing 25.4 per cent in 1988 to 31.1 per cent in 1991. The 1993 survey groups together complete high school, professional degree and post-graduate degree workers. If the 1988 survey percentages are also put together, then an increase in these levels can be clearly seen: from 24.5 per cent in 1988 to 36 per cent in 1993. That means that more than one-third of the manufacturing labour force had either completed high school, or completed a university degree or post-graduate degree. Three export-oriented sectors had higher than average workers with these levels of education: chemicals, rubber and plastics, basic metals and metal products, machinery and equipment. A fourth non-export oriented subsector was also hiring highly skilled personnel: the paper and paper products (see table Ch. X-4).

Table Ch. X-4 Educational Level of Manufacturing Employment 1988-1993

No Incomple Complete Complete Complete Professional Post- formal primary primary secondary High Degree graduate education school school school School degree 1988 1993 1988 1993 1988 1993 1988 1993 1988 1993 1988 1988 TOTAL 100% 2.0 2.1 11.6 8.8 36.6 21.9 25.4 31.1 15.6 36.0 8.3 0.6 Food, beverages and tobacco 100% 2.9 2.5 13.7 12.7 39.1 25.3 23.8 27.3 14.1 32.0 6.0 0.5 Wood and wood products 100% 4.6 4.0 21.6 11.8 39.1 27.1 20.7 22.4 9.9 34.2 3.8 0.3 Paper and paper products 100% 2.5 0.7 11.8 5.7 35.0 17.1 28.4 30.8 15.4 45.7 6.6 0.3 Non-metal mineral products 100% 2.9 5.8 12.6 8.0 35.4 21.7 25.8 32.2 14.1 32.3 7.5 1.7 Other manufacturing industries 100% 1.7 3.3 10.7 14.6 42.0 23.1 24.1 23.3 14.0 35.6 7.2 0.2

Textiles, garments and leather 100% 3.0 1.9 17.5 9.7 43.2 26.2 22.6 35.1 9.5 27.1 4.1 0.2 Chemicals, rubber and plastics 100% 1.1 1.3 8.7 6.1 30.3 15.3 27.7 31.6 18.9 45.6 12.5 0.9 Basic metals 100% 2.3 2.5 14.3 11.1 34.1 18.5 21.9 27.0 15.9 41.0 10.8 0.7 Metal products, machinery and 100% 1.0 1.2 8.0 5.9 36.0 19.5 26.6 34.3 18.2 38.9 9.5 0.7 source: INEGI's survey "Características del Personal Ocupado y Requerimientos de Capacitación en Establecimientos Manufactureros Mexicanos 1988"; and Encuesta Nacional a Trabajadores Manufactureros 1993, p.43 note: 1993 data group complete high school with professional degree and postgraduate workers and employees in blue all export-oriented or export-related economic sectors or subsectors However, there is still a large dysfunctioning of the labour market. It seems that supply not always meets the demand. While a lot of export-oriented companies complain about the lack of skilled workers, according to the 1990 census by the end of the 1980s, there were 800,000 university graduates who had received their degrees during the decade and for whom no professional jobs were available.215

Public and private technological institutes of first-world level quality exist in the country. The public funded ones are reduced in number and accept a reduced number of students, too. Among the private sector technological institutes, the one with the highest reputation is the 

“Tecnológico de Monterrey” with several campuses in big cities. This institute provides the country with highly specialised professionals in skills highly in demand in the labour market. However, only high-income families, and a reduced number of middle upper-income families can afford educating their children there. The institute is extremely expensive and provides very few scholarships to low-income students. As a result, only a privileged nucleus of persons can have the opportunity to receive such a good quality education.

On the other hand, it is important to remember that regional differences within the country are still very high. For example, the poor Southern States record a lower number of university graduates than the national average. While the national average of university graduates in 1996 represented 72.9 per cent of enrolments, in Southern states like Quintana Roo (47.9) Oaxaca (48.8) and Nayarit (51.9) the percentages were much lower.216 A substantial fraction of the population is still illiterate. In some southern regions of the country, illiteracy rates are as high as 25 per cent of the adult population. The country cannot be talking about developing such high-tech industry niches such as aeronautics and, at the same time, announcing that Mexico will finally become a “junior high” educational level country. There seems to be a lot of discrepancy in these two policy statements. Mexico should be by now at least a “high school” level country, and we just turned from “primary” to junior high”. How can these two factors marry together without leaving the largest majority of the working population behind? It is impossible!

Luckily, the cuts in social spending during the 1980s recession years and debt- strangulation did not lead to a reduction in the availability of teachers, doctors, nurses, schools, or hospitals. It was primarily the wages and salaries of the workers and the material, machinery and supplies used, and consequently the quality of services that felt the reductions. But, even if there were not important layoffs of personnel in educational and health services, what happened was that schools and hospitals became overcrowded, machinery was not repaired and essential goods for the correct functioning of the establishments were not provided. Public workers providing these services were so badly paid that the quality of their services went down enormously. A lot of teachers, nurses and doctors often found themselves a second full-time job to be able to survive with the high cost of living or started emigrating to the U.S.

The quality and accessibility of health care services due to budget cuts were also felt the most among the poorest and most marginal groups in society as population continued growing, more people became poorer, and there was a larger need of public services. In addition, some of the programs that were geared to the very poor suffered greater budget cuts than the rest. According to social and demographic statistics provided by INEGI, the population receiving social assistance from 1991 to 1995 decreased from 20 million 233 thousand persons to 10 million 071 thousand persons: half its 1991 levels in only 5 years.217 In 1982-1987, total revenue declined by 32 per cent on the Mexican Institute of Social Security (IMSS), but the covered population increased by 27 per cent while expenditures per capita declined by 42 per cent. As a result, there were reported declines in the number of outside consultations, laboratory tests, pathology, x-rays, blood transfusions, and surgery.218

According to Mesa Lago, health indicators from 1987 to 1991 showed a deterioration in the well being of infants and children. Mortality rates linked to malnutrition, vitamin deficiency and anaemia increased. From 1987 to 1990 infant malnutrition increased by 65 per cent and 4 million children were undernourished by 1991. Overall health conditions also showed a decline since mortality rates for all ages and for all possible causes started to be on the rise. Worth mentioning is the rapid increase in the number of deaths due to infectious  diseases such as tuberculosis and hepatitis which had almost disappeared by the beginning of the 1980s.

B. Training opportunities available

In Mexico, the traditional educational system, in general, does not seem very adapted to provide the necessary skills in demand in the labour market, nor does it seem to co-ordinate with industry to provide for its future labour force needs. There are too many doctors, architects, lawyers, but not enough specialised engineers and technicians. This is one of the main reasons why training needs have acquired growing importance in the country. However, training centres financed by the government have been known for having substantial economic limitations, both in terms of equipment and of teachers.

On the other hand, policies are advancing at a very high speed towards the development of high-tech sectors. At present, for example, the government announced its support to develop shortly the aeronautics industry through large incentives. If the country is going at such a high speed towards high-tech industry, the educational level and training levels of the whole population, not only a selected group, should not stay behind. Training is a very important factor in the provision of labour force adaptability to the existing challenges posed to the Mexican labour force since it permits productivity increases and labour responsiveness to change. In turn, increased educational investments and improved worker productivity should have a positive impact on workers’ earnings.

The National Surveys on Education, Training and Employment from 1991 to 1999 gave as a result an increase of 14.0 to 16.0 per cent in the number of workers in all economic sectors that had received any kind of training during the period covered. The majority of these workers had received only one training course in 1991. By 1999, the number of those workers receiving from 6 to 10 training courses had increased significantly (see table Ch. X-5).

Table Ch. X-5 Percentage of Total Population 12 years and older that hast taken Training Courses divided by Gender and percentage of number of courses taken, 1991-1999 Has not Has taken taken Number of training courses taken Total training training 1 2 3 4 5 6 to 10 11 to 15 16 to 20 More Not courses courses than 20 specified 1991 12 years & older 100 86.0 14.0 47.2 13.7 10.4 6.3 4.4 9.5 2.2 1.6 1.6 3.1 Men 100 85.8 14.2 40.0 13.4 11.4 7.6 5.3 11.7 2.7 2.1 1.7 4.0 Women 100 86.2 13.8 53.9 14.0 9.4 5.1 3.5 7.4 1.7 1.2 1.5 2.2 1999 12 years & older 100 84.0 16.0 33.6 12.2 11.6 7.3 5.8 15.5 4.4 4.5 4.3 0.8 Men 100 82.7 17.3 28.6 11.9 12.0 8.1 6.6 17.8 4.9 4.6 4.6 1.0 Women 100 84.7 15.3 37.7 12.0 10.8 6.3 4.9 12.6 3.7 4.2 3.9 0.5 source: Author's own calculations based on INEGI-STPS; "Encuesta Nacional de Educación, Capacitación y Empleo 1991 (p.128 & 146) and 1999 (176 & 206)

The percentage of trained workers in the manufacturing sector importantly increased from 1989 to 1998 in most export-oriented industries that were receiving foreign investment and that were increasing rapidly their output. According to results from the ENESTyC survey, export-oriented establishments are rapidly preparing and adapting their human resources more than non-export oriented industry. For example, the large-scale establishments of the chemical substances, rubber and plastics are providing such a large number of training curses that the number of workers that received training divided by the total number of workers of that subsector provided a percentage of 184.9. This means that almost every worker had received 2 training courses. The metal products, machinery and equipment subsector was also providing in its large, medium and small-scale establishments training to 80 per cent of its workers. Even micro establishments belonging to export-oriented subsectors were offering  training to a large number of their workers. Large and medium size non-export oriented establishments are also training between 35 and 80 per cent of their personnel. On the other hand, small and micro were relatively providing less training than the other size of industries (see table Ch. X-6).

Table Ch. X-6 Percentage of Trained Workers in the Manufacturing Sector divided by Subsectors, 1989 and 1994

TRAINED WORKERS S U B S E C T O R TOTAL LARGE MEDIUM SMALL MICRO 1989 1994 1998 1989 1994 1998 1989 1994 1998 1989 1994 1998 1989 1994 1998

T O T A L 35.0 42.8 57.4 39.7 67.3 78.2 39.8 54.7 68.2 32.4 39.7 54.3 12.6 18.0 15.7 Non-export oriented Food, beverages & tobacco 29.2 40.4 44.0 34.6 61.7 61.8 39.9 60.0 65.4 29.5 44.0 47.4 11.3 17.3 10.6 Wood and wooden prod. 23.5 16.2 31.7 31.9 57.1 69.0 34.5 37.9 33.0 25.7 26.3 41.2 5.6 2.3 12.5 Paper and paper prod. 31.4 32.9 45.4 32.1 60.2 58.6 33.2 44.1 65.8 32.3 26.4 45.7 25.7 11.7 17.0 Non-metal mineral prod. 35.2 42.7 42.4 44.8 73.9 59.6 45.1 55.8 82.1 43.4 38.5 62.1 7.8 19.9 9.2 Export-oriented Textiles, garments & leather 31.8 35.9 40.3 34.4 71.0 42.2 36.4 50.0 50.2 28.9 29.8 42.4 13.6 13.3 20.7 Chemical subst., rubber & plasti 45.6 61.3 119.8 47.4 65.7 184.9 46.2 65.1 94.3 42.7 57.0 59.0 38.2 53.5 45.3 Basic metals industry 34.2 53.6 62.8 33.7 60.0 65.0 36.9 35.6 62.0 34.0 49.7 44.5 41.7 20.8 31.4 Metal prod. machinery & equip. 39.6 51.0 70.5 44.0 74.6 82.7 41.7 55.1 80.3 31.3 42.8 79.3 11.2 22.8 21.2 Other manufacturing ind. 27.0 57.4 32.5 32.8 59.5 44.9 38.7 57.4 59.8 22.4 53.9 28.9 0.0 58.8 8.9 source: Author's own calculations based on Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación (ENESTyC) tabs 279a, 279b A growing proportion of large rather than small, medium and micro establishments have been able to adapt their labour force to new market demands. Industries with high foreign investment are the ones that give increasing importance to human resources valuing them as an important asset on which competitiveness in international markets depends. At the same time, a large part of the training provided by the manufacturing sector has been financed with public money.

Since 1978, the Mexican government undertook several programmes to facilitate labour market mobility and adjustment to the changing economic situation. These programmes were implemented through the National Employment Service. The National Employment Service has been trying to provide training to young job seekers and retraining to displaced workers, as well as other support services such as career counselling, job placement and lastly, registration of jobseekers and vacancies. However, as mentioned before in chapter V. employment services have always lacked the necessary means to provide all the support required in the labour market and have only been able to provide limited services.

In addition, in 1984 the government started the Programme of Scholarships for Training for Work (PROBECAT), geared towards unemployed workers aged between 20 and 55 and aimed to help them develop skills to find a better-remunerated job. PROBECAT had the purpose of relieving major social costs of macroeconomic restructuring and rising unemployment. Four years later, PROBECAT was included into a larger Manpower Training Project supported by the World Bank. With sufficient resources, it improved the quality of training and provided courses for workers without previous work experience and unemployed workers whose skills did not match present labour demands. Besides, it provided the unemployed with a minimal income and support for travelling expenses throughout the training period.

In fact, financed with resources from the World Bank and within a new National Programme for Training and Productivity, two important programmes promoting occupational training and business productivity were administered: a Labour Training Programme (PCMO) from 1988 to 1994 and the «Project to Modernise Labour Markets (PMMT) from 1993 to 1997. The first programme has been implemented through the Programme for Integral Quality and Modernisation (CIMO) that not only provides training to workers, but also supports employers to develop quality programmes and enterprises  modernisation. By mid-1994, it had provided vocational training to approximately 250,000 unemployed persons and had granted scholarships to 198,864.219

At the beginning of 1995, the government announced an increase in the number of government training grants from the 500,000 planned in the original budget to 700,000, an impressive increase over the year before. Half the 1995 grants (350,000) were to train the already employed, in co-operation with their employers, so that workers would increase productivity and be better remunerated, either in their present jobs or in a higher-skilled one. The other half of the grants was for the unemployed who had been earning one minimum wage, or for workers with skills in large demand.220 By 1995, CIMO practically doubled the number of companies supported just one year before.

In addition, on May 1995, the Mexican Productivity and Competitiveness Council (CPMC) was created with the purpose of promoting measures and activities that among other issues, foster industrial competitiveness and improve worker’s training and productivity. Unfortunately, these achievements are still limited to the formal sector. Their positive achievements should be shared with a large part of the informal sector workers that need an opportunity to improve their skills and remuneration.

It is important to provide training that will really open up opportunities of finding a job or improving skills to this large number of informal workers that are being left behind. Since the new sophisticated industries will require over a period of time a highly educated labour force, Mexico’s labour market should transform and incorporate that whole mass of low- waged workers and employers into the modern stream. If the majority of Mexicans are not prepared for the transition, the change could threaten to exclude, even more, the poorest, least skilled informal workers and employers from participation in a growing economy. It is especially important during periods of transition to reduce the factors that could affect negatively in the future and to invest in future productivity. At the same time, it is important to co-ordinate the needs of employers with the offering of training to be able to achieve a labour force well-suited to the needs of the labour market.

Job training financed by the private sector should provide access and better opportunities to informal workers and employers facing a very poor set of choices. One important way to promote the participation of the private sector in the improvement of large parts of the labour force could be through fiscal incentives if they create schools for poor children or training centres for poor workers in all sectors of the economy. Enabling all workers, not only a certain percentage of them belonging to the manufacturing export-oriented sectors, to move to areas of better economic opportunity could improve overall social welfare and strengthen the economy. Mexican society, as a whole will reap the benefits from encouraging low-skilled workers to enter job-training programs and moving to higher-skilled areas.

The contrary will continue meaning a concentration of industrial profits towards the top deciles of large-scale firms. Strengthening the links between the formal and informal sector could be resolved by increasing training opportunities of informal sector workers. A percentage of industrial profits could be destined to provide training to them. If this does not happen, a large number of domestic small and micro firms in the informal sector will never have the chance to improve their economic situation. Other factors like the weak role that trade unions play in the labour market to improve collective bargaining should be also looked upon.



C. Technology transfer and development of science

Trade liberalisation called for greater specialisation, and the quick need to restructure Mexican industry’s productive apparatus in order to meet the challenge of competitiveness from more advanced countries. Public federal expenditures on science and technology represented 0.43 to 0.41 per cent of GDP from 1980 to 1997.

A reduced public budget during the 1980s crisis should have meant that the private sector would invest in these concepts more importantly. Indeed, from 1990 to 1997, the productive private sector’s expenditures on research and experimental development increased from 283 millions of pesos to 791 millions of pesos at constant 1993 prices. In addition private education institutions were spending by 1995, 318 millions of pesos on the same item. Still, the private productive sector and private education institutions were spending only around 31 and 12.6 per cent respectively of what the federal expenditure represented showing that the private sector preferred to depend on public sector financed research and experimental development than to spend its own money on this item (see table Ch. X-7). By 1995, 66.3 per cent of the private productive sector’s expenditures on research and experimental development was benefiting the manufacturing sector, and 32.5 per cent the services sector.

Table Ch. X-7 Public and Private Sectors' Expenditures on Science and Technology, 1980-1998 (from 1980 to 1989 in 1980 constant thousands of pesos and from 1990 to 1997 in 1993 constant millions of pesos) Public Sector Public Sector Private Productive Private Education Expenditures Expenditures Sector Expenditures Institutions Expenditures on Science and on Research and on Research and on Research and Technology % of GDP Experimental Development Experimental Development Experimental Development 1980 19193 0.43 1981 22268 0.46 1982 20243 0.42 1983 14679 0.32 1984 17648 0.37 1985 17435 0.35 1986 16608 0.35 1987 13458 0.28 1988 13144 0.27 1989 13878 0.27 1990 1140 0.30 1991 1189 0.36 1992 1232 0.35 1993 1256 0.41 2028 283 245 1994 1311 0.44 2450 972 296 1995 1230 0.35 2521 791 318 1996 1294 0.35 1997 1384 0.41 1998 source: Author's own calculations based on INEGI; Sistema de Cuentas Nacionales del Sector Público, 1988-2000; INEGI; El Ingreso y el Gasto Público en México, ed. 1994; La Economía Mexicana en Cifras 1995, p.389m and 1998, p.510-511 There are two mechanisms financed by the federal government for research and technological development in Mexico. The first is through NAFIN and provides financing for investment projects destined to the adaptation and creation of new technologies. The second is through the National Council for Science and Technology (CONACYT) and also supports technology acquisition, adaptation and innovation. Research and development activities in the agricultural sector are also promoted through various government institutions such as the “Proyecto de Investigación y Extensión Agropecuaria y Forestal (PIEX) and the “Instituto Nacional de Investigaciones Forestales, Agrícolas y Pecuarias (INIFAP).221

Nowadays, for example, Mexico’s automotive sector is developing sophisticated industrial processes. The country’s technological institutes are providing high-skilled labour. And, either publicly financed or privately financed research centres are providing the technological innovations and automotive designs needed. According to CIEMEX-WEFA, firms such as General Motors, Nissan, and Volkswagen have developed amazing capacity of improving and creating new processes and products.222 

Concerning income destined to the payment of transfer and/or acquisition of technology, the ENESTyC survey indicated that the average percentage of manufacturing establishments’ were spending 2.5 per cent of their budget in 1989, increasing to 3.1 per cent in 1992, but decreasing to represent only 2.1 per cent in 1994. Non-export oriented establishments (with the exception of the wood, and wooden products in 1989 and 1992 and the non-metal mineral products in 1994) were spending a larger share in transfer payment and/or acquisition of technology than export-oriented ones. Most industries, even those that did not receive a lot of foreign investment were devoting between 2.3 per cent and 5.9 per cent of their income to acquire new technology. Another important aspect to mention is that micro industry was destining, on average, a larger part of its income to the acquisition of new technology compared to any of the other three sizes of establishments. This fact shows the concern of micro industry to stay in the market (see table Ch. X-8). On the trade balance side, in 1997, Mexico was spending 18 thousand million dollars on the import of high technology goods, while, at the same time, exporting 17.6 million dollars on this type of goods.223

Table Ch. X-8 Average Percentage of Income for Transfer Payment or Technology Acquisition in Manufacturing Establishments by Subsector and Size of Establishment, 1989-1994 SIZE OF ESTABLISHMENT T O T A L L A R G E M E D I U M S M A L L M I C R O

YEAR 1989 1992 1994 1989 1992 1994 1989 1992 1994 1989 1992 1994 1989 1992 1994

Total 2.5 3.1 2.1 2.5 3.0 2.0 2.5 3.9 2.0 1.8 2.4 1.8 3.9 3.8 3.4 Non-export oriented Food, beverages & tobacco 2.1 2.9 2.4 2.2 3.3 2.2 2 2.4 1.7 1.4 2.1 0.9 2.9 2.1 3.6 Wood & wooden prod. 1.3 1.5 3.4 1.3 2.9 2.3 1.9 2.5 3.8 3.4 5.0 3.3 0.3 0.2 0.0 Paper, editorial & printing 3.7 5.9 2.4 4.9 6.1 2.3 1.6 3.4 2.2 3.5 5.6 3.2 0.1 10.6 0.0 Non-metal mineral prod. 3.8 5.7 1.7 4 5.2 1.9 3.3 10.0 0.9 4.4 6.1 1.6 2.1 1.1 1.1 Export-oriented Textiles, garments & leather 2.6 3.0 1.4 3.2 3.4 0.9 2.6 3.2 2.3 2 2.7 1.6 0.9 1.5 1.1 Chemical subst, rubber & plastic 2.4 2.7 2.1 2.2 2.6 2.0 2 2.7 2.2 2.8 2.2 2.1 7.9 6.9 1.2 Basic metals 2.3 3.3 2.0 2.3 3.1 2.0 1.9 5.2 2.4 2.1 3.1 1.4 0.8 6.4 1.0 Metal prod., machinery & equip. 2.5 2.8 1.9 2.2 2.3 2.0 3.8 5.7 1.9 0.9 1.1 1.9 7.1 9.1 2.3 Other manufacturing ind. 2.5 3.0 1.2 2.4 3.1 1.1 3.5 2.8 1.4 2.1 3.1 2.0 0 2.3 0.0 source: Author's own calculations based on INEGI; Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Sector Manufacturero (ENESTyC) 1992, p. 104-106, However, policies tend to be promoting only the development of large, capital-intensive, highly-tech producers from the industrial sector and the rest of the sectors and workers tend to be forgotten. There does not seem to be enough (public or private financed) programs aimed at the development of small and micro-sized business. The Ministry of Commerce and Industrial Promotion (SECOFI) declared by the end of 1992 that there was only a privileged nucleus of big national oligopolies and transnational companies being able to "modernise" by acquiring new technology (only 5 per cent of the total number of establishments). This 5 per cent of total establishments was mainly composed of large, modern industries related to the export market.

Large producers still have weak linkages with a large part of micro and small business probably because the latter’s quality and productivity has not improved. This fact seems to halt the expansion and strengthening of micro and small producers and the growth of the informal sector. This process, in turn, affects the economy as a whole since a large number of imports create a significant trade deficit. The development of technology and machinery capacities in micro and small producers should be a priority for the good functioning of Mexican economy. If micro and small agricultural and industrial establishments develop a good capacity to produce most of the needed inputs for large producers, imports will be reduced and everybody will end up gaining.



D. Social Security coverage

The main benefit obtained by organised labour during the golden years of the Mexican economy was the extension of social security for a large number of workers. The 1943 Social Security System was reformed in 1973. A new law set up a social insurance mandatory programme for employers as well as waged and salaried workers. The programme was voluntary for independent workers and the self-employed. It included protection in the case of job-related injuries and illnesses, sickness and maternity benefits, disability and survivor’s pension, and an old-age pension at the age of 65. It also comprised the provision of a child day-care program in the Federal District, and an anticipated pension scheme in case of mandatory early retirement among older workers. The latter was to be provided to unemployed workers 60 years or older who had contributed for at least 10 years or 500 weekly payments.

By 1980, 6.8 million workers together with their families were covered by the IMSS (Mexican Institute of Social Security). Other large segments of the population were covered by other types of social security programmes like ISSSTE, PEMEX, the SSA (Ministry of Health) and the military social security scheme. Forty-five per cent of the total number of worker/employees, self-employed and employers were covered out of total employment.

During the period 1987 to 2000 total IMSS registered workers increased from representing 7.3 to 13.1 million workers (without including university students that were incorporated in the statistics as of 1989). As mentioned in the section on the formal and informal sector, during these fourteen years, the manufacturing sector increased its coverage in the IMSS by 1.8 million workers, from representing 2.5 million in 1987 to 4.3 million workers in 2000. Commerce increased the number of workers covered from 1.3 to 2.3 million, and services from 2.2 to 4.2 million workers (see table Ch. X-9).

Table Ch. X-9 IMSS Insured Employers/Self-Employed, and Permanent and Temporary Workers/Employees by Economic Sector and Subsector, 1987-2000 (thousands) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 T O T A L 7351 7761 8287 8897 9333 9255 9136 9306 8912 9590 11104 11955 12649 13157 AGRICULTURE, CATTLE, FORESTRY & FISHING 539 471 466 485 493 431 420 409 402 418 420 439 431 398 MINING 88 82 84 84 80 70 61 66 62 67 70 68 66 68 MANUFACTURING 2546 2714 2876 3021 3136 3019 2885 2957 2870 3209 3655 3966 4243 4399 Food, beverages and tobacco 462 482 507 535 557 565 547 551 536 573 640 670 695 683 Wood and wood products 98 109 113 118 123 116 112 113 102 118 131 144 149 154 Paper and paper products 131 143 156 169 180 181 174 175 163 173 193 203 213 219 Non-metal mineral products 132 133 138 144 147 139 134 131 116 119 132 139 146 144 Other manufacturing industries 73 74 80 82 86 86 83 86 88 102 111 115 134 143 Textiles, garments and leather 458 480 519 537 560 539 504 521 518 626 741 849 910 942 Chemicals, rubber and plastics 326 343 363 379 396 371 352 353 342 370 405 434 455 466 Basic metals 92 96 91 91 83 66 61 67 66 72 78 85 80 79 Metal products, machinery & equip. 773 853 909 964 1003 956 919 970 939 1056 1223 1325 1459 1568 CONSTRUCTION 151 173 188 229 259 282 284 291 228 258 698 852 896 912 ELECTRICITY, GAS & WATER 91 84 90 95 99 104 105 110 113 115 132 137 139 143 COMMERCE 1354 1374 1471 1604 1703 1741 1729 1776 1676 1777 1919 2128 2223 2374 Wholesale trade 732 711 752 817 865 875 860 882 832 993 1090 1089.9 1150 1240 Retail trade 622 663 719 787 838 866 869 894 844 784 829 1038 1073 1134 Hotels 133 143 154 164 166 165 165 166 163 174 189 205 218 224 Restaurants 187 198 219 251 273 285 284 291 273 285 315 346 369 399 SERVICES 2265 2524 2742 2968 3128 3159 3203 3231 3126 3287 3706 3814 4065 4240 Transport, Storage & Communications 421 435 441 473 508 501 491 499 483 495 556 586 619 654 Finance, Insurance & Real Estate 571 665 697 761 809 811 835 870 844 928 1079 1177 1256 1285 Community, Social & Personal Services 894 950 1034 1169 1251 1331 1367 1377 1383 1434 1519 1494 1641 1766 Other 378 476 570 565 560 516 510 485 415 431 551 558 550 535 source: Author's own calculations based on Ministry of Health, Coordinación de Afiliación Vigencia. Delegaciones Regionales, Estatales y del Distrito Federal. *permanent and temporary workers/employees and employers insured notes : "Other" includes optional collective insurance, optional individual insurance, optional collective IMSS family members, voluntary continuation, independent workers, non-identified, health family insurance and agricultural seasonal workers. Totals of insured workers/employees and employers are different than those provided by the Ministry of Health since the number of university students insured were subtracted Starting from 1989, social security statistics started including the no. of university students registered even if covered by statistics of family members covered. In blue all trade-oriented or trade-related economic sectors and subsectors As a whole, though, the number of workers covered by the IMSS, or any other social security institutions mentioned above represented 45 per cent of the labour force in 1980, then went down to 42.3 per cent by the opening, attained its lowest level in 1995 (32.8 per cent), and was rapidly improving by 2000. One of the other characteristics worth mentioning is that while formality levels had been growing thanks to public sector employment before, the new  formality levels after the opening were in large part thanks to the growth of the private sector, mainly export-oriented. The rest of the workers were in the informal sector without any protection (see table Ch. X-10).

Table Ch. X-10 Employed covered by Social Security, 1980-2000

Thousands TOTAL Total number of workers/ % of workers/employees IMSS IMSS ISSTE ISSTE PEMEX, FF.CC EMPLOYMENT employees/employers & employers covered TOTAL* family insured family SDN and SM (thousands) covered by Social Security out of total employment INSURED members members workers and covered covered family members 1980 22247 10021 45.0% 6869 21819 3152 5322 1701 1981 22966 10569 46.0% 7112 22399 3457 5454 1251 1982 23708 10521 44.4% 7037 22041 3484 5245 1298 1983 24473 10302 42.1% 7059 21637 3243 4913 1361 1984 25264 10817 42.8% 7630 21484 3187 4788 1501 1985 26080 11024 42.3% 8132 21964 2892 4602 1517 1986 26907 10330 38.4% 7986 22530 2344 4743 1350 1987 27761 9625 34.7% 7351 22915 2274 5003 1400 1988 28641 9859 34.4% 7761 22313 2098 5006 1450 1989 29549 10384 35.1% 8287 24335 2097 5398 1500 1990 30486 10909 35.8% 8897 24674 2012 5210 1550 1991 31416 11352 36.1% 9333 25392 2019 5279 1600 1992 32374 11301 34.9% 9255 25755 2046 5162 1650 1993 33362 11243 33.7% 9136 26884 2107 5347 1700 1994 34281 11456 33.4% 9306 26299 2150 5452 1750 1995 33881 11103 32.8% 8913 27533 2190 5541 1800 1996 34994 11778 33.7% 9590 27366 2188 5565 1850 1997 36291 13419 37.0% 11198 28613 2221 5659 1900 1998 37117 14212 38.3% 11958 28803 2254 5760 1950 1999 38069 15030 39.5% 12649 29273 2381 5681 2000 2000 38983 15680 40.2% 13157 30507 2523 5753 2190 source:The World Bank: "World Tables 1995"; Mexico's Ministry of Health (Secretaría de Salud); INEGI, Encuesta Nacional de Empleo 1988, 1991, 1993, 2000. La Economía Mexicana en Cifras 1990, p.30, p.64, p.277-278, and La Economía Mexicana en Cifras 1998 p.38. notes: 1999 and 2000 social security coverage only includes IMSS insured workers/employees, self-employed or employers Totals of insured are different than those provided by the Ministry of Health since the no.of students insured were subtracted Pemex, FF.CC, SDN and SM data was not find separate between workers/employees, employers/self-employed and family members, so it was not included in insured totals *permanent and temporary workers/employees, self-employed and employers insured In fact, according to the National Survey on Employment and Social Security by the year 2000 only 1.1 million persons in the whole country had a private medical insurance. The rest could not afford it and either attended a private medical centre in case of need and covered the expenses out of their pocket or depended on public-financed services.

The social security system was financed until 1995 by employers and workers’ contributions as well as a government subsidy. The employer financed entirely the programme for job-related injury and illness, and other family benefits such as child day-care programs. In total, the employer contributed with a 18.20 per cent of the workers’ weekly payroll, while the worker’s contribution represented a 5.25 per cent of its earnings, and government’s contribution an additional 2.88 per cent of the workers’ weekly payroll.

A worker was allowed to qualify for a pension if he fulfilled two requirements: having a total of 500 weekly contributions and having reached the age of 65 years old. The pension was composed of a basic amount representing 35 to 45 per cent of the average weekly salary (regressive relative to higher income levels) received during the last 4 and a half years with an additional 1.25 per cent of earnings per year of contribution beyond 500 weeks.

The pension adjusted in the same proportion as the minimum wage. However since the real minimum wage lost such a large percentage of its purchasing power during the high inflationary years of the 80’s and was not correctly indexed to the basic consumer basket, pensions of low-waged and medium-waged workers did not provide them with a decent and reasonable income at the moment of retiring and for the rest of their lives.

Another important aspect to mention is that self-employed, non-waged, non-salaried or independent workers belonging to the informal sector could voluntarily register to the social security scheme. Moreover, contributions made by this type of workers had to comprise the total amount provided by the employee, as well as the employer. The latter resulted in a very  low registration of low-income earnings’ economic active persons to the social security scheme since they could not afford contributing as much as 23.5 per cent of their earnings.

With new pressures from employers to flexibilise the labour market with the purpose of improving Mexico’s competitiveness, in 1995 changes to the Social Security Law were proposed and steps to privatise the social security system were taken. A new law was to be enforced as of January 1st 1997. The law was basically changed in what concerns the system of savings for retirement. The new system was to be mandatory to all workers entering the labour force after January 1st 1997, and was composed of a social insurance system supplemented with a private pension system. Those employees covered by social security prior to 1997 had the choice between the public and the private new system.

It was decided that the Mexican Social Insurance Institute (IMSS) will continue administrating the program through the National Commission on the Retirement Savings System (CONSAR) that would then supervise the new pension fund management companies called AFORES.224 Under the AFORES system the insured will receive a pension equal to its contribution plus accrued interest. A positive side of the new system is that pensions and pensionable pay were indexed, for the first time, to changes in the national consumer price index and it was decided that the investment must yield at least 2 per cent above the rate of increase in the consumer price index after commission and charges.

On the other hand, instead of 500 contributions required under the old system to qualify for a pension, the new system required insured persons to contribute for at least 24 years or accumulate 1,250 weekly contributions to qualify. In addition, at retirement age the insured could choose between an annuity or a programme benefit based on life expectancy. As a guarantee, the Mexican government provides a minimum pension equal to 5.5 per cent of a minimum daily wage. The latter was criticized as being a ridiculous sum of money to be received by millions of pensioners in case of bad administration and bankruptcy of the new system.

Other important modifications made consisted in separating disability and survivors’ benefits from the old-age pension. The worker was to purchase, on a voluntary basis, a separate insurance policy for this category of benefits. The AFORES also covered unemployment after 60, but as in the case of a pension, the insured was required to accumulate 24 years’ contributions to qualify.

A last important modification was to reduce the employers’ contribution in case of work- injuries. While with the old-system an employer was required to contribute a quota of 2.5 per cent of payroll, the new system called for a gradual contribution ranging from 0.348 per cent to 10.035 per cent of payroll according to accident risk at the workplace. Since it is very difficult to determine the risk-level of most occupations, it is expected that most employers will end-up paying the minimum contribution.

Proponents of the new system of pensions argued that it would be beneficial to the country’s economy since it would increase the national savings rate and consequently investment. However, Mexican workers were not very enthusiastic about the reforms and organised several demonstrations against. Workers contrary to the new system declared that they would not be able to comply to this long-term savings system since most Mexican workers found themselves unemployed for long periods of time or belonging to the informal sector. The lack of salaried or waged jobs would not permit them to continue contributing considering they would barely have enough income to support their families. In addition, they argued that most low-earnings’ workers would not voluntarily affiliate to the survivor (spouse  and children) pension and the disability pension scheme. As a result, the already large number of Mexicans not covered by any social security benefits at all will increase.

In fact, the privatisation of the social security system will increase the number of persons not covered by health benefits in the long-term and further imperil workers' already precarious condition. The new system is believed to contribute even more to the rapid increase of the social deterioration of workers’ families situation.

E. Productivity increases

Now, it is important to see if productivity has kept the pace of all the developments taking place, mainly in the manufacturing sector. Or if on the contrary, it has lagged behind and this is one of the main reasons to justify the significant reduction of real wages. Productivity measurements were obtained by dividing total value added in constant 1994 pesos by the total number of workers. The total average determined the levels of productivity: all sectors and subsectors below that average were considered with low productivity levels and all those sectors above were determined to be high productivity sectors. Besides, two scenarios were included: first, only considering formal employment totals, and second, considering formal, as well as informal employment levels.

According to the first measurement (only considering formal employment), the textiles, garments and leather is the only export-oriented subsector recording low productivity levels from 1988 to 1997. The two non-export oriented subsectors reporting low productivity levels were the wood and wood products and the paper and paper products. Manufacturing subsectors like the basic metals recorded extremely high productivity levels during this period of 10 years: doubled its 1988 levels. Within the other economic sectors, the commerce and services sectors, transport, storage and communications and the wholesale, retail trade, and hotels and restaurants reported sporadic low productivity levels. The only sector that recorded diminishing productivity levels was the finance, insurance and real estate (see table Ch. X- 11).

Table Ch. X-11 Productivity Growth (Value Added/Formal Employment), 1988-1996

ECONOMIC SECTOR 1988 1989 1990 1991 1992 1993 1994 1995 1996 MANUFACTURING TOTAL 850 808 799 773 810 815 829 778 769 Non-export oriented Food, beverages & tobacco 1049 1015 1067 1098 1118 984 1210 1081 1101 Wood, wood prods; paper and paper prods.* 846 824 755 681 692 682 668 561 513 Paper and paper products 905 826 760 688 698 698 723 701 616 Non-metal mineral products** 1248 1162 1200 1192 1302 1407 1466 1255 1349 Export-oriented Textiles, garments and leather 492 455 435 400 405 409 396 331 310 Chemicals, rubber and plastics 1305 1195 1157 1036 1091 1067 1085 1123 1071 Basic metals 1828 1847 1770 1542 1666 1694 1678 1978 2103 Metal products, machinery & equip.*** 588 582 573 602 651 628 634 625 663 Other manufacturing industries 737 755 847 763 839 848 872 715 675 FINANCE, INSURANCE AND REAL ESTATE 1411 1851 2021 1994 2156 2346 2431 2328 1857 AGRICULTURE, CATTLE, FORESTRY & FISHING 1622 1765 1880 1797 1875 1852 1833 1457 1669 TRANSPORT, STORAGE & COMMUNICATIONS 2106 2195 2232 2310 2294 2344 2500 2217 2358 WHOLESALE & RETAIL TRADE, HOTELS & RESTS 1465 1543 1557 1350 1287 1229 807 1004 1168 TOTAL AVERAGE 1117 1144 1167 1114 1144 1152 1090 1065 1060 source: Author's own calculations based on INEGI, Sistema de Cuentas Nacionales de México in "La Economía Mexicana en Cifras 1998" (NAFINSA), p.55-56 and 103-107; However, like in the case of factor intensiveness measurements, the author thinks that the fact that a lot of employment is informal does not permit this measurement to be accurate for sectors with high informality levels. In the case of agriculture, for example, since almost 95 per cent of its employment is not formal, its high productivity levels cannot be trusted. 

A second measurement covering both formal and informal employment was done. However, only manufacturing totals were analysed. This time the comparison was made with 1980 levels of productivity. Productivity option no. 1 was calculated by dividing manufacturing value added index by manufacturing formal employment index. The second option resulted from the division from manufacturing value added index and manufacturing total (formal and informal) index. From 1980 to 1999, according to the 1st option, productivity increased to represent 131.6 per cent in 1999. According to the second option, productivity levels were importantly reduced: from representing 94.6 in 1980 to 60.4 of its 1980 levels in 1999 (see table Ch. X-12).

Table Ch. X-12 Manufacturing Productivity Index, 1980-2000 (1980=100)

Option no.1 Option no.2 Manufacturing Manufacturing Manufacturing Manufacturing Formal + Value Added in Value Added Productivity Productivity Formal Informal Employment constant 1995 Index Option no. 1 Option no.2 Employment Index Base= 1980 US billion dollars Index Formal employment 1980 100 105.7 41.768 100.00 100.0 94.6 1981 104.7 120.9 44.461 106.45 101.7 88.1 1982 102.6 136.1 43.243 103.53 100.9 76.1 1983 95.2 151.3 39.853 95.42 100.2 63.1 1984 97.2 166.5 41.851 100.20 103.1 60.2 1985 100.4 181.7 44.396 106.29 105.9 58.5 1986 105.5 196.9 42.062 100.70 95.5 51.1 1987 111.2 212.1 43.341 103.77 93.3 48.9 1988 117.8 227.3 44.727 107.08 90.9 47.1 1989 123.7 223.4 48.258 115.54 93.4 51.7 1990 128.5 219.6 51.523 123.36 96.0 56.2 1991 102.4 215.7 53.291 127.59 124.6 59.1 1992 123.7 211.9 55.510 132.90 107.5 62.7 1993 118.2 208.0 55.135 132.00 111.7 63.5 1994 121.1 222.5 57.381 137.38 113.4 61.7 1995 117.1 236.9 54.546 130.59 111.5 55.1 1996 118.2 251.4 60.455 144.74 122.4 57.6 1997 127.1 265.8 66.462 159.12 125.2 59.9 1998 131.3 280.3 71.357 170.84 130.1 61.0 1999 135.3 294.7 74.363 178.04 131.6 60.4 2000 176.0 309.2 79.469 190.26 108.1 61.5 source: Author's own calculations with 1980 Census data, INEGI's 1988, 1993 and 2000 National Employment Surveys (NES); Ministry of Health IMSS statistics; The World Bank: World Bank Indicators Again, those industries where productivity grew faster were the ones that had access to cheap international credits and were receiving subsidies and all kinds of support during the import-substitution period and the trade liberalization period. In a comparison made of labour force productivity by man-hour in selected export-oriented sectors of the Mexican, U.S. and Canadian manufacturing industry from 1987 to 1994, it was found out that Mexico’s productivity was increasing at a faster pace than that of its neighbours.

It is true that part of these productivity increases can be misleading since they can be a result only of real wages’ decreases. However, the young Mexican work force has proven to be able to quickly master Japanese-style manufacturing techniques and is setting company- wide quality records. For example at automotive plants such as Ford and General Motors, labour productivity increased at an annual rate of 4 per cent from 1982-88 and 5 to 6 per cent from 1989-94.

As seen in the chapter on wages, productivity growth has meant more exports, but has not until now been translated into an important wage raise. In fact, wages have lagged behind productivity, probably because of the large labour surplus available. Market forces cannot be  relied upon to increase Mexican wages as long as full employment does not force them to do it.

On the other hand, the educational level of the population should advance at a much faster pace. The risk of asking for higher wages if workers’ educational level and skills do not keep the same pace is of losing companies that find that their main “input” (labour), becomes no longer attractive and transfer their operations to lower-wage countries. Educational and training levels must advance at the same rhythm as factor intensity levels. 

XI. Trade in Goods and Investment Liberalization Effects on Documented and Undocumented Migration

A. Rural to urban

Not only population increases, but also policy measures such as the reduction of subsidies to low-income agriculture and to rural areas in general, at the same time that subsidies to urban centres increased, contributed to the migration of large flows of rural farmers lacking means of subsistence to urban centres225. The oversupply of workers put pressure on formal labour markets not only to incorporate them, but also to provide them with the necessary labour protection and good working conditions. At the same time, the continuous economic recessions of the 1980’s, as well as that of 1994 weakened the possibilities of the formal sector to generate employment in urban as well as rural areas. As a result, large numbers of rural workers joined the ranks of precarious or non-protected urban employment totals or searched a job in the neighbouring country.

Table Ch. XI-1 Urban Population Annual Growth Rate, 1980-2000 YEAR POPULATION URBAN URBAN ANNUAL POP. POPULATION PERCENTAGE (millions) (% of Total) (millions) CHANGE 1980 67.57 66 44.6 1981 69.19 67 46.4 3.9 1982 70.78 68 48.1 3.8 1983 72.35 68 49.2 2.2 1984 73.91 69 51.0 3.7 1985 75.46 70 52.8 3.6 1986 77.01 70 53.9 2.1 1987 78.56 71 55.8 3.5 1988 80.11 71 56.9 2.0 1989 81.66 72 58.8 3.4 1990 83.22 72 59.9 1.9 1991 84.79 73 61.9 3.3 1992 86.36 73 63.0 1.9 1993 87.95 73 64.2 1.8 1994 89.54 73 65.4 1.8 1995 91.14 73 66.5 1.8 1996 92.56 74 68.5 2.9 1997 93.90 74 69.5 1.4 1998 95.22 74 70.5 1.4 1999 96.56 74 71.5 1.4 2000 97.96 74 72.5 1.4 source: IMF: International Financial Statistics Yearbook 1980 and 2001 The share of the Mexican population living in urban areas increased from 66 per cent in 1980 to 74 per cent in 2000. This meant that the urban population increased from representing 44.6 million persons to 72.5 million in 2000 in only 20 years (see table Ch. XI-1 and figure Ch. XI-1). The growth was highly attributed to the migration of rural population to the cities, and not only to the natural growth of urban settlers. While the average annual growth rate of the urban population during this period was of 3.3 per cent that of the population as a whole  was of 2.5 per cent. This is particularly true about the case of Mexico City that experienced one of the highest rates of population growth in the world.

Figure Ch. XI-1 Urban Population Growth, 1980-2000

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

source: Author's own calculations based on World Bank; World Tables and Indicators

B. International

By extending markets for the goods produced, trade liberalisation is expedited to encourage efficiency and specialisation and through time the result should be higher wages, sustained income gains and quality of life improvements. The process of industrial relocation of U.S. companies to Mexico should also increase local employment opportunities and should produce at the same time a decline of similar opportunities in the U.S., thus having an impact on the reduction of the number of Mexican migrant workers in search of a job in the U.S.

Until the year 2000 and after 15 year of trade liberalization, the number of Mexican job seekers in other countries, documented or undocumented, had not diminished. On the contrary, since trade had widened the wage differentials between manufacturing workers and agricultural workers, the hope to obtain a high paying industrial job was attracting thousands of workers to the cities. The growth of rural to urban migration within the country caused disequilibria in urban labour markets creating an explosion in the supply of job seekers. Those flows of workers to the cities from rural areas exceeded the absorption capacity of the urban economy and peasants created large focus of poverty in the most depressed areas of the cities. Moreover, migration from rural to urban areas continued despite the lack of jobs available in cities. Since there were no jobs or very few jobs available in rural areas and existing ones were worst remunerated than urban ones, rural workers were willing to come to the cities and take the risk of either being unemployed or finding very low-paid jobs. This continuous migration of workers swelled the ranks of the urban labour force, increasing the oversupply of workers in cities and contributing to the decline of the absolute level of wages and to increasing emigration pressures to other countries. 

Indeed, the oversupply of workers in the cities with its pressure on wages, also served as an incentive for workers to look for a job in the U.S. or other industrialised countries. International emigration was considered by many of them as a major labour choice and investment faced with low wages and the lack of labour market opportunities and a decent and protected job at home. They migrated with the hope and expectations that the investment will pay off well into the future. Mexican workers started emigrating not only to the U.S., but to Canada, Australia and Europe.

Undocumented migration to the U.S. which had stabilised and even declined in the 1970s and early 1980s, increased considerably before the opening to trade. The rapid growth of the Mexican labour force and the recurring devaluations of the Mexican currency made U.S. earnings more attractive and promoted migration. Even after Mexico’s accession to GATT in 1985, annual documented and naturalization of Mexicans in the U.S. constantly increased. From 1985 to 1990, documented immigration of Mexicans to the U.S. represented 1 million 379 thousand persons. The high number of Mexican documented immigrants during these years could be highly attributed to the Immigration Reform and Control Act of 1986 (IRCA) or most popularly known as the Simpson-Rodino law (see figure Ch. XI-2).

Figure Ch. XI-2 Documented Mexican Immigrants to the U.S., 1970-2000

1000000

900000

800000

700000

600000

500000

400000

300000

200000

100000

0

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

However, strong push factors in Mexico such as industrial restructuring, the changes in agricultural legislation, the disappearance of reference prices and the entrance of cheaper U.S. corn and beans highly contributed to influence Mexicans to migrate to the U.S. Workers’ main aim was to increase their households’ income since U.S. salaries are 11 times higher on average, jobs plentiful and demand for unauthorised workers high. Between 1991 and 1995, several peaks were recorded with 1991 being the highest in the list. During the whole 5-year period, 2 million 166 thousand Mexicans received U.S. immigrant status. Only starting from 1996 onwards, the numbers have importantly declined to represent during that quinquennial 40 per cent of the previous quinquennial. It seems that NAFTA indirectly prevented after the December 1994 crisis, an even-larger increase in migration since it helped Mexico recover faster (see tables Ch. XI-2 and Ch. XI-3). 

Table Ch. XI-2 Yearly Documented Immigration and Naturalization of Mexicans in the U.S, 1970-2000 Documented Immigrants Naturalized 1970 44469 1971 50103 1972 64040 1973 70141 1974 71586 1975 62205 1976 57863 1977 44079 1978 92400 1979 52096 1980 56680 9341 1981 101268 9545 1982 56106 11423 1983 59079 12594 1984 57557 14575 1985 61077 23042 1986 66533 27807 1987 72351 21999 1988 95039 22085 1989 405172 18520 1990 679068 17564 1991 946167 22878 1992 213802 12873 1993 126561 23615 1994 111398 46169 1995 89932 81655 1996 163572 254988 1997 146865 142569 1998 130'661 112442 1999 146'436 207750 2000 171'748 189705 source: U.S. Immigration and Naturalization Service: Statistical Yearbook, 1978-94, 1988-90, 1993-94, 1996-98, 1999-2000

Table Ch. XI-3 Accumulated Documented Immigration by periods of 5 years, 1970-2000

TOTALS 1970-1975 362544 1975-1980 365323 1980-1985 391767 1985-1990 1379240 1991-1995 2166928 1996-2000 849214 source: U.S. Immigration and Naturalization Service: Statistical Yearbook, 1978-94, 1988-90, 1993-94, 1996-98, 1999-2000 The number of documented temporary workers in the U.S. has also been growing at a fast pace: while they represented only 16,891 in 1990, ten years later the number could be almost multiplied times seven, representing 104,155 by the year 2000. Among them, by the year 2000, agricultural H2A visa workers were the most numerous (27,172), followed by 

Non-agricultural H2B visa workers, intracompany transferees L1 status (14, 516), workers with specialty occupations H1B visas (13,507) and internationally recognized athletes and entertainers with a P1 type of visa (9,977) (see table Ch. XI-4 and figure Ch. XI-3).

Table Ch. XI-4 Mexican Temporary Workers in the U.S., 1990-2000 Other temporary workers Workers with Workers with (H2) extraordinary TOTAL Registered specialty Industrial Exchange Intracompany ability or TEMPORARY nurses occupations Agricultural Nonagricultural trainees visitors transferees achievement WORKERS (H1A) (H1B) (H2A) (H2B) (H3) (J1) (L1) (O1) 1990 16891 5261 6573 39 3335 1683 1991 19418 5676 8219 55 3642 1826 1992 19813 5200 8116 58 3962 1845 24 1993 23169 3304 10267 113 4187 2161 121 1994 24896 3291 9606 258 4421 2632 175 1996 35'949 73 5'273 8'833 5'539 141 4'461 4'759 171 1998 66'197 74 10'079 21'594 10'727 394 5'222 8'987 246 1999 86'424 75 12'257 26'069 18'927 574 5'538 11'387 398 2000 104'155 130 13'507 27'172 27'755 307 6'295 14'516 542 Workers Artists or Artists or Workers in accompanying Internationally entertainers entertainers international North American and assisting in recognized in reciprocal in culturally cultural Workers in Free-Trade performance athletes or exchange unique exchange religious Agreement of O1 workers entertainers programs programs programs occupations workers (O2) (P1) (P2) (P3) (Q1) 4 (R1) (TN) 1990 1991 1992 1993 1994 1996 65 5'463 66 302 98 512 193 1998 102 6'828 108 332 116 796 592 1999 163 8'373 128 230 120 907 1'278 2000 208 9'977 176 232 132 1'147 2'059 source: Author's own calculations based on U.S. Immigration and Naturalization Service: Statistical Yearbook, 1978-94, 1988-90, 1993-94, 1996-98, 1999-2000 note:H1B workers with specialty occupations from 1990 to 1994 includes registered nurses The number of Mexican workers with an undocumented status was calculated to be around 150,000 arrivals a year. The U.S. Immigration and Naturalization Service estimated in 1996 that the total number of undocumented Mexican immigrants in the U.S. represented 2.7 million. That same year, Mexican undocumented immigrants constituted about 54 per cent of the total U.S. undocumented population.

Figure Ch. XI-3 Total Mexican Temporary Workers in the U.S., 1990-2000

120000

100000

80000

60000

40000

20000

0 1990 1991 1992 1993 1994 1996 1998 1999 2000



Migration issues were initially excluded from NAFTA negotiations. But under pressure from public opinion, in NAFTA’s labour parallel agreement, within the labour issues not subject to fine and sanctions, «protection of migrant workers» was included. If this phrase is interpreted as meaning: providing in the territory of one of the parties equal legal protection to migrant workers than to nationals in respect to labour conditions, then the inclusion of this issue in the agreement is very positive. Apart from that, NAFTA only deals with legal, trade- related, highly-skilled migrants. A special category of high-skilled migrants was also allowed to travel easily between the countries and to stay for work for short periods of time. These are: (i) exchange professional visitors (persons working for a short period in specialised areas), (ii) intracompany transferees, and (iii) treaty traders and investors. A maximum of 5,500 can enter a year. North American Free Trade Agreement workers with a TN temporary visa only represented 2,059 persons in the year 2000.

While it has relatively diminished, migration of Mexicans still continues to be significant. However, it should also be mentioned that increasingly these flows comprise a larger number of Central Americans that pretend to be Mexicans. They pretend to be Mexicans in order to be deported just across the border. By doing this, they reduce the cost of their next attempt to cross the U.S. border. However, a large number of Mexicans are still stimulated to go abroad because of the difference between U.S. and Mexican wages. In 1997, according to the U.S. Department of Labour, hourly manufacturing wages compared to U.S. wages was less than one-tenth its value (8.9 per cent). Agricultural workers earned between 10 to 12 times as more just by crossing the border. Another important factor that facilitates and continues promoting migration is the large number of social networks that have been created by family and friends that have migrated previously who find newcomer migrants jobs within a few days of arrival.

On the whole, U. S. employers find Mexican labour attractive since it keeps local wages down by providing a large supply of low-wage labour in those sectors that need it. On the other side of the border, the Mexican government finds it advantageous since migration reduces the pressure of its workforce surplus on its economy and society. The U.S. tolerates this migration indirectly since it relies on Mexican labour to fill a significant share of the low- wage jobs in labour-intensive sectors that for whatever reason have not relocated to Mexico. Significant sectors of the U.S. economy based on unskilled labour that must be performed in place, such as agriculture, construction, hotels and restaurants, personal services and the garment, shoe and furniture industry remain also heavily dependent on illegal workers.

Since the opening of NAFTA, the U.S. Immigration and Naturalisation Service (INS) seems to be implementing stricter border controls and policing with increased staff. New funds are being invested to update technology and equipment in the called «Operation Hard Line». To stop Mexicans from entering the U.S., the border patrol built a 10 ft. high steel wall near Tijuana called the «New Berlin Wall» and other operations in different specific areas such as: «Operation Hold the Line», «Operation Gatekeeper» and «Operation Safeguard». But, as Andreas says «suppressing the flow in one area simply redirected it elsewhere» and new points for illegal entry quickly emerged.226

In fact, it seems that these operations are self-defeating their purpose because as a consequence of the stricter border controls, and since workers have now a higher risk of being caught and deported, most immigration which was previously circular or temporary, has become permanent. And, workers who used to travel alone are now bringing their wives and children with them. 

There are at least two kinds of Mexican immigrants to the U.S.: those who want to remain permanently in the U.S. and those who plan to stay there only temporarily. Between 1980 and 1990, it was calculated that a total eight million moves might have taken place back and forth between Mexico and the U.S. Since it is hard to measure the exact number of persons and the exact number of times that they have crossed the border, it is only estimated that up to one third of the Mexican labour force participates in the U.S. labour market at least once during their lifetime. Most of them are temporary workers looking for a job once or two times a year depending on harvesting or other economic activities and go back to their home towns as soon as the season is finished. The majority remain in the U.S. for periods of two to six months. Some of them enter the country legally, but violate the terms of their visas. The rest cross the border illegally. Only a small percentage of them stay illegally in the U.S. As Bustamante says: “the notion that every worker in Mexico is waiting for the right moment to jump across the border and stay there is entirely false”. 227

Mexican migration to the U.S. has become more diversified. It used to be composed only of rural workers that crossed the border to work during several months in the U.S. agricultural sector, and now it covers also urban workers found in the manufacturing, services and construction sectors. It also used to be composed of low-skilled and low-income classes and now it has been extended to professionals, semi and highly skilled workers. According to Verhall (2001) by 1990 Mexico was already experiencing a brain drain: 347,218 documented migrants out of a total of 2,743, 638 had a tertiary educational level.228 About six per cent of Mexico’s professionals migrated to the U.S. during the 1980s and 1990s.

The geographical origin of most of these persons continues to be the rural southern part of the country, but as mentioned before the bad labour market conditions and low-wages have also pushed urban migrants from big cities such as the city of Mexico to get incorporated into the migration flows. More women are also being integrated into the migration flows to join their husbands, or just simply to look for a remunerated work that will contribute to their household’s earnings back home. Migrants’ wages often support households where other earners are underemployed or receive very low wages.

Thousands of skilled workers are seeking a better life and income out of their regions of origin. Free trade has not kept them at home, yet. Mexico is losing a great number of skilled labour that is not being well utilised in the receiving country, either since often professional go and perform unskilled jobs in the U.S. Since those factors that encourage immigration remain strong, Mexicans will probably continue to flow into the U.S.

On the Mexican side, sustained economic growth and development of backward areas and the promotion of sectors identified as having employment-multiplier effects are the solution to stop this migration. The best example is Western Europe where countries of emigration at the end of the XIX and the beginning of the XX century became lands of immigration. Mexico’s stage of economic and social development, a good redistribution of its richness and further integration with world economic markets will have a large impact on future migration to the U.S.: either significantly reducing it or stopping it completely.

If migration wants to be controlled and stopped, trade reforms on the agricultural sector also need to be accompanied by employment creation programmes. It is important to promote non-farm rural enterprise development to stimulate migration from the farm sector only to these rural towns, and not to the cities or to the U.S. According to the recent Nobel Prize winner for Economics Joseph Stiglitz, in periods of economic growth and transition, markets do not rapidly and automatically achieve full employment. This is the main reason why 

Governments play an important role in facilitating the creation of jobs and maintaining the economy at full employment levels through active employment policies.229

According to ILO's 2001 Labour Overview, “for some time active employment policies were set aside on the understanding that they had to do with intervention of a kind of social assistance that made no improvement in the functioning of the labour market. However, in a wider view, active policies can be also adequate in stable periods in magnitudes different to those implemented during crisis’ periods”.230

In addition, negotiations on a bilateral labour agreement should be a very important point of discussion in the agenda of the two countries. The Mexican Government started in 2000 bilateral talks with the U.S. on the signing of a package including a temporary worker programme that would permit a regular flow of migrant workers, and an amnesty or regularisation programme for Mexicans already working without proper documents in the U.S. The creation of a large programme of legal migration could channel under better working conditions the supply of migrant workers towards those areas in demand.

C. Remittances

Mexico is one of the top five countries receiving the largest amounts of remittances worldwide. The other four are Egypt, India, Portugal, and Turkey. Entire regions of Mexico depend economically on remittances sent by nationals working mainly in the U.S. Perhaps more than trade in goods and capital, migrants’ remittances have had the potential of reducing the widening income distribution in Mexico and have had an important impact on alleviating poverty. Remittances of migrant workers have been important for the subsistence of whole communities during harsh years. From 1992 to 2000, the number of households receiving remittances income increased from 659 thousand to 1, 252 thousand. In relative figures, these numbers represented from 3.7 per cent of the total number of households in 1992 to 5.3 per cent in 2000. 231

Global remittance flows, as defined by the World Bank, are composed of “workers’ remittances” or the value of transfers from people abroad for more than one year; “labour income” or the income from migrants abroad for less than one year; and “migrant transfers” or the flows of goods and financial assets associated with migration. Remittances play a central role in Mexico providing a major source of income and foreign exchange. They also finance imports and contribute to the balance of payments. Their level is often significant compared to the country’s merchandise exports. The flow of official remittances has increased from representing 698 million dollars in 1980 to 6, 572 million dollars twenty years later (see table Ch. XI-5).

These figures do not include informal transfers, though. Only around half of the remittances travel through official channels. The average Mexican migrant worker remitted through official and unofficial channels 2,113 U.S. dollars in 1992, increasing to represent 3,015 a year in 2000. Even if most remittance income is used for consumption and little is invested, through remittances, economic growth has been promoted. It is true that the largest single use of remittances in Mexico is for immediate consumption and for purchase or improvement of housing. Migrants from rural areas, for example, are likely to purchase land not for farming but as a form of savings. 

Table Ch. XI-5 Remittances, 1980-2000

Year Current US millions $

1980 698 1981 859 1982 844 1983 984 1984 1127 1985 1157 1986 1290 1987 1478 1988 1897 1989 2213 1990 2492 1991 2414 1992 3070 1993 3332 1994 3475 1995 3673 1996 4224 1997 4865 1998 5627 1999 5909 2000 6572 source: The World Bank; World Bank Indicators However, consumption expenditures funded by remittances also stimulate the economy by increasing the demand for goods and services (particularly transport) that generate jobs and can have “multiplier” effects in the whole economy contributing to GNP growth. For example, remittances create a large number of jobs in the construction sector.

Still, remittances positively influence production in migrant-sending areas. Remittances, for example, increase agricultural output and productivity since migrant families still engaged in farming are able to have the capital to invest in new technology. Remittances have been used to purchase, among other things, grinding mills, tools, machines, irrigation systems, tanks, wells and vehicles. Families of migrants often invest also in new enterprises – mostly small businesses, such as shops, restaurants or workshops that require only small amounts of capital. A survey of small enterprises in three migrant-sending communities in Mexico found that over 60 per cent of them were owned by family members of migrant workers or by former migrants to the United States.

Families receiving remittances have a higher propensity to save, too. In addition, since education of children is a priority for a large number of migrants’ families, a higher level of education will normally increase in the long term the income level of the whole family.

Workers likely to send home the highest proportion of their income are temporary workers who know they are returning home. However, migrant workers that stay abroad longer and particularly those who have dependents are less likely to send money home. As they take up residence in their new communities, the payments to parents or siblings become even smaller and more irregular. 

XII. Brief Comparison with South East Asian Countries

A. General

The four newly industrialised countries of South East Asia, called the Tigers (South Korea, Singapore, Taiwan and Hong Kong), grew impressively from 1986 to 1995, and were seen by the World Bank as a remarkable example of the positive outcome of policies of trade liberalisation. All of them had a strong presence of foreign capital, high-level technology, were oriented towards the world market and developed strategic sectors. They attained yearly GDP growth rates of 7.3 per cent during this period and showed high performance increasing employment and savings.

The following brief comparison with Mexico will give an idea of the differences found between the countries mentioned, concerning their implementation of trade liberalisation policies.

B. Agriculture

Mexico- gains in agricultural productivity and output were concentrated in a large-scale, highly commercialised, capital-intensive sector since the Government’s subsidies favoured large farm enterprises. Mexico’s past (before the trade opening) agricultural policies’ failure were related to inefficiency, patronage, coercive power of local bosses (caciques), corruption and lack of concentration of support on the actual technical and technological needs of micro producers and workers who were supposed to benefit from the programs.

South Korea and Taiwan- in both countries, a redistributive land reform program was carried out in the early 1950’s. Land reform raised the incomes of rural workers slowing migration to urban areas. The land reform permitted, in turn, full employment at an early stage of export-oriented development and a rise in urban wages. Reforms in land ownership helped increase peasant incentives to produce and rendered growth more egalitarian. High productivity and income growth in agriculture helped to keep urban wages close to the supply price of labor. The incomes of urban and rural workers with similar skill levels have been rising at the same pace.232 Taiwan’s initial agricultural policies were labour-using and capital- saving technologies and crop yields were raised by adapting biological and chemical technologies. Taiwan’s agricultural policies were successful and were complemented by a large provision of public goods, research, and infrastructure. The basis of South Korean agriculture was owner-occupied small landholdings and the prohibition of rice imports, as well as the achievement of self-sufficiency by paying farmers many times the world price while subsidising the consumer. South Korean farmers have achieved a noteworthy rate of productivity improvement. They have been diversifying from staple crops to more lucrative fruit and vegetable crops.233

Singapore and Hong Kong- the agricultural sector has never been important due to a shortage of land and labour. The economies became highly directed towards capital-intensive industry and services.

C. Employment, Unemployment and Wages

Mexico- the consecutive devaluations of the peso and the need of the government to attract foreign investment had as a result, a high reduction in real wages. The lack of support to those sectors not considered significant enough resulted in a sure decline in formal  employment. Even if there has been an increase of labour productivity, employment and wages have continued declining in non foreign investment-related sectors.

South Korea, Taiwan, Hong Kong and Singapore- began their export drives with wages low enough, due to their low levels of output and productivity, to be highly competitive. Then, they moved rapidly up the ladder to higher quality, higher value-added products or to services, enabling them to steadily raise wages. The increase in labour- intensive exports led to full employment and a subsequent rise in industrial wages. The four countries focused their efforts on job generation, effectively boosting the demand for workers. As a result, employment levels rose first, followed by market- and productivity-driven increases in wage levels.234 When South Korea and Taiwan reached full employment and high wages, they quickly made the transition from light manufactures to the export of more sophisticated manufactures that needed human capital. A positive link was created between high income levels and the growth and development of these countries. South Korea’s real average monthly earnings in manufacturing grew by an average of 8.4% between 1970 and 1990 and by 7.2% between 1991 and 1995. Most workers enjoyed job stability, a high income and good working conditions, plus a participation in the decisional power of establishments. A better remuneration increased the well-being of workers and their purchasing power as consumers. Social security benefits gave stability to the labour force. The four countries enjoyed low unemployment rates combined in many cases with shortages of labour. While in 1980, Hong Kong had an unemployment rate of 3.8, South Korea of 5.2, Singapore of 3.0 and Taiwan of 1.2, by 1990, their rates fluctuated between 1.1 and 2.6 per cent only 15 years later. Inflation rates were kept down even if wages rose by keeping real wages’ increases in line with labour productivity.235

D. Free trade management

Mexico-Mexico followed a policy of wholesale liberalisation. Some attempts of export promotion were there before 1985, but they were localised in specific sectors. Between 1985 and 1988 Mexico eliminated all non-tariff barriers and brought down tariffs to an average of about 12 percent by 1989. Exporting sectors have become highly capital-intensive, but have few backward linkages to national industry.

South Korea, Singapore and Taiwan- promoted labour-intensive exports during its early stages of trade development. Later, they had a successful track record with export- oriented growth and were successful in encouraging a sustained increase in its manufacturing exports and in diversifying its export structures.236 Exporting sectors in these countries have very important backward linkages to the rest of the economy. In fact, exporting sectors have had a big impact on the economy in terms of stimulating other sectors and creating employment.237

Hong Kong the only example of an economy that has succeeded in industrialising for world markets following completely liberal import policies from the start and a laissez faire policy. However, it has facilitated growth through low taxes, a convenient transport system and excellent infrastructure facilities. Whereas, Singapore, Taiwan and South Korea have all developed high-technology industries, Hong Kong has become a service centre (finance, business and catering, but particularly those relating to trade) for foreign direct investment and companies doing business in China. Hong Kong’s container port has being growing with the rising volume of indirect trade through Hong Kong between China and third countries. 

E. Income distribution and poverty

Mexico- the costs of the trade liberalising model in Mexico has been an important reduction of workers’ protection in practice, a worst distribution of income, impoverishment of large segments of the population, and high deficits in the trade balance. The government has failed to accompany economic reforms with educational levels’ and training levels’ growth, as well as real wage growth.

South Korea, Taiwan, Hong Kong and Singapore- these four fast growing economies are characterised by high levels of income-equity. Trade liberalisation was followed by an amazing improvement in the distribution of income by the promotion during its early stages of the development of labour-intensive exports. These countries were committed to a wide sharing of benefits of growth by means of an egalitarian access to land and human capital. Their standards of living rose rapidly. Taiwan, for example, significantly increased spending on welfare. In 1995, GDP per capita in South Korea represented 8,519 million US dollars, 23,556 in Singapore, and 22,590 in Hong Kong.238

F. Research, education, and health

Mexico- restricted access to education due to poverty and contractions of government expenditures which have reduced the State’s investment in human capital. Only 55% of young Mexicans enrol for secondary-school education, and only 14% go to college. The expansion of education and health programs in Mexico came later in Mexico than in the South East Asian countries, and the coverage of the rural population has been more limited. As late as the year 2000, more than 53 per cent of the Mexican population had less than six years of schooling and some southern regions recorded illiteracy rates as high as 25 per cent of the adult population.239 Schools are overcrowded, teachers’ wages too low and educational services are of low quality. Besides, the educational system does not provide a bridge between the school and the labour market. There is also a low investment in research in general, especially in industrial research and development. There is a growing necessity to restructure the educational and training system with particular attention to enterprises’ needs in the labour market. The Government needs to promote policies aimed at improving research on international markets in order to make exports more attractive in foreign markets.

South Korea, Singapore, Hong Kong and Taiwan- large government expenditures on human development demonstrated that education and training rapidly improve labour productivity and real wages. Some of these governments have aimed to avoid polarisation in the countryside by promoting educational equality in rural and urban areas. Governments have invested significantly in education and basic health care. Increasing numbers of young people are delaying their entry into the workforce and pursuing further education instead. Governments have specially invested heavily in education to keep workers up to date with the newest technology. The governments have formulated human development policies in close collaboration with private business in order to ensure adaptability of human capital formation to the labour market needs. Human resources’ development has played a big role on the reduction of inequality since it has improved long-term international competitiveness. In the four countries, 90 per cent of the labour force has at least 12 years of schooling and illiteracy has almost completely disappeared. They rank highly in science and engineering fields and emphasis is put in technical education. South Korea, for example, achieved 100% primary school enrolment as early as 1970. By 1995, 92% of South Koreans enrolled for secondary- school and 48% went to college and university. Taiwan has also been characterised by rapid expansion of public education and widespread access to health services. By 1990, Hong Kong was spending 5.7% of GDP on healthcare, and South Korea 6.6 %.240 The governments grant  a big part of their GDP to the achievement of high technology levels through the installations of research institutes on science, technology and industrial development or through the acquisition of machinery, advanced equipment or technological packages. Korea and Singapore (40% of their GDP) and Taiwan, and Hong Kong destine around 25% of their GDP for this purpose.241

G. Training

Mexico- has shown low interest in investment in human resources and an inability to exploit their full value. Enterprises devote little attention to training and retraining of production workers and provide training mainly to managerial, professional and technical staff. Since government’s emphasis on training is not sufficient, either, there is a lack of schools that can provide basic technical training and specialised training.

South Korea, Taiwan, Hong Kong and Singapore- consider human resources as the competitive force and the motor of economic dynamics. The quality and high level of the labour force is considered the main factor of competitiveness. Productivity and efficient utility of the labour force depend on their valorisation, their involvement in different tasks and the assignment of responsibilities. Because of all of these reasons, workers are receiving constant training.242



XIII. Conclusions

It is important to begin this concluding chapter by recalling that the main purpose of the study was to provide comprehensive, as well as specific information, on how the Mexican labour force fared during the first decade and a half of trade opening in Mexico. As such, the study covered the period 1985-2000 and aimed at throwing light on the significant impact of trade liberalization of goods, investment and services on employment, real wages, working conditions, as well as income fluctuations and poverty levels.

The author also made sure to underline that one important consideration had to be taken through the whole study: that it was impossible to completely separate the effects of stabilization policies and trade liberalization policies since policy measures taken for both were so closely related and time-related that it was hard to distinguish their outcomes. In fact, it was clear that trade liberalization policies were part of the response to solve macroeconomic imbalances, but at the same time, economic recessions had a strong dominance on the possible positive effects of trade liberalization on employment and wages.

Another important consideration that the author emphasized was that employment, wage and income distribution effects could not be associated with the reduction of tariffs and non- tariff barriers in a cause and effect sense since so many other economic problems related to the stabilization measures were going on at the same time.

Thus, the study provided information on the linkages (sometimes very strong) between the search for competitiveness and modernization within the trade liberalization process through labour and wage flexibility, the lack of provisions to support non-competitive and non-export oriented sectors and subsectors with employment and informality fluctuations, as well as wage and income distribution’s evolution.

Recapitulating, it is important to go to each of the questions the study was searching an answer for:

1. How did total employment levels fluctuate with trade liberalization?

In general, during the post-trade opening period, total employment (formal and informal) levels showed an increase of 3.2 per cent from 1985 to 1988; a rise of 3.0 per cent during the consolidation of trade period (from 1989 to 1994), and a decreasing, but still positive augmentation of 2.2 per cent during the recovery and diversification of trade period (from 1995 to the year 2000). Nevertheless, it is important to remember that the two periods preceding the trade opening had been more dynamic providing annual increases of the labour force of 3.5 per cent from 1980 to 1982 and a 3.2 per cent increase from 1983 to 1985, respectively, despite the economic crisis.

Making a revision of data divided by export-oriented and foreign investment-related, total employment levels increased relatively faster in export-oriented and foreign investment-related sectors, while they stagnated or grew modestly in non-export-oriented or related sectors. While in 1988, 5.9 million jobs or 20.7 per cent of total employment was concentrated in export-oriented or foreign investment-related sectors, twelve years later, export-oriented were providing 27.5 per cent of total employment. Non export-oriented or  foreign-investment related were decreasing its importance in total share from representing 79.5 per cent in 1988 to 71.3 per cent in the year 2000.

Manufacturing’s total employment increased by 2 million workers between 1988 and the year 2000. It had represented 2.5 million jobs before the opening to trade (1980) increased to 5.5 million from 1980 to 1988, and lastly rose to 7.5 million (19.4 per cent) by 2000. Within manufacturing, during this period, three export-oriented subsectors enjoying high effective rates of protection, were providing the highest number of jobs, followed by a non export oriented:

1. 900 thousand in textiles, garments and leather; 2. 800 thousand in metal products, machinery and equipment; 3. 600 thousand in chemicals, rubber and plastics; 4. 500 thousand in food, beverages and tobacco.

However, within commerce, it was a non-foreign investment related subsector (retail trade) that provided two-thirds of the jobs (1.85 million) from 1988 to 2000. It was then followed by three foreign investment-related subsectors: wholesale trade (642 thousand); hotels (230 thousand), and restaurants (123 thousand).

The same trend could be recorded within services where the largest number of jobs were also created in a non-foreign investment related sector, the community, social and personal services (2.2 million), followed by two foreign investment related sectors: finance, insurance and real estate (1.2 million); and transport, storage and communications that created 650 thousand jobs during this 12-year period.

On the other hand, the agricultural sector that used to provide 23.5% of total employment in 1988, could only provide 18.1% of total employment twelve years later. The agricultural sector almost lost 1.8 million jobs between 1988 and the year 2000, and was identified as the sector where the more direct and tangible relation between trade liberalization and employment could be determined. Unluckily, this direct relation was found to be negative. Due to the lack of government support (as it did to many manufacturing subsectors) employment levels in the sector decreased creating a large migration of workers from rural to urban areas or increasing informality levels in the agricultural sector.

The mining sector followed the same negative path as the agricultural sector: it lost 54 thousand jobs from 1988 to 2000. As a result of policies aiming at diversifying the export base due to the vulnerability of the balance of payments to changes in oil prices, the sector lost in a period of 20 years (from 1980 to 2000), 360 thousand jobs.

Other sectors like the construction sector were indirectly creating large number of jobs due to the incoming investment flows. It provided 1 million more jobs in the year 2000 than it had provided 12 years earlier. Its share in total employment increased from 5.4 per cent to 6.5 per cent during the same period.

It is important to underline here that the positive development in employment was not being equally distributed in the economy. In general, it was detrimental to the primary sector and positive to the rest of the economy. On the other hand, it is also worth recalling that in the case of the manufacturing sector the subsectors that successfully created a large number of jobs were at the same time those benefiting from effective rates of protection for more than 4 decades. These preferential support and incentives were indeed unfair to other sectors and subsectors unable to participate in equal terms in trade. 

For example, the computer industry received protection until March 1993 through incentive schemes on local content requirements by allowing firms that used at least 30 per cent local content to import duty free up to 80 percent of their production and the equivalent of 200 percent of their investment in technology. Other manufacturing industries were provided with preferential tax credits and considerable reductions in energy expenditures. The automotive subsector continued benefiting, until the year 2000 and probably still at present, from PITEX and ALTEX programmes with tax deferring benefits on importing material, machinery, equipment and support tools needed for the production of exports. Selective support for the motor vehicle industry continues also through the limitation of imports. Significant import licences on passenger cars, computers and other electronic goods were still in place by the end of 2000.

2. How did formal employment levels fluctuate?

The liberalization of international trade and investment has been positively accompanied by a statistically significant increase in the level of formal employment in export- oriented and foreign investment-oriented sectors and subsectors. Formality increased between 1987 and 2000 in export-oriented and foreign investment-related sectors (3.2 million or 55 per cent of total number of jobs), while it stagnated or regressed in non-export oriented and non-foreign investment related sectors (only 2.8 million or 45 per cent).

The manufacturing sector showed to be the most dynamic since most of the new formal jobs belonged to this sector. Those manufacturing export-oriented sectors enjoying from protective measures were the ones creating the largest number of formal jobs. The metal products, machinery and equipment was the sector creating the largest number of formal jobs with 795 thousand new jobs appearing during this 13 year period. This subsector was followed by the textiles, garments and leather, with 484 thousand new formal jobs belonging to this subsector. Manufacturing’s formal employment in export-oriented subsectors increased from 64.7 per cent in 1987 to 72.5 per cent in the year 2000. In the case of non export- oriented subsectors, the decrease recorded during the same period was of 5 percentage points: 32.3 to 27.3 per cent.

Again, those manufacturing subsectors creating the largest number of formal jobs were those were effective rates of protection kept higher than average. This trend concerned subsectors producing mainly consumer durables and capital goods such as automobiles, computers, iron, steel, metal manufactures, basic petrochemicals (oil and gas), petroleum refining, cement, textiles and spinning and weaving, as well as electrical appliances and equipment and electronic equipment and apparatus.

In the case of the commerce sector, almost the same number of jobs was created in foreign investment-related as in non-foreign investment related subsectors: 811 thousand and 815 thousand, respectively. In general, the Commerce sector’s share in formal employment remained stable at 22.8 per cent from 1987 to the year 2000.

A very similar trend was seen during this thirtheen year period in services where non foreign investment-related services were slightly more dynamic in creating a larger number of formal jobs than foreign investment-related subsectors: 1.02 million new formal jobs compared to 947 thousand, respectively. The Services sector slightly increased its formal employment share by 1.4 percentage points: raising its share from 30.8 per cent to 32.2 per cent from 1987 to 2000. 

On the other hand, in the case of agriculture, mining and other light manufactures that are here referred to as non export-oriented or foreign investment-related a large number of formal jobs were lost, showing a deficit from 1987 to the year 2000. Agriculture’s formal employment share went down from 7.3 per cent in 1987 to only 3 per cent in 2000. Mining followed again the same negative trend reducing its formal employment share from representing 1.2 per cent in 1987 to only 0.5 per cent by the year 2000.

There was also a rapid formalization recorded in the construction sector most probably due to an indirect rise in the demand of construction workers. The demand created by the large inflows of foreign investment probably forced the sector to provide at least social security protection to attract enough workers that had been either migrating to the U.S. or trying to avoid this dangerous and low-paid sector.

The results of the econometric model also provide the following conclusion: the liberalization of international trade and investment has been accompanied by a statistically significant increase in the level of employment. According to the results of the study of the data per sector: the biggest winners have been the industrial and services sectors. Concerning foreign investment, the reform of the foreign investment law attracted a large number of investors into productive sectors that created a large number of jobs like the commerce and the services’ sectors.

3. What about the changes in informal employment during this period?

Despite positive developments in formal employment, most of the jobs created during the period studied were absorbed by the informal, unprotected sector. Informal employment percentages while already high in 1980 (55 per cent), increased to attain 57.7 per cent in 1985. Again, there was a further rise recorded in 1989 with 64.9 per cent, and finally resulting in its highest peak in 1995 with 67.2 per cent. Since then, there has been a decrease, ending up by representing 59.8 per cent of total employment by the year 2000.

While it is true that informality did not appear with trade liberalisation, it is also certain that trade liberalisation policies within the framework of a recessive economy and later within the framework of an appreciation of the real exchange rate, instead of promoting a dynamic restructuring of the non-competitive largest share of the Mexican economy, contributed to the stagnation of large numbers of medium, small and micro industry or to their disappearance from the formal sector. At the same time, the lack of access to affordable credit made it almost impossible for domestic owners of medium, small and micro enterprises to invest in technology and machinery. Some additional reasons contributing to the increase in informality levels could be that the government having to make important cuts in public spending did not provide the necessary important attention to enhance workers’ education and skills, and to assist the millions of displaced workers with important retraining programmes.

As a result, while formality levels continued increasing in export-oriented sectors and a positive correlation could be identified in that sense between trade liberalization and formal employment, the lack of support provided to non-export oriented or non foreign investment- related sectors, especially to medium, small and micro enterprises, had a very negative impact and indirectly increased informality levels and decreased small and micro-enterprise employers and workers’ possibilities to participate more actively in the open economy.

It should be recognized, however, that trade and foreign investment related sectors formalised after 1988 their labour markets at a higher speed than non-foreign investment related sectors. In foreign investment-related sectors, informality that had been very low in the 

1970s and beginning of 1980s, by 1988 (one of the worst debt-crisis years) had attained levels of more than 50 per cent, but was importantly decreasing by 1993 when the economy started growing positively. In the manufacturing sector, informality was identified mainly in the basic consumer goods industries such as the food, beverages, clothing, shoes, and furniture subsectors due to the low capital needed to organise effectively in small units. In 1988, one out of five informal sector workers worked directly in an industrial process as a craftsman, small craftsman, repairer or manufacturer. The wholesale trade, hotels and restaurants informality levels also went down from 1988 to 2000. The only exceptions to this rule are transport, storage and communications and finance insurance and real estate where informality levels have been increasing.

4. What was the impact of the trade liberalization on other employment indicators?

When a revision of the data on other employment indicators was made, then the picture was not that bright. Trade liberalization was closely accompanied by pressures to reduce workers’ labour protection through the flexibilisation of labour relations and working conditions. While the labour code was not reformed during this period, in practice workers lost a lot of the protection they had enjoyed until the beginning of the 1980s.

The “modernization” of the labour market was a way of augmenting Mexican enterprises’ competitiveness before the process of trade liberalization and of promoting export sectors. Since trade liberalization reforms required a new adjustment demand on firms by opening the economy, a larger labour flexibility was requested by employers’ organisations as the answer to reduce labour costs. Employers obtained more liberty to hire workers under flexible conditions and started making the adjustments they considered necessary whenever they believed these adjustments were suitable and required by a free labour market. Deregulatory measures concerning such important issues as working conditions, type of contracts, modification of wage patterns according to productivity and work schedules and their capacity to hire and dismiss workers according to immediate production needs became largely “in vogue”. Not all types of labour flexibility trends could be captured with the data. However, the following were identified:

The percentage of Mexican workers that labour more than 50 hours a week increased from 1984 to 2000. A comparison was made between export-oriented sectors or not, and it was interesting to see that export-oriented or foreign investment-related establishments were requiring to almost a third of their labour force to labour more than 50 hours a week. While the percentage of workers required lengthy working weeks went down in agriculture (non export-oriented) from 27.5% in 1984 to 18.9% in 2000; four of the five export-oriented or foreign investment-related sectors increased importantly the percentage of their employees required to labour more than 50 hours during the week. Manufacturing establishments were requiring to 11% of their personnel working weeks of 60 to 69 hours. Commerce, as well as restaurants and hotels were requesting to 40% of their personnel working weeks of 50 to 70 and more hours. Within services, an incredibly 22% of all transport, storage and communications’ workers were required to labour more than 70 hours a week. The percentage of workers in the financial and private services working 60 to 69 hours a week also increased significantly from 2.9 per cent in 1984 to 9.6 per cent by the year 2000.

It is impossible to know with the data available if those workers labouring more than 40 hours a week were obtaining the correct compensation in the form of extra hours paid. It is probably not the case, since data show that total real remuneration levels are not following an increasing trend. Most probably, workers in foreign investment-related sectors were required to labour for the same wage as if they were working only the required 40 hours a week. 

On the question of the growth of subcontracted labour, industries with the highest inflows of foreign investment were requesting more subcontracted labour in order to reduce labour costs by avoiding the payment of social security and other legal constraints. Data registered in formal manufacturing enterprises in 1992 indicated that only 1.9 per cent of all personnel were considered as subcontracted. Seven years later, on average, formal manufacturing enterprises were subcontracting three and a half as many workers: 6.6 per cent of their total labour force. Large enterprises were subcontracting even a larger percentage (9.1) of the total number of their workers than medium and small. Commerce and services formal enterprises were subcontracting an even larger percentage of their personnel: on average, 5.7 per cent in commerce and 8.8 per cent in services.

The number of “piece-work” workers (with or without a contract for a remuneration that is exclusively determined for the quantity of work, number of services, worked pieces or finished tasks) almost doubled in foreign investment-related subsectors such as wholesale trade, and transport, storage and communications. The number of piece-work workers increased in manufacturing from representing 501 thousand in 1988 to 567 thousand in 2000. Totals multiplied by 4.5 times in finance, insurance and real estate from 1988 to 2000.

From 1990 to 1999, the percentage of casual labour (paid staff with or without a written contract, working full-time or part-time for a “temporary” period of time) in total manufacturing employment slightly decreased from 11.9 per cent to 11.1 per cent. Two export-oriented and two non export-oriented subsectors had more than 10 per cent of their workers with this type of contracts in 1999: metal products, machinery and equipment (13.1 per cent), other manufacturing industries (10.3 per cent), as well as food, beverages and tobacco (12 per cent), and wood and wooden products (15.3 per cent).

Concerning non-remunerated workers, the manufacturing sector registered, in general, a positive trend: moving from having 14 per cent of its total labour force non-remunerated in 1988 to only 6 per cent in 2000. Non-export oriented manufacturing subsectors registered a larger number of non-remunerated workers than export-oriented. The only export-oriented subsector with a large percentage of non-remunerated workers (8.7 per cent of total) was the “other manufacturing industries”. On the other hand, an important foreign investment-related sector, wholesale trade, recorded a very rapid growth of non-paid workers (3% to 17%) between 1988 and 2000.

By the year 2000, only 49 per cent of all waged or salaried workers had a written fixed or indeterminate contract. Seven per cent of all workers had also a written contract, but determinate: 2 per cent of them had a contract of a duration of less than 2 months, the same percentage from 2 to 6 months and 3 per cent longer than 6 months’ contracts. In general, 44 per cent of the labour force had an informal or “verbal” contract. The situation was as follows in foreign investment-related commerce and services sectors: transport, storage and communication had the highest percentage of workers under a verbal agreement (54 per cent), hotels and restaurants were hiring 52 per cent of their personnel under this type of contracts, and wholesale and retail trade had also 44 per cent of its personnel working under a verbal agreement. Manufacturing reported having 28 per cent of its personnel working under verbal agreements.

At the same time, the number of those workers having two full-time jobs ranged between 1988 and 1993 from 12.1 per cent to 13.1 per cent. Another important employment indicator on the rise is the percentage of salaried professionals not receiving social benefits in the formal (or declared) sector. From 1987 to the year 2000, the percentages increased from 19.6 per cent to one-fourth of total formal employment. 

At the same time, there was a high under-utilization of human resources identified. Indeed, while a lot of employers complained about the lack of qualified personnel for certain posts, a growing number of university graduates did not easily find an appropriate job and ended up working in the informal sector in jobs requiring very little qualifications from them. There seems to be a preoccupying lack of information exchange in the Mexican labour market. There are, for example, large numbers of lawyers working as street vendors or doctors working as taxi drivers. Human capital investment does not seem to be channelled or linked to the needs of enterprises. There does not seem to be enough information flows either between educational requirements in the labour market and educational attainment. The percentage of underemployed (workers labouring involuntarily less hours per week and workers earning an insufficient pay) increased from 1987 to the year 2000: 20.5 per cent to 23.7 per cent of the total economic active population, respectively.

5. How did wages fare between 1989 and the year 2000?

Real wages in Mexico started suffering a reduction before the process of trade liberalisation started in 1985, and continued falling, in general, after the opening. The stabilisation policy considered wages as a means to slow down inflation by keeping them down. Real wages were adjusted to expected inflation, but actual inflation was periodically higher than awaited inflation. Besides, the tripartite commission to set wages tended to separate the calculation of real wages from the cost of living. As a consequence, real wages deteriorated rapidly.

Since data only permitted to compare wages until the year 1996, it could be concluded that wages did not attain in real terms their 1980 levels by the year 1996. Nevertheless, the liberalization of international trade and investment was accompanied by a more important increase in the level of wages in export-oriented and foreign investment related sectors than in non export-oriented or foreign investment-related sectors. Real wages significantly improved during the consolidation period in export-oriented sectors. Still, by 1996, wages in the manufacturing sector represented 58 per cent of their 1980 levels. With the exception of community, social and personal services, two foreign investment-related sectors in services (transport, storage and communications; and, finance, insurance and real estate) were providing the highest wages in the market: 71 per cent and 67 per cent of their 1980 levels, respectively. On the other hand, commerce and services foreign investment- related sectors were providing, on average, a higher remuneration than the manufacturing sector.

After the terrible December, 1994 crisis average real wages per worker even in export- oriented sectors hit their lowest level ever. Nevertheless, they recuperated rapidly. The contraction of wages affected with the harshest intensity workers in sectors not directly participating in trade and especially less-skilled workers. Real wages in sectors not participating anymore in trade, or non-foreign investment related, had not recuperated by the end of 2000. Real wages in the agricultural sector were the ones that deteriorated the most and the ones that kept on falling at a very rapid pace even if the rest of the economy recuperated. By 1996, agricultural wages had impressively gone down to represent only 36 per cent of their 1980 real value. That same year, wages in construction, electricity, gas and water, and mining did not seem to regain land, and continued being very negatively affected. The only non-foreign investment-related sector improving wages was the community, social and personal services.

This positive outcome compared to national industry, does not take into consideration how wage differentials have intensified with the liberalisation of the economy and the issue  that only a selected number of workers were obtaining these salaries. Even if export oriented industry is providing the highest wages, it is important to go deeper into the analysis of the data to see the percentage of workers that are raising those averages. In fact, wages differentials intensified with the liberalisation of the economy and wage variation among workers in the tradable-goods sector rose more than in the non-tradable goods. Even if export- oriented industry was providing on average the highest wages, only a small percentage of workers were receiving these high wages. Especially after 1989, with the accentuation of the process of trade liberalisation, important variations in wages across workers according to educational and occupational levels appeared. Wage variation among workers in the tradable-goods sector rose more than in the non-tradable goods sector since workers with higher levels of skill and education were in demand.

On the other hand, when we look at data showing the number of minimum wages earned, we can see that the majority of non-export oriented sectors (with the exception of agriculture and restaurants and hotels) were providing a higher number of minimum wages to their workers than export-oriented ones. This was the case of mining, electricity, construction, community, social and personal services, public administration and defense, and the category of non-specified sectors). According to the National Employment Survey, by the year 2000 manufacturing, was providing to the larger number of its workers (57.4 per cent), a lower number of minimum wages: to 34.4 per cent of workers with 1.1 to 2 minimum wages and 23 per cent of workers with 2.1 to 3 minimum wages. In wholesale and retail trade, the situation was very similar: the largest number of workers was remunerated within the categories of 1.1 to 3 minimum wages in the year 2000. In transport, storage and communications, as well as in finance, insurance and real estate the majority of workers were also earning between 1.1 and 3 minimum wages.

Concerning wage differentials by employment status, the majority of employers obtained a major amelioration of their income levels from 1988 to the year 2000. This was not the case of self-employed persons or own-account workers that did not improve their income levels at all during this period.

Wage differentials by educational level varied largely. In the case of university or postgraduate degree workers, while 34 per cent of them were earning 1.1 to 2 minimum wages in 1988, their situation rapidly improved and only 9 per cent were in that same situation 12 years later. Additional workers belonging to this educational level were earning from 3.1 to 5 minimum wages (25 per cent), 5.1 to 10 minimum wages (26 per cent) and more than 10 minimum wages (15 per cent) by the year 2000. For uneducated workers that did not receive training and that did not adapt to new market demands, wages’ flexibility only represented a negative trend in their wages.

Data on wages differentials by occupation confirms that during this period an important number of wage differentials were created intensifying inequality and concentrating wage income among the higher income-earners. Managerial, professional and supervisors were the most benefited from trade liberalisation since income wages became more concentrated among the higher-paid strata. The downward pressure on wages was especially significant for less-skilled workers. The relative returns to human capital became more favourable to the most skilled and educated. The evolutionary process of policies with their promotion of capital-intensive production units within an intra-industry, intra-firm trade with the U.S. contributed to generating a low demand of unskilled formal employment and a large demand of semi-skilled and skilled, and as a consequence has lowered down real wages. 

Trade of goods has also widened the wage differentials between manufacturing and agriculture intensifying uneven development within the country. While Mexico is relatively well endowed with unskilled labor and has relatively scarce skilled labor and capital, data seems to indicate that wage of unskilled labor has fallen in relation to that of skilled labor. Some responses to this are the ones provided in the work of Hanson (2003) quoted in this study:

• The liberalization of international trade came together with an increase in foreign capital inflows. This foreign investment was the product of an outsourcing trend in foreign firms, which could have augmented the demand for skilled labor more than the increase in demand of unskilled labor caused by the trade in goods;

• Mexico’s comparative advantage with respect to developed nations is its unskilled labor. However, compared to other nations (especially China and countries in South Asia), its global comparative advantage could actually be skilled labor;

• Trade protection was initially higher in the less-skill intensive industries and, as a consequence of the liberalization of tariffs, wages were more reduced in these sectors.

Generally, trends show that instead of concentrating on improving workers’ wages (having a positive impact on national private consumption), skills and working conditions, data shows that the majority of workers (skilled and unskileed) during this period were confronted to a significant reduction of real wages, and a general reduction in their labour protection.

6. What was the impact of this trade liberalization on women workers’ employment levels and wages?

In general, export-oriented sectors comprise a higher percentage of women workers than non-export-oriented. According to the 1991 Mexican National Employment Survey, women workers represented 34.8 per cent in manufacturing and 42.8 per cent in commerce and services. Nine years later, in the 2000 Mexican National Employment Survey, women had increased their share (37.5 per cent) in manufacturing’s total employment, and had also increased their participation in commerce and services (43.9 per cent). Within the commerce and services sector, the most foreign investment-related subsectors like finance, insurance and real estate, and hotels and restaurants, were hiring a larger number of women.

In the most important export-oriented manufacturing subsectors, like the metal products, machinery and equipment, and the chemicals, rubber and plastics, women increased their employment share by at least 2 points from 1991 to 2000. The opposite was true of the textiles, garments and leather subsector. However, the textiles, garments and leather subsector continued being the subsector with the largest share of women workers: 56 per cent in 2000.

By 1999, gender wages’ differentials between occupations still proved to be large in Mexico compared to 1992 data. If the data were divided by the number of minimum wages, the difference between occupations was striking. While men managers or directors earned 12.5 times the minimum wage on average, women managers earned only less than 6.9 times  the minimum in 1999. In the professional category the difference was also important and in the rest of the occupations, men earned throughout more than women.

Female average remuneration represented only 63.3 per cent of men's average remuneration in 1992 and 72.5 per cent seven years later. The biggest gap was found within managerial staff. Women occupying directorate posts earned in 1992, on average, only 47.1 per cent of what men occupying the same type of posts earned. Remuneration differences seemed to be getting relatively lower by 1999, especially at the managerial level. Seven years later, female directors were obtaining 55.2 per cent of male’s average remuneration per month. At lower occupational skill levels, these differences were showing a more positive trend by 1999: unskilled female workers were getting, 83.6 per cent of what their male counterparts were earning.

Women’s average remuneration as a percentage of men’s by manufacturing subsector also varied considerably and it was found that male-female wage differentials were wider in highly export-oriented industries in 1992. However, later versions of manufacturing surveys did not provide the same type of information to be able to compare gender wages’ differentials within a longer time-frame. In the two most important export-oriented industries (chemicals and metal products, machinery and equipment) where women were more concentrated, they earned a lower percentage of total wages compared to men. There, women only earned between 62 and 65 per cent of the average male wage.

To have a clearer view of these differences, the 1992 data were divided by the number of minimum wages. In 1992, while men earned on average 6.2 times the minimum wage in the metal products, machinery and equipment subsector, women received only half of that: 3.8 times the minimum wage. The same finding in the chemicals industry confirmed this trend. While men earned on average 7.4 times the minimum wage, women received only 4.8 times the minimum wage in this industry.

On the other hand, women seem to have benefited from labour flexibility trends since this new policy created a higher demand for their labour. Nevertheless, flexibility meant for them, more than for male colleagues, a precarious employment status and a continuous concentration in low remunerated, low occupations and low-skilled jobs.

7. What was the impact on the labour force participation of young workers?

A strong relation could be seen between poverty levels, low wages and labour force participation at a young age:

1. The 12 years and older population that did not continue studying had increased, in general, by 4 percentage points between 1991 and 1999. Out of this total, those persons that did not continue studying for economic reasons had increased from representing 27.4 per cent in 1991 to 28.6 per cent in 1999;

2. The percentage of the total population that reported starting a remunerated or non- remunerated activity while studying had increased from 18.4 per cent in 1991 to 19.3 per cent in 1999;

3. The percentage of manufacturing workers that started work between the age of 10 to 14 years old was (19.7 per cent) five times as higher than average in other sectors. The number of manufacturing workers that started to labour between 15 and 17 years old was two and half times higher than average national records. 

8. Were trade in goods, services and investment liberalization implemented at the right pace?

Government’s decision to implement trade liberalization policies at the same time as stabilization policies most probably undermined some of the positive effects of trade liberalization. Different macroeconomic measures were required for both phenomenons. It might have probably being better not to have accelerated trade liberalization measures until inflation was completely under control and growth was resumed. Import-competition under negative macroeconomic conditions meant bankruptcy, employment lay-offs or a move towards informality for many national non-competitive businesses. It also obstructed the growth of exports and promoted investment in capital-intensive operations. Between 1989 and the end of 1994, a large deficit in the trade account appeared.

It is a fact that trade liberalisation in the context of such macroeconomic policies such as devaluation and contractionary fiscal and monetary policies did not have an equalising effect on the Mexican economy because credit was hard to obtain, the economy was too unstable, nominal interest rates were too high, and weak industries could not restructure. The management of the exchange rate is also normally different when the objective is to stabilise than when it is to liberalise trade. The government should have waited until inflation was completely controlled, to start liberalising imports at that pace.

9. How did the liberalization of goods, investment flows and trade related services modify the national economy’s performance?

By the end of the XXth century, and after 15 years of trade and investment opening, Mexico had not attained in real terms 1980 wage levels, income distribution had worsened, poverty levels were higher than during the imports-substitution era, and informal employment represented almost 60 per cent of the labour force. With these facts in mind, the author wonders: Was the structural adjustment of the economy concerning the trade and investment opening worth it? Was it really necessary to go through such harsh adjustment periods? Could Mexico have stayed outside international trends calling for export-led growth of developing economies?

The answer to the last question is definitely negative: Mexico could not stay behind keeping a closed economy and not participating in world trade. This would have been a completely wrong decision. The answer to the other questions will be found in the rest of the conclusions, especially on issues 12 and 14.

What is certainly positive is that Mexico has become one of the leading emerging export- markets of the world. By the year 2000, the Mexican economy entered a new era of growth and became an example of one of the healthiest and more prosperous worldwide rightly compared to the Southeast Asian Tigers. While Mexico’s merchandise exports represented only 32.3 billion dollars in 1990 (5.8 per cent), by the year 2000 the total had multiplied 4.6 times, amounting to 149 billion dollars or 12.2 per cent of U.S. imports. Mexico also became the no. 1 leading merchandise exporter in Latin America with a regional share of 24.3 per cent.243 During the first 7 years of implementation of NAFTA, trade between the three partner countries had almost doubled to reach over half a trillion dollars, expanding at an average annual rate of 16 per cent.

By the year 2000, Mexico became the 4th largest exporter of clothing worldwide, the 6th largest exporter of automotive goods, the 8th largest of machinery and transport equipment and the 11th largest exporter of travel services. Mexico is a major producer of laptop  computers and the no. 1 TV supplier and chemical products’ supplier to the U.S. Overall, Mexico became no. 4 in the ranking of leading exporters to the U.S. and Canada.

Productive foreign investment has created a large number of jobs and promoted economic growth. However, as the December 1994 crisis proved an unregulated liberalisation of investment flows can be very dangerous to the economy’s performance since it made the country too vulnerable and dependent on external markets. The massive inflows of portfolio investment transformed Mexico’s city stock exchange into a wave of financial speculation and proved that investors were entering to take advantage of favourable short-term conditions.

On the sectoral balance, the manufacturing sector has come out as the winner of the game, followed by the services sector. Foreign investment has concentrated in the services and manufacturing sectors. Within manufacturing, foreign investment has been channelled towards export-oriented competitive industries characterised by efficient technology and access to international marketing. The only non-export oriented industry in the manufacturing sector that has been receiving lately large investment inflows is the food, beverages and tobacco.

In addition, it is also important to remember that while merchandise manufacturing trade has proved a powerful instrument of growth, it is also creating large deficits in the balance of trade. Mexico has become, at the same time, the no. 1 leading merchandise importer of Latin America.

It is also important to keep in mind that while oil’s relative importance in Mexico’s economy has been going down (in large part due to the diminishing international price of oil), oil exports continue until present largely subsidising the manufacturing trade deficit. For example, in 1990 the difference between mining exports and imports represented 9.1 billion dollars. At the same time, the difference between manufacturing exports and imports represented –13.6 billion dollars. Eight years later, manufacturing trade deficit showed -7.2 billion dollars, while mining’s surplus showed 6.5 billion dollars. Mining’s surplus covering in large part manufacturing’s deficit has been a constant trend. Lastly, as mentioned before, it should not be forgotten that certain highly job-creation sectors like the agricultural sector were left behind and are those where a direct and tangible negative relation with trade liberalization could be determined.

10. Were enough social and labor support measures implemented to benefit workers’ income and working conditions?

The Government having to make important cuts in public spending made little provisions until the end of 1995 to assist the millions of displaced workers or did little to enhance their education and skills. These workers found a refuge or a last and only option in informal employment. The lack of support provided by the Government and employers’ organizations to non-export oriented sectors had a very negative impact and increased informality levels.

A substantial fraction of the population was still illiterate by the year 2000. In some southern regions of the country, illiteracy rates were as high as 25 per cent of the adult population. The country cannot be talking about developing such high-tech industry niches such as aeronautics and, at the same time, announcing that Mexico will finally become a “junior high” educational level country. There seems to be a lot of discrepancy in these two  policy statements. Mexico should be by now at least a “high school” level country, and we just turned from “primary” to junior high”. How can these two factors marry together without leaving the largest majority of the working population behind? It is impossible!

Large sections of the labour market have been completely forgotten, mainly through the lack of support policies concerning education, training and a good information system between the demand and the supply of jobs in the labour market. In turn, this lack of support might have highly contributed towards an increase in informalisation and a fall in employment levels in non-export oriented sectors.

While education and training should have developed at the same rhythm as the growth of exports, public spending on education as a percentage of GDP was importantly reduced from 1982 until the beginning of the 1990s. By 1993, it started recuperating, fell again after the 1994 crisis and only recovered to represent 4 percentage points after 1998. Progress in these areas was slowly achieved during the trade liberalisation period studied. However, compared to industrialised countries and especially to its North American partners, Mexico is still lagging way behind. The low advancement in educational attainment is a vicious cycle causing more poverty. In Mexico, the traditional educational system, in general, does not seem very adapted either to provide the necessary skills in demand in the labour market, nor does it seem to co-ordinate with industry to provide for its future labour force needs. Notwithstanding it is important to recognize that the percentage of trained workers in the manufacturing sector has been importantly increasing in most export-oriented industries.

11. Did productivity rise during the period studied?

Manufacturing export-oriented subsectors like the basic metals and the chemicals rubber and plastics) and two non export-oriented manufacturing subsectors (food, beverages and tobacco and the non-metal mineral products) have been recording productivity (defined as total value added in constant pesos divided by the total number of workers) levels higher than average between 1988 and 1998.

Within the other economic sectors, the commerce and services sectors, transport, storage and communications and the wholesale, retail trade, and hotels and restaurants reported sporadic low productivity levels. The only sector that recorded diminishing productivity levels was the finance, insurance and real estate.

12. What was the impact of trade liberalisation on income distribution and poverty?

Income distribution has worsened in the country since the trade opening. According to the results of the Theil measure, liberalization augmented income inequality since a positive correlation between the amount of international trade or foreign direct investment was found.

The package of trade and economic policies implemented in Mexico until the end of the year 2000 were not contributing to the improvement of the majority of the population’s income, neither to the modernisation of the largest part of its economic sectors. However, it is important to stress that trade and investment liberalisation per se are not causing the imbalances in prices and the inequalities of income. The real problem here is the way these policies are implemented, or most importantly, complemented by other policies.

Adjustment to trade liberalization was made extremely difficult since the country was often suffering serious economic problems and the government did not have the means to make enough provisions for assisting displaced workers. In addition, policies were not doing  enough in promoting the enhancement of education and skills of workers who were forced to change jobs. In the search for competitiveness and modernization large sections of labour had been completely forgotten.

All income groups, with the exception of the highest decile, have seen their incomes and standard of living drop. Some of these income reductions have resulted in an increase in the number of jobs performed by household members, an increase in the number of household members working, and finally, in an increase in the number of people living in a single household. Some of the factors that could have caused this increase in inequality could be the following:

• A trade liberalization wrongly planned and benefiting only a few;

• Recurrent economic recessions;

• Biased government industrial policy;

• Insufficient social programmes;

• Low negotiation power of workers;

• Unequal access to international markets and financing;

• Low quality of the public educational system.

The percentages of total households below the poverty line and that of households below the indigence line increased from 1984 to 1996 and then recorded a slight amelioration by 1998.

13. Did migration pressures decrease?

While there was the belief that the trade opening will reduce migration pressures, even after the consolidation of trade period, the number of documented temporary workers in the U.S. kept growing at a fast pace. The number of Mexican workers with an undocumented status was calculated to be around 150,000 arrivals a year from 1990 to the year 2000. The U.S. Immigration and Naturalization Service estimated in 1996 that the total number of undocumented Mexican immigrants in the U.S. represented 2.7 million. That same year, Mexican undocumented immigrants constituted about 54 per cent of the total U.S. undocumented population. Remittances of migrants have fund new enterprises, mostly small businesses. By the middle of the 1990s, sixty per cent of small enterprises in Mexico were found to be owned by family members of migrants or by former migrants to the U.S.

14. Which policy measures could improve the situation of a large no. of workers in the future?

Mexico’s experience shows that while a liberal trade policy benefits a country, it is only one- and not the most important- determinant of the rate of economic growth and rising living standards (e.g. good governance and a good educational system are clearly more important). As an OECD publication correctly states “Applying coherent and well-coordinated macroeconomic and structural policies, and sustaining these policies over time, has proven to be the primary determinant of a successful trade liberalization effort”.244 

Notwithstanding these successful results, the package of trade and economic policies implemented in Mexico until the end of the year 2000 were not contributing to the improvement of the majority of the population’s income, neither to the modernisation of the largest part of its economic sectors. Adjustment to trade liberalization was made extremely difficult since the country was often suffering serious economic problems and the government did not have the means to make enough provisions for assisting displaced workers. In addition, policies were not doing enough in promoting the enhancement of education and skills of workers who were forced to move to the informal sector or migrate to the U.S..

In the search for competitiveness and modernization, large sections of the labour market were completely forgotten. These trends have highly contributed towards an increase in informalisation and a fall in employment levels in non-export oriented and non-competitive subsectors.

It should also be mentioned here that unfair export-incentive measures continued protecting these large-scale manufacturing enterprises at least until 1993. Some of them, have continued permanently profiting from these protective measures until present. The Government continues considering that these industries are essential to the economy and that they require additional incentives, while providing very small support or none to the rest of the economic sectors and subsectors, as the agricultural sector, creating more poles of poverty. While the Government continues privileging (for more than 4 decades now) a small no. of large enterprises mainly belonging to the manufacturing sector with export-promotion programmes (still allowing temporary tax-free import of inputs and preferential programmes facilitating the import of capital goods, and other incentives), very few support programmes and with little resources have been provided to those sectors and subsectors not participating in trade, or not considered worthy of support. This is the case of the agricultural sector that has been suffering and creating a large pool of displaced low-skilled workers in urban centers. Could not some of those support programmes create jobs in rural areas for this large pool of workers?

It is true that manufacturing’s output has been significantly rising, however Mexico can do better than that. Mexico is one of the richest countries of the world with natural resources that are envied by many others. If it indeed, it developed its human resources and created a large educated middle class with a high purchasing power, the country could rapidly belong to the group of the eight most powerful, industrialised nations.

If the country wants to achieve first-world educational and growth levels, it should not forget two-thirds of its economic active population that has already been left behind during the first 15 years of trade in goods, services and investment liberalisation policies. It is not possible to create an economic model designed to benefit only the most advanced and favoured sectors of society, while the poor and the middle class seem to be bearing a higher cost of the economic crisis and liberalisation.

But, the author does not think that a more egalitarian development will come automatically. As it was mentioned before, it would need to be accompanied by intelligent and long-term policies. Only under these conditions, it is hoped that the potential rewards of trade liberalisation, in general and of NAFTA will be more equally distributed, in the long run. The trade liberalization process left on its own is prone to concentration of capital and income. The government’s and the private sector’s support is badly needed to reverse this trend. 

Both the government, but also confederations of employers and big industrial groups should seek to channel resources into sectors and subsectors with high potential for future employment growth. In this context, the state, hand in hand, with the private sector has an important task to fulfil, especially in certain fields like the distribution of income, employment creation, education and training. Together they have important roles in smoothing out the ups and downs of economic cycles in order to avoid further hardship to two-thirds of the labour force that continue unprotected. For example, through:

a) promoting productive investment

b) linking human capital investment to labour market needs;

c) increasing the funding of National Employment Services (probably those enterprises providing funding to the ES could benefit from a tax reduction);

d) increasing workers’ employability through the financing of high level technical, technological and specialized schools and training centres affordable or free of charge;

e) financing training programmes for unskilled informal workers and disabled workers;

f) providing affordable credit to small and micro-scale enterprises;

g) providing technical assistance to small and micro enterprises in the informal sector who would like to increase their capacity to provide inputs to large scale industry;

h) creating foundations to provide scholarships to low-income children who would like to continue their studies.

Public-supported Employment Services (SE) have a significant role to play in providing linkages in the labour market between labour demand and supply, in providing vocational training and in assisting displaced workers. However, they lack the necessary funding. One option to increase their coverage and support could be the creation of a system that could link private enterprises to provide the necessary funding for this type of programmes in exchange of a tax reduction. Since private enterprises have and will also profit from this pool of trained and retrained workers, this option should not be considered completely bizarre. Another option could also be the creation of a system of reduction of taxes in big enterprises that continuously provide training and support to their own labour force.

It is unlikely that Mexican income inequality and worker’s deterioration of their purchasing power will be reduced by itself without providing this kind of support to the largest number of the labour force. Indeed, poverty and polarisation are likely to grow if the State with the support of the private sector does not intervene to give a real equilibrium to the labour market and to the deteriorated situation of income distribution. The lack of security linked to the high levels of poverty in big cities could eventually even create a serious economic and political crisis if foreign investors’ families are affected with the large number of kidnappings.

A new development strategy should be implemented in Mexico that should change the pattern of development. For example, there is a clear need for increased spending on infrastructure and social development. The strategy should aim at acquiring higher equity and income distribution. The structure of income should change in favour of those socio- economic groups that have not benefited from past growth. Public investment could be also  partially reoriented to agriculture and other basic goods producing sectors that are highly labour-intensive. It is a priority to generate decently-paid jobs in the formal sector with decent working conditions.

Competitiveness should not be only acquired with low labour costs, but with higher levels of productivity, and to achieve higher productivity levels, it is essential to provide incentives to workers through wages’ improvement. Wages’ improvement is necessary to revive the economy and increase private consumption and investment. The growth of private consumption could have, in turn, a positive impact on employment. However, to be able to provide higher real wages, and raise productivity, the educational level of the population, in general, has to urgently rise.

The other option is to create income support programs or safety nets that can cushion the losses of groups hurt by trade. Broader social protection safety nets for the large number of unprotected workers and members of their families are needed if the society does not want to live day by day with the social insecurity and the increasing rates of criminality and drug trafficking already very high in big urban centres and border towns. However, it is important to remember that most Mexicans would prefer to work, than to depend on Food Stamps or other types of income-support programmes. Mexican workers do not have a culture of receiving financial aid to survive, and would prefer to have a decent job and earn their living.

One other very important factor to consider is that Mexican workers could benefit from larger support from their trade union representatives. In collective-bargaining agreements, workers’ real wages have continuously suffered further depressions. A lot of the workers losing in the game are not even organised, or are not being permitted to organise like in the case of many maquiladoras. As a result of all of these mentioned factors, it is of extreme importance to start mobilizing the trade union movement to the benefit of workers.

At the same time, it is necessary to promote active labour market policies that provide employment to, or increase the employability of, people in the labour market, promoting productive investment and creating a favourable financial environment in order to create employment in labour intensive sectors where the country has a comparative advantage. Mexico should engage in programmes to create large number of new jobs and forge a strong internal labour force. The government together with the private sector should provide Mexicans with alternative sources of employment and other new ways to survive. It should not equate trade liberalization with policies benefiting only large capital. Would not the stimulation of labour-intensive public works be one of the solutions? For example, the implementation of public investment programmes for irrigation in rain-fed areas and for rural maintenance could create employment in rural areas affected negatively by trade liberalization. The creation of employment in small and medium-size cities is needed to reduce further rural-urban migration.

To achieve the restructuring of a more open, competitive and productive economy, the process has to be accompanied by a policy that will promote long-term development and growth in sectors that are key sources of employment. It is of course, also urgent to start considering the creation of enough socially protected jobs. The private sector could offer special incentives to small and micro national industries that can produce good-quality inputs to larger export-oriented companies.

Most of all, Mexico’s social inequities can only be redressed if an effective and high- level system of education and training (vocational and on-the-job training) is promoted. It is an absolute priority to first of all make primary, as well as secondary school universal in the  country: 100 per cent of kids attending the first 9-years of compulsory school. At the same time, it is also essential to continue upgrading skills through training and retraining programmes such as CIMO and PROBECAT. However, it is important to cover informal sector workers, as well as displaced workers and the self-employed. Illiteracy should disappear completely and at least 20 per cent of Mexicans should attain an average tertiary level education.

But, it is also important that this human capital investment be closely linked to the labour market needs. If not, it will only result in creating overeducated underemployed workers and will be dismissed by the poor as a poor investment. Human capital investments linked to the needs of the expanding enterprises are needed. In the future, trade liberalisation’s impact on employment will depend on how well the nation invests in its workers. Maybe the ILO should also play an important role promoting training programmes through technical co-operation projects?

Where trade liberalisation has been accompanied by an active and important equalizing role, the labour market has responded positively to the opening of the economy and people’s income has even been equalised. Government and the private sector in some South East Asian countries put emphasis on increasing investment in human capital, basic health and education, accompanied by a gradual land reform that raised the incomes of rural workers. In the South East Asian Tigers, economic development was accompanied by rapid expansion of public education and widespread access to health services as exporting sectors stimulated other sectors to create employment. On the contrary, economic development in Mexico has been characterized by limited emphasis on human resources improvement and a relatively slow expansion of education and health programmes, as well as insufficient programmes targeting rural populations.

It is true that product markets become more and more global and that Mexican workers’ wages are facing more competition from workers’ wages in other countries, especially Asian countries such as China with a huge labour supply and even less workers’ protection than in Mexico. However, if Mexican workers are well educated and trained with easily adaptable skills, they will be ready to compete in the production of high-quality goods even before countries like China. It is important to remember that Mexico has an additional comparative advantage: its proximity to the U.S. (its main market) and as a result, reduced transportation costs.

At the international level, specialists such as Lustig, Bosworth and Lawrence (1992) have proposed to transfer resources from NAFTA’s winners to NAFTA’s losers in different ways: a profit tax, the creation of a North American development bank that will provide credit to micro, small, and medium-size producers and a regional fund which will deepen the reduction of the Mexican debt and would facilitate the transition by focusing on investments in the physical and social infrastructure. Similar institutions were created and similar actions were taken in Europe when Greece, Spain, and Portugal entered the European Community and Mexico needs this investment even more than the mentioned European countries.

After the euphoric era of neo-liberalism of trade starts losing its momentum, maybe we will be tempted to quote Franklin Delano Roosevelt’s words: «The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little».



Appendix I. List of Tables and Figures

Chapter II Figure Ch. II-1= GDP growth in 1975 billions of pesos, 1950-1979 Figure Ch. II-2= Proportion of wages in GDP, 1950-1975 Figure Ch. II-3= Total employment by employment status in 1970 Table Ch. II-1= Annual income by employment status, 1970 Figure Ch. II-4= Trade balance of agricultural, manufacturing goods and oil, 1971-1982 Table Ch. II-2= Oil, agricultural and manufacturing exports and imports, 1971-1982 Table Ch. II-3= Total external debt, interest payments and total debt service paid, 1980–2000 Table Ch. II-4= Gross domestic product, per capita, and average percentage change divided by periods, 1960–1982 Table Ch. II-5= Inflation indicators, 1980–2000 (percentages)

Chapter III Table Ch. III-1= Trade indicators, 1983-1998 Table Ch. III-2= Ad-valorem tariff averages by type of good, 1985-1993 Table Ch. III-3= Industrial programmes, 1993 Table Ch. III-4= Interest rates and exchange rates, 1980–2000 Table Ch. III-5= Credit provided by development and commercial banks by economic sector, 1984–1995 Table Ch. III-6= Total imports and exports of goods and services trade balance, 1972-2000 Table Ch. III-7= Gross domestic product, per capita, and average percentage change divided by periods, 1978–2000 Figure Ch. III-1= GDP per capita in 1995 U.S. constant billion dollars, 1980-2000 Table Ch. III-8= Percentage of items subject to tariff rates, 1982-1998. Table Ch. III-9= Domestic production covered by import licences and tariff averages, 1985- 1989 Table Ch. III-10= Effective rates of protection in Mexican manufacturing selected products, 1980-1991 (annal averages in percentages) Table Ch. III-11= Capital goods industry GDP percentages by type of good, 1980-1989 (percentages) Table Ch. III-12= Participation of Mexico in the import of U.S. manufacturing products and average tariffs imposed on U.S. manufacturing products, 1985-1994 Table Ch. III-13= Comparison of gradual tariff reduction on imports from and to Mexico Table Ch. III-14= Merchandise imports by country of origin, 1980-1998 (percentages) Figure Ch. III-2= Export goods by country of destination, 1998 Table Ch. III-15= Total foreign investment, direct and portfolio, 1980-2000 (millions of current US dollars and percentages) Figure Ch. III-3= Total foreign investment, direct and portfolio, 1980-2000 Table Ch. III-16= Balance of payments, 1980–1998 (billion US dollars) Table Ch. III-17= Formal employment by economic sector and subsector, 1987-2000 (thousands) Table Ch. III-18= Index of average real remuneration per worker by economic sector, 1980- 1996 Table Ch. III-19= Mexico’s ranking on list of worldwide leading exporters and importers, 2000



Chapter IV Table Ch. IV-1= Total labour force participation and yearly percentage change, 1980–2000 Table Ch. IV-2= Percentage of total (formal and informal) employment by economic sector, 1980-2000 Table Ch. IV-3= Total (formal and informal) employment by economic sector, 1980–2000 Table Ch. IV-4= Formal employment (only IMSS) by economic sector and subsector, 1982- 2000 (thousands) Figure Ch. IV-1= Total formal employment 1987-2000 Table Ch. IV-5= Formal employment distribution by economic sector and subdivided by subsector, 1982-2000 Table Ch. IV-6= Comparison formal and informal manufacturing employment 1980-2000 Table Ch. IV-7= Index of manufacturing formal employment by subsector, 1980-2000 Table Ch. IV-8= Formality percentage in employment by economic sector and subsector, 1988-2000 Table Ch. IV-9= Distribution of total employment (formal and informal) by economic sector and employment status, 1988-2000 Table Ch. IV-10= Estimates of total formal (social security insured) and informal employment, 1980-2000 Table Ch. IV-11= Informal employment share of total employment in trade-related economic sectors, 1970-2000 Table Ch. IV-12= Informal sector’s percentage of GDP, 1993-1999 Table Ch. IV-13= Formal Employment Index by Economic Sector and Subsector, 1987-2000 Table Ch. IV-14= Informal sector’s output by economic sector, 1980-1999 (percentages) Table Ch. IV-15= Significant employment indicators to be considered, 1984-2000 Table Ch. IV-16= Unemployment rates, 1980-1995 Table Ch. IV-17= Employed persons by number of hours worked per week by economic sector, 1984-2000 Table Ch. IV-18= Public sector’s GDP, employment and remuneration, 1980-2000 Table Ch. IV-19= Percentage of employment subcontracted in the manufacturing, commerce and services sector, 1999 Table Ch. IV-20= Total employment (formal and informal) by economic sector and employment status, 1988–2000 Table Ch. IV-21= Percentages of total employment (formal and informal) by economic sector and employment status 1988-2000 Table Ch. IV-22= Manufacturing employment by occupational level and employment status 1990 and 1999 Table Ch. IV-23= Manufacturing employment by occupational level and establishment size 1990 and 1999 Table Ch. IV-24= Manufacturing employment by employment status 1990 and 1999 Table Ch. IV-25= Total formal and informal employment by type of contract, 2000

Chapter V Table Ch. V-1= Total imports and exports of goods and services trade balance, 1980-2000 Table Ch. V-2= Total imports and exports of goods, trade balance, 1980-1998 Table Ch. V-3= Imports and exports of goods by economic sector, trade balance and percentage of exports out of imports, 1980-2000 Table Ch. V-4= Merchandise imports and exports of goods by economic sector, and trade balance, 1980-1998 Figure Ch. V-1= Merchandise exports by economic sector of origin, 1985 Figure Ch. V-2= Import goods by economic sector of destination, 1985 Figure Ch. V-3= Merchandise exports by economic sector of origin, 1980-1998 

Table Ch. V-5= Percentage of manufacturing output exported, 1989-1998 Table Ch. V-6= Manufacturing imports and exports of goods and trade balance by subsector, 1980–1998 Figure Ch. V-4= Merchandise exports by economic sector of origin, 1998 Figure Ch. V-5= Manufacturing exports by subsector of origin, 1980-1998 Figure Ch. V-6= Merchandise imports by economic sector of destination, 1998 Table Ch. V-7= Imports and exports of the metal products, machinery and equipment subsector and trade balance by type of good, 1980-1989 Table Ch. V-8= Merchandise imports and exports by type of good (consumer, intermediate and capital), 1980-1998 Table Ch. V-9= Intermediate goods imported by economic sector, 1992-1998 Table Ch. V-10= Capital goods imported by economic sector, 1992-1998 Table Ch. V-11= Imports and exports of selected products, 1980-2000 Table Ch. V-12= Private and government consumption expenditure, and gross fixed capital formation, 1980-2000 Table Ch. V-13= Other GDP indicators, 1980-2000 Table Ch. V-14= Direct foreign investment by economic sector, 1980-1997 Figure Ch. V-7= Direct foreign investment by economic sector, 1980-1997 Table Ch. V-15= Foreign direct investment in the manufacturing sector divided by subsector, 1989-1997 Figure Ch. V-8= Foreign direct investment in manufacturing, 1989-1997 Table Ch. V-16= Index of manufacturing industry’s output divided by subsector, 1980-1994 Table Ch. V-17= Direct foreign investment by country of origin, 1980-1997 Table Ch. V-18= Foreign direct investment in the services sector divided by subsector, 1989- 1997 Figure Ch. V-9 Direct foreign investment in the services sector, 1989-1997

Chapter VI Table Ch. VI-1= Percentage of manufacturing formal establishments by size of establishments, 1982-1999 Table Ch. VI-2= Percentage of manufacturing formal establishments by subsector and size of establishment, 1992-1999 Table Ch. VI-3= Percentage of formal manufacturing employment by size of establishment, 1982-1999 Table Ch. VI-4= Total employment (formal and informal) by economic sector and size of establishment, 1988-2000 Table Ch. VI-5= Capital goods industry GDP percentages by type of good, 1980-1989 Table Ch. VI-6= Female labour force out of total labour force, 1980-2000 Table Ch. VI-7= Employment (formal and informal) share by economic sector and gender, 1991-2000 Table Ch. VI-8= Total manufacturing employment (formal and informal) by subsector and gender, 1991-2000 Table Ch. VI-9= Gender distribution of formal and informal employment in trade-related sectors 1991, 1993, 1995, 2000. Table Ch. VI-10= Other important indicators of education related to labour force participation, 1991-1999

Chapter VII Table Ch. VII-1= Agriculture sector’s indicators, 1980-2000 Figure Ch. VII-1= Formal employment by sector, 1980-2000 Table Ch. VII-2= Production of main agricultural products, 1980–1993 

Table Ch. VII-3= Main agricultural import and export goods, 1980-1992 Table Ch. VII-4= Index of credit provided to the agricultural sector, 1980-1993 Table Ch. VII-5= Urban population annual percentage change, 1980–2000 Table Ch. VII-6= Income level by economic sector, 1988-2000 Table Ch. VII-7= Direct foreign investment by economic sector, 1980-1997 Table Ch. VII-8= Percentages of total employment (formal and informal) by economic sector, 1970-2000 Table Ch. VII-9= Mining sector’s indicators, 1980-2000 Table Ch. VII-10= Manufacturing sector’s indicators, 1980-2000. Table Ch. VII-11= Index of manufacturing industry’s output divided by subsector, 1980- 1994 Table Ch. VII-12= Manufacturing imports and exports of goods and trade balance by subsector, 1980–1998 Table Ch. VII-13= Manufacturing formal employment by subsector, 1980-2000 Table Ch. VII-14= Index of manufacturing formal employment by subsector, 1980-2000 Table Ch. VII-15= Foreign direct investment in the manufacturing sector divided by subsector, 1989-1997 Table Ch. VII-16= Percentage distribution of manufacturing industry’s GDP by subsector, 1980–1998 Table Ch. VII-17= Manufacturing imports and exports of goods and trade balance by subsector (percentages), 1980–1998 Table Ch. VII-18= Maquiladora’s origin of raw materials (domestic or foreign), 1984–1995 Table Ch. VII-19= Maquiladora’s formal employment divided by sector and percentage change per year, 1980–1998 Figure Ch. VII-2= Mexico’s maquiladora employment 1980-1998 Table Ch. VII-20= Maquiladora industry productivity index, 1984–1995 Table Ch. VII-21= Maquiladora’s wage rates, bonuses and total earnings, 1981–2001; Table Ch. VII-22= Autoparts maquiladora industry, levels and composition of employment, 1980-2001. Table Ch. VII-23= Clothing maquiladora industry, levels and composition of employment, 1980-2001 Table Ch. VII-24= Metal products, machinery and equipment, 1980-2000 Table Ch. VII-25= Percentage distribution of the metal products, machinery and equipment subsector’s GDP, 1980-1996 Table Ch. VII-26= Total production of automobiles by market of destination, 1985-1994 Table Ch. VII-27= Chemical substances, oil-by products, rubber and plastic subsector’s GDP 1980–1996 Table Ch. VII-28= Chemicals, rubber and plastics, 1980-2000 Table Ch. VII-29= Food, beverages and tobacco, 1980-2000 Table Ch. VII-30= Percentage distribution of the food, beverages and tobacco subsector’s GDP, 1980–1996 Table Ch. VII-31= Percentage distribution of the textiles, garments and leather subsector’s GDP, 1980–1996 Table Ch. VII-32= Index of the textiles, garments and leather subsector’s GDP, 1980–1989 Table Ch. VII-33= Textiles, garments and leather, 1980-2000 Table Ch. VII-34= Main indicators of the garments’ industry, 1987–1994 Table Ch. VII-35= Mexico’s ranking on list of worldwide leading exporters and importers, 2000 Table Ch. VII-36= Basic metals, 1980-2000 Table Ch. VII-37= Wood and wooden products, 1980-2000 Table Ch. VII-38= Paper and paper products, 1980-2000 

Table Ch. VII-39= Non-metal mineral products, 1980-2000 Table Ch. VII-40= Other manufacturing industries, 1980-2000 Table Ch. VII-41= Commerce and services sector’s indicators, 1980-2000 Table Ch. VII-42= Total (formal and informal) employment by economic sector, 1970–2000 Table Ch. VII-43= Percentage annual change in GDP by economic sector, 1982-1998 Figure Ch. VII-3= Direct foreign investment by economic sector, 1980-1997 Table Ch. VII-44= Trade balance of commercial services, 1980-2000 Table Ch. VII-45= Foreign exchange balance of tourist activity, 1980-2000 Table Ch. VII-46= Index of average real remuneration per worker by economic sector, 1980- 1996 Table Ch. VII-47= Remittances, 1980-2000

Chapter VIII Table Ch. VIII-1= Index of average remuneration per worker by economic sector, 1980-1996 Table Ch. VIII-2= Index of average real remuneration per worker in manufacturing subsectors, 1980-1996 Table Ch. VIII-3= General daily minimum wage divided by economic region and converted to dollars, 1980-2000 Table Ch. VIII-4= Comparison of hourly manufacturing wages Mexico, Hong Kong, Taiwan and South Korea, 1975-1995 Figure Ch. VIII-1= Comparison of manufacturing hourly wages in Mexico, Hong Kong, Taiwan, and South Korea, 1975-1995). Table Ch. VIII-5= Relative comparison of Mexican and U.S. hourly manufacturing wages in U.S. dollars, 1990-1997 Table Ch. VIII-6= Percentage Income level by economic sector, 1988-2000 Table Ch. VIII-7= Income level by employment status and sex, 1988-2000 (horizontal percentage) Table Ch. VIII-8= Income level by educational attainment and sex, 1988-2000 (horizontal percentage) Table Ch. VIII-9= Percentage of type of remuneration in manufacturing subsectors by sex, average remuneration and number of times the minimum wage, March 1992 Figure Ch. VIII-2= Gender difference of average monthly remuneration by manufacturing subsector as of March, 1992 Table Ch. VIII-10= Average manufacturing remuneration by occupation level divided by sex and size of establishment as of March, 1992 Figure Ch. VIII-3= Average manufacturing wage differentials by occupation as of March, 1992 Figure Ch. VIII-4= Average manufacturing wage differentials by size of establishment as of March, 1992 Table Ch. VIII-11= Income level by educational attainment and sex, 1988-2000 (vertical percentage) Table Ch. VIII-12= Educational level of the population older than 20 by sex, 1984-2000 Table Ch. VIII-13= Type of remuneration in manufacturing by occupation and sex, average remuneration and number of times the minimum wage, 1992-1999 Figure Ch. VIII-5= Gender difference of average monthly remuneration by occupation 1992- 1999 Table Ch. VIII-14 Female’s average remuneration in the manufacturing sector as a percentage of male’s by occupation, 1992-1999 Figure Ch. VIII-6= Female’s average remuneration in the manufacturing sector as a percentage of male’s by occupation, 1992-1999 

Table Ch. VIII-15= Female’s average remuneration as a percentage of male’s divided by manufacturing subsector as of March, 1992 Figure Ch. VIII-7= Female’s average remuneration as a percentage of male’s divided by manufacturing subsector as of March, 1992 Table Ch. VIII-16= General price index of exports and imports and index of exchange terms, 1980-2000. Table Ch. VIII-17= Producer price index and internal demand, 1980-1994. Table Ch. VIII-18= Index of consumer prices by type of expenditure, 1980-2000. Table Ch. VIII-19= Index of consumer prices by economic sector of origin, 1980-1998. Table Ch. VIII-20= Index of consumer prices by manufacturing subsector of origin, 1980- 1998. Table Ch. VIII-21= Income distribution by deciles and quintiles, 1984-1989-1994-2000 Figure Ch. VIII-8= Lorenz curve, 1984-2000 Table Ch. VIII-22= Number of minimum wages received by average income household per trimester and percentages of total households and total income, 1984, 1989, 1994, 2000 Figure Ch. VIII-9= UTIP Inequality Measure, 1968-2000 Table Ch. VIII-23= Poverty indicators. 1980-1998

Chapter IX Table Ch. IX-1= Trade and total employment Table Ch. IX-2= Trade and sectorial employment Table Ch. IX-3= Trade and income inequality

Chapter X Table Ch. X-1= Public sector expenditures on education and health, 1980–2000. Table Ch. X-2= Educational level of the population older than 20 by sex, 1984-2000 Figure Ch. X-1= Educational level of the population older than 20, 1984-2000 Table Ch. X-3= Other important indicators of education related to labour force participation 1991-1999 Table Ch. X-4= Educational level of manufacturing employment 1988-1993 Table Ch. X-5= Percentage of total population 12 years and older that has taken training courses divided by gender and percentage of number of courses taken, 1991-1999. Table Ch. X-6= Percentage of trained workers in the manufacturing sector divided by subsector, 1989-1994. Table Ch. X-7= Public and private sector’s expenditures on science and technology, 1980- 1998 Table Ch. X-8= Average percentage of income for transfer payment and/or technology acquisition in manufacturing establishments by subsector and size of establishment, 1989- 1994. Table Ch. X-9= IMSS insured employers/self-employed as well as permanent and temporary workers/employees by economic sector and subsector, 1987-2000. Table Ch. X-10= Employed covered by social security, 1980-2000; Table Ch. X-11= Productivity growth by economic sector and manufacturing subsector, 1988-1996. Table Ch. X-12= Manufacturing productivity index, formal and informal employment options 1980–2000).

Chapter XI Table Ch. XI-1= Urban population annual growth rate, 1980-2000 Figure Ch. XI-1= Urban population growth, 1980-2000 

Figure Ch. XI-2= Documented Mexican immigrants to the U.S., 1970-2000 Table Ch. XI-2= Yearly documented immigration and naturalization of Mexicans in the U.S., 1970-2000 Table Ch. XI-3= Accumulated documented immigration by periods of 5 years, 1970-2000 Table Ch. XI-4= Mexican temporary workers in the U.S., 1990-2000 Figure Ch. XI-3= Total Mexican temporary workers in the U.S., 1990-2000 Table Ch. XI-5= Remittances, 1980-2000



Appendix II. Classification of economic sectors in Mexico

+ The agricultural sector includes: 1. agriculture; 2. livestock; 3. forestry; 4. fisheries; 5. hunting; and, 6. bee-keeping.

++ The industrial sector includes 4 major sectors:

1. mining and quarrying;

2. manufacturing divided in nine subsectors defined in appendix II that are themselves divided in branches;

3. construction; and

4. electricity, gas and water

+8 Commerce sector comprises

1. wholesale trade

2. retail trade

3. restaurants;

4. hotels

8 Services sector, includes 3 major sectors:

1. transport, storage and communication services that cover also travel and other commercial services;

2. finance, insurance and real estate and other private services;

3. community, social, and personal services embraces educational, medical, research, social assistance, defence, public administration and drainage. 

Appendix III. Classification used in the manufacturing sector

1. The food, beverages and tobacco subsector covers 13 branches: meat; manufacturing of dairy products; manufacturing of canned food, grinding of cereals and other agricultural products, manufacturing of bakery products, grinding of corn and manufacturing of tortillas; manufacturing of oils and fats; sugar; manufacturing of cocoa, chocolate and candies; manufacturing of other food products for human consumption; manufacturing of food products for animals; beverages and tobacco.

2. The textiles, garments and leather subsector comprises: the production of hard fibres and cords; the spinning, weaving and finishing of soft fibres; manufacturing of textile materials; manufacturing of jerseys; manufacturing of garments; leather, furs and its derivatives and shoes.

3. The wood and wooden products subsector embraces: the manufacturing of sawing and carpentry products, manufacturing of wooden packages, other wooden products and cork; manufacturing and repairing wood furniture.

4. The paper and paper products, printing and publishing subsector comprises: the manufacturing of cellulose, paper and its products and the printing and publishing house branches.

5. The chemical substances, and coal derivatives, rubber and plastics subsector covers: the manufacturing of basic chemical substances; artificial and synthetic fibres; pharmaceuticals; the manufacturing of other substances and chemical products; rubber and plastic products.

6. The non-metal mineral products subsector embraces: pottery and ceramics; the manufacturing of clay for construction; the manufacturing of glass and glass products, and the manufacturing of cement, lime, plaster and other products.

7. The basic metals subsector covers the iron and steel and the basic non-iron metals branches.

8. The metal products, machinery and equipment subsector comprises: the melting and moulding of iron and non-iron metal pieces; manufacturing of other metal structures, tanks and industrial boilers; manufacturing and repairing of metal furniture; manufacturing of other metal products; manufacturing, repairing and assembling of machinery for special uses; manufacturing, repairing and assembling of machinery for general uses, manufacturing and assembly of office, processing and computer equipment; manufacturing and/or assembly of machinery, equipment and electrical appliances; manufacturing and assembly of radio, television and communication electronic equipment; manufacturing and assembly of household appliances; the automotive industry; manufacturing, repairing and assembly of transportation and equipment parts; manufacturing, repairing and assembly of instruments and precision equipment.

9. Other industries.



Appendix IV. Bibliography

I. BOOKS OR WORKING PAPERS

Aggarwal, Vinod: North American Free Trade Agreement (NAFTA) : prospects and implications (Berkeley, 1993).

Agosín, Manuel R.; Tussie, Diana: Trade and Growth New Dilemmas in Trade Policy (New York, St. Martin’s Press, 1993).

Ajit K., Ghose: Trade Liberalization and Manufacturing Employment (Geneva, ILO, 2000).

Alarcón González, Diana: Changes in the Distribution of Income and Trade Liberalization 1984–1989 (Tijuana, El Colegio de la Frontera Norte, 1994).

Alarcón González, Diana; Mckinley, Terry; «Increasing Wage Inequality Accompanies Trade Liberalization in Mexico» in The Social Challenge of the New Economic Era in Latin America ed. by Albert Berry (Washington, 1996).

Alter, Rolf: Foreign Direct Investment, Trade and Employment (Organization for Economic Co- operation and Development, Paris, 1995).

Ampudia, Nora Claudia: Los Efectos de la Liberalización Comercial en el Empleo (México, Investigación Económica, Facultad de Economía, Universidad Nacional Autónoma de México), no. 185, vol. XLVII, pp. 127-170.

Anderson, Sarah; Cavanagh, John; Hansen-Kuhn Karen; Heredia, Carlos; Purcell, Mary: No Laughter in NAFTA: Mexico and the United States Two Years After (Institute for Policy Studies, The Development GAP, Equipo Pueblo, 1996).

Arteaga García, Arnulfo; Sierra Romero, Sergio; von Bülow, M: Human Resource Development in Mexico: Recent Policies (Geneva, ILO, 1996), working paper Training Policy Studies.

Barkin, David : Distorted Development, Mexico in the World Economy (Oxford, Westview Press, 1993).

Barros Horcasitas, José Luis ; Hurtado Javier ; Perez Fernandez del Castillo, Germán : Transición a la Democracia y Reforma del Estado en México (México, Editorial Porrua, 1992).

Behar, Jaime : Trade and Employment in Mexico (Stockohlm, Swedish Institute for Social Research- Universitet Stockohlm, 1989).

Belous, Richard S.; Lemco, Jonathan: NAFTA as a Model of Development : the benefits and costs of merging high and low wage areas (Washington, Friedrich Ebert Stiftung, Institute of the Americas and the National Planning Association, 1993).

Benería Lourdes: “Subcontracting and Employment Dynamics in Mexico City” in The Informal Economy, Studies in Advanced and Less Developed Countries (Baltimore and London, The John Hopkins University Press, 1989).

Bensusan Areous, Graciela, coord.: Las Relaciones Laborales y el Tratado de Libre Comercio (México, Porrua, 1994).

Berry A.; Mendez, María Teresa; Tenjo, Jaime; « Growth, Macroeconomic Stability and Employment Expansion in Latin America» in Economic Policy and Employment (ILO Geneva/UNDP New York project, 1994), paper no. 6. 

Buzaglo, Jorge: Planning Alternative Development Strategies: Experiments on the Mexican Economy (Stockholm, Department of Economics, University of Stockholm, 1984), monographs no.7.

Carstens, Agustín; Werner, Alejandro M.: Mexico’s Monetary Policy Framework under a Floating Exchange (Banco de México, May 1999).

Covarrubias, Alejandro: La Flexibilidad Laboral en Sonora: Un Análisis Comparativo de la Flexibilidad de los Contratos Colectivos de Trabajo en la Industria en Sonora, en la Década de los Ochenta (Hermosillo Sonora México, Fundación-Friedrich Ebert, 1992).

Cruz Rivero, Carlos; Lozano Ascencio, Rafael; Querol Vinagre, Julio: The Impact of the Economic Crisis and Adjustment on Health Care in Mexico (Florence, UNICEF, 1991) Innocenti Occasional Papers.

Delal Baer, M.; Weintraub, S.: The NAFTA Debate, Grappling with Unconventional Trade Issues (Colorado, Lynne Rienner Publishers, 1994).

Fernández Jilberto, Alex; Mommen, André: Liberalization in the Developing World (London, Routledge, 1996).

Figueiredo, José B.; Shaheed, Zafar; «Reducing Poverty through labour market policies» in New Approaches to Poverty Analysis and Policy (Geneva, ILO-International Institute for Labour Studies, 1994).

Fischer, Bernhard; Gerken, Egbert; Hiemenz, Ulrich: Growth, Employment and Trade in an Industrializing Economy (Tübingen, J.S. B. Mohr, 1983).

Gaal, John S.: The NAFTA: Paradox, Panacea, or Placebo (UBCJA, St.Louis University, 1994).

Galbraith, James K; Berner, Maureen: Inequality and Industrial Change, A Global View (Cambridge University Press, 1998).

Garcia, Norberto: Ajuste, Reformas y Mercado Laboral, Costa Rica 1980–1990, Chile 1973–1992, México 1982–1991 (Santiago, OIT-PREALC, 1993).

Ginneken, Wouter van: “Socio-economic groups and Income Distribution in Mexico”, a study prepared for the ILO World Employment Programme (London, Croom Helm).

Gregory, Peter: The Myth of Market Failure: Employment and the Labor Market in Mexico (Baltimore and London, published for the World Bank, The John Hopkins University Press, 1986).

Grether, Jean-Marie: “Estimating the Pro-competitive Gains from Trade Liberalization, An Application to Mexican manufacturing” (University of Geneva and University of Neûchatel) in The Journal of International Trade and Economic Development, (Routledge 1997).

Grinspun, Ricardo; Cameron, Maxwell: The Political Economy of North American Free Trade (New York, St. Martin’s Press, 1993).

Gutierrez Garza, Esthela: Reconversión Industrial y Lucha Sindical (Venezuela, Fundación Friedrich Ebert, Editorial Nueva Sociedad, 1989).

Gutierrez Garza, Esthela (ed.): «La Crisis Laboral y la Flexibilidad del Trabajo 1983–1988» in Testimonios de la Crisis y los Saldos del Sexenio 1982-1988 (México, Siglo XXI, 1992).

Hanson, Gordon H.: What has happened to Wages in Mexico since NAFTA? Implications for Hemispheric Free Trade (Cambridge, National Bureau of Economic Research, 2003), NBER Working Paper Series, working paper 9563. 

Harrison, Ann; Hanson, Gordon: Who Gains from Trade Reform, Some Remaining Puzzles (Cambridge, National Bureau of Economic Research, January 1999).

Hewitt de Alcántara, Cynthia: Restructuración Económica y Subsistencia Rural, El Maíz y la Crisis de los Ochenta (México, El Colegio de México, Centro Tepoztlán, Instituto de Investigaciones de las Naciones Unidas para el Desarrollo Social, 1992).

Hufbauer, Gary Clyde; Schott, Jeffrey J.: NAFTA an Assessment (Washington D.C. Institute for International Economics, 1993).

Johnston, Bruce F; Luiselli, Cassio; Cartas Contreras, Celso; Norton, Roger D.: U.S.–Mexico Relations: Agriculture and Rural Development (Stanford, Stanford University Press, 1988).

Lara Fernandez, Martha: Mexico’s Accession to the GATT, a turning point in Mexican foreign trade policy and its possible implications (Genève, IUHEI, 1987).

Lustig, Nora; Bosworth, Barry P.: North American Free Trade, Assessing the Impact (Washington D.C., The Brookings Institution, 1992).

Lustig, Nora; Ros, Jaime: Mexico in the Rocky Road to Reform ed. by Lance Taylor (London, The MIT Press, 1993).

Maloney, William F.: Are Labour Markets in Developing Countries Dualistic? (Washington, The World Bank, June 1998), Policy Research Working Paper no. 1941.

Mesa Lago, Carmelo: “Social Security and the Informal Sector in Latin America: The Case of Mexico” in Work Without Protection: Case Studies of the Informal Sector in Developing Countries, (Washington D.C., U.S. Department of Labor, Bureau of International Affairs, 1993).

Mungaray-Lagarda, Alejandro; Ocegueda, Juan M.: “Community Social Service and Higher Education in Mexico” in Statistical Abstract of Latin America, vol. 36.

Negrete, Rodrigo: The Informal Sector in Mexico, an Overview 1992-1996 (Mexico, INEGI, Spring 1997).

Nogues, Julio; Gulati, Sunil: «Economic Policies and Performance under Alternative Trade Regimes: Latin America during the 1980’s», in The World Economy (Cambridge, volume 17, July 1994, number 4).

Noriega Curtis, Carlos; Martinez, Gabriel: An in-depth look at the Mexican Pension Fund System Process (Mexico, IMSS, Treasury Department, 1996).

Plant, Roger: «Labour Standards and Structural Adjustment in Mexico» in Interdepartmental Project on Structural Adjustment (Geneva, ILO, 1993), occasional paper no. 10.

Psacharopoulos, George; Tzannatos, Zafiris: Case Studies on Women’s Employment and Pay in Latin America ( Santiago de Chile, The International Bank for Reconstruction and Development/The World Bank, 1992), pp. 339–347.

Randall, Laura, ed.: Changing Structure of Mexico: Political, Social and Economic Prospects (London, M-E. Sharpe, 1996).

Roberts, Bryan: “The Dynamics of Informal Employment in Mexico” in Work Without Protections: Case Studies of the Informal Sector in Developing Countries (Washington D.C., U.S. Department of Labor, Bureau of International Affairs, 1993). 

Robertson, Raymond: Exposure to Foreign Markets, Production Technology and the Demand for Skill, Evidence from Mexico (St. Paul, Maclester College, January 2000).

Robinson, Ian: North American Trade as if Democracy Mattered (Ottawa, Canadian Centre for Policy Alternatives/Washington, International Labor Rights Education and Research Fund, 1993).

Roett, R.: Political and Economic Liberalization in Mexico, At a Critical Juncture? (USA, Lynne Rienner Publishers, 1993).

Roubaud, François: L’économie informelle au Mexique, De la sphère domestique à la dynamique macro-économique (Paris, Editions Orstom-Karthala, 1994).

Ros, Jaime: «Mexico’s Trade and Industrialization Experience since 1960, A reconsideration of past policies and assessment of current reforms» in Trade Policy and Industrialization in Turbulent Times (London, Routledge Press, 1994).

Ros, Jaime: «The Effects of Government Policies on the Incentives to Invest, Enterprise Behaviour and Employment: A Study of Mexico’s Economic Reforms in the Eighties» in World Employment Programme Research (Geneva, International Labour Office, 1991), working paper no.53.

Samuelson, Paul A.; Nordhaus, William. P.: Economics, International Edition (Mc Graw-Hill, Inc.,1995), 15th ed.

Sanders G. Thomas: “Mexico’s Three Modernizations” in UFSI Field Staff Reports Latin America (Indianapolis), 1990–1991, no. 9.

Sernau, Scott : Economies of Exclusion: Underclass Poverty and Labor Market Change in Mexico (London, Praeger, 1995).

Siow Yue, Chia: Export Processing and Industrialisation: the case of Singapore (Bangkok. ILO, 1982), Asian Employment Programme Working Papers.

Székely, Miguel: The 1990s in Latin America: Another Decade of Persistent Inequality (Washington, Inter-American Development Bank, 1999) working paper no. 410.

Ten Kate, Adriaan: Trade Liberalization and Economic Stabilization in Mexico, Lessons of Experience (Mexico, Office for the Negotiation of the NAFTA).

Tobin, James: Full Employment and Growth (Cheltenham U.K., Brookfield U.S., 1995).

Tuirán, Rodolfo ; Fuentes, Carlos ; Ramos, Luis Felipe : « Recent Dynamics of the Migration Mexico- United States » in El Mercado de Valores: An Update on Mexico’s Economy and Finance (Mexico) July-August 2001.

Turnham, David; Foy, Colm; Larraín, Guillermo: Social Tensions, Job Creation and Economic Policy in Latin America (Paris, OECD, 1995).

Van der Hoeven, Rolph : Structural Adjustment, poverty and macroeconomic policy: A Review of Experiences in the 1980s (Geneva, ILO, 1996).

Vickers, Jeanne: Women and the World Economic Crisis (London, Zed Books) pp. 85–88.

Weisbrot, Mark; Baker, Dean: The Relative Impact of Trade Liberalization on Developing Countries (Center for Economic and Policy Research, June 11, 2002). 

Weiss, John: An Application of the Domestic Resource Cost Indicator to Mexican Manufacturing, pp.63-77.

Wilkie, James W.: Statistical Abstract of Latin America, (Los Angeles, UCLA Latin American Center Publications, several years), vol. 30, vol.32, vol. 35 & vol. 38.

Wilkie, James W.; Lazin Olga M.: «Mexico as Linchpin for Free Trade in the Americas» in Statistical Abstract of Latin America (Los Angeles, UCLA Latin American Center Publications, 1993), vol. 31.

Zapata, Francisco: What flexible is, rigid can be: the Mexican labor market in the eighties (México, El Colegio de México, 1995).

II. ARTICLES WITHIN REVIEWS OR JOURNALS

Alonso, José Antonio: «El papel del sector informal en la sociedad mexicana, un acercamiento crítico a las microindustrias» in Problemas del Desarrollo 86 (México, UNAM), vol.XXII, julio– septiembre 1991.

Altimir, Oscar: «Income distribution and poverty through crisis and adjustment» in CEPAL Review, (Santiago de Chile), no.52, April 1994.

Andreas, Peter : «U.S.-Mexico : Open Markets, Closed Border» in Foreign Policy, number 103, summer 1996.

Arriagada, Irma: “Unequal Participation by Women in the Working World” in CEPAL Review, (Santiago de Chile), no. 40, April 1990.

Bardacke, Ted: “In Mexico a New Administration faces Old Problems” in Development Business (Washington, Dec 12, 1994).

Bradsher, Keith: « Gephardt gives a boost to Trade Pact » in New York Times, 12 May, 1993.

Candia, José Miguel: «Crisis Económica, Mercado de Trabajo y Precariedad Laboral» en Problemas del Desarrollo 89 (México, UNAM), abril-junio 1992, vol.XXIII.

Castañeda, Jorge: «Can NAFTA change Mexico?», in Foreign Affairs (Washington) Sep.–Oct. 1993.

Castañeda, Jorge: «Mexico’s Circle of Misery» in Foreign Affairs (Washington) July–August, 1996.

Corona Rentería, Alfonso: «Reestructuración regional en México, variables macroeconómicas y Tratado de Libre Comercio», in Problemas del Desarrollo 96 (México, UNAM), enero–marzo 1994, vol. XXV.

Cruz, Minerva: «Se vive el peor desempleo» in El Universal (México, 30 de diciembre de 1994).

De Buen, Nestor: «Los Derechos Laborales en los Acuerdos Paralelos» en Entorno Laboral La Jornada (México, 29 de Agosto de 1993).

De Buen, Nestor: «Los Aspectos Orgánicos de los Acuerdos Paralelos» en Entorno Laboral La Jornada (México, 29 de Agosto de 1993).

De Palma, Anthony: «Law Protects Mexico’s Workers, but its Enforcement is often Lax» in The New York Times (New York, August 15, 1993). 

De Wet, Erika: Labour Standards in the Globalized Economy: The inclusion of a Social Clause in the General Agreement on Tariffs and Trade/World Trade Organisation (Geneva, International Institute for Labour Studies), 1994.

Dornbusch, Rudiger; Werner, Alejandro: «Mexico: Stabilization, Reform, and No Growth» in Brookings Papers on Economic Activity (Massachusetts Institute of Technology, 1994).

“Es México Mayor Exportador de AL” in El Mañana (Nuevo Laredo Tamaulipas México, 4 de Marzo de 1997).

Faux, Jeff: «NAFTA Delusions» in Washington Post (Washington) September 3, 1993.

Favre, Henri : «Contre-révolution au Mexique» en Etudes (Paris, février 1993).

Flores, Marcela: «The Impact of the Mexican Social Security Amendments on Employers» in Benefits and Compensations International (Mexico, October 1996).

Flores Lima, Roberto: «Comercio Internacional y Mano de Obra» in Investigación Económica (México, UNAM) no.193, julio-septiembre de 1990, pp.215–281.

Freebairn Donald K.: «Posibles Pérdidas y ganancias en el sector agrícola bajo un Tratado de Libre Comercio entre Estados Unidos y México» in Revista Mexicana de Sociología (México, UNAM), año LIV/núm 1, enero, marzo de 1992.

Fuentes, Carlos: «Apostándole al libre comercio» en El País (Madrid) 13 de agosto de 1993.

Garibay-Flores, José Luis: «Nouvelle Loi Agraire au Mexique, Les ‘ejidos’ en question» en Coopératives et Développement Revue du CIRIEC Canada (Québec), vol. 25, núm. 2, 1993– 1994.

Golden, Tim: «Mexico Opts for the Sanctions it Bitterly Opposed» in The New York Times, (New York, August 14, 1993).

González Amador, Roberto: «Banco de México: de 52%, inflación en 95» in La Jornada, 10 de enero de 1996.

Hansen, Niles: «Regional Employment Implications of a Free Trade Agreement» in Labour Law Journal (Chicago), 43 (8), August 1992.

Hettne, Björn (ed.): «International Political Economy of Development» in The European Journal of Development Research (London, Frank Cass), volume 7, number 2, December 1995.

Ireson, W. Randall: «Landholding Agricultural Modernization, and Income Concentration: A Mexican Example» in Economic Development and Cultural Change, vol. 35. number 2, January 1987.

Johnson, Scott: “Mexico’s China” in Newsweek, November 4, 2002.

Klein, Lawrence R.; Salvatore, Dominique: «Welfare Effects of the North American Free Trade Agreement» in Journal of Policy Modeling, volume 17, number 2, April 1995.

Krawczyk, Miriam. «The Growing Presence of Women in Development» in CEPAL Review, (Santiago de Chile), no. 40, April 1990, pp.69-82.

Lara Flores, Sara: «La Flexibilidad del mercado de trabajo rural: una propuesta que involucra a las mujeres» in Revista Mexicana de Sociología (México, UNAM), año LIV/núm 1, enero, marzo de 1992. 

Levy, Santiago; van Wijnbergen: “Agriculture in the Mexico-U.S. Free Trade Agreement” in Transition Problems in Economic Reform working papers (Washington D.C., The World Bank, 1992).

Lustig, Nora: «La Medición de la Pobreza en México» in El Trimestre Económico, vol. LIV, octubre– diciembre de 1992, núm. 236.

Llanos, Raúl: «Pide la IP actuar con energía en las divergencias con E.U. sobre el TLC» en La Jornada, 11 de enero de 1996.

Martinez Escamilla, Ramón: «El Tratado de Libre Comercio y su impacto en los sectores productivos» in Problemas del Desarrollo 86 (Mexico, UNAM) julio-septiembre 1991, vol. XXII.

Mattar, Jorge: “Export Promotion in Mexico” in Integration and Trade, Jan.-Aug. 1998, p.179-216.

Maloney, William F.: “Does Informality Imply Segmentation in Urban Labour Markets?” in The World Bank Economic Review (Washington) Volume 13, May 1999, Number 2.

Mayolo López, Fernando: «Apostó a la inflación y muy poco de lo que prometió pudo cumplir», in Proceso (México), 31 de octubre de 1994, no. 939.

Morales Aragón, Eliezer: «Tratado Trilateral de Libre Comercio: un desastre potencial para la agricultura mexicana» in Problemas del Desarrollo 96, (México, UNAM), vol.XXV, enero– marzo 1994.

Muñoz, Patricia: «Exigiría México la reparación del daño por el bloqueo en E.U.» en La Jornada, 13 de marzo de 1996.

Muñoz, Patricia; Figueroa, Carlos ; Villalpando, Rubén: «Limitar el ingreso de camiones mexicanos, posible violación al tratado, dijo el Secretario» en La Jornada, 21 de diciembre de 1995.

Muñoz, Patricia: «La planta productiva, al borde de la insolvencia; el único recurso es la moratoria, dice la ANIT», en La Jornada, 9 de noviembre de 1995.

Muñoz, Patricia: «En el TLC, más conflictos comerciales con EU», en La Jornada, 26 de octubre de 1995.

Muñoz, Patricia: «En 20 meses del TLC, ni más empleos, ni precios más bajos, ni mejor acceso a EU», en La Jornada, 7 de octubre de 1995.

Nava Salmerón, Ruben: «La Flexibilidad Laboral», in La Jornada Laboral (México, 23 de febrero de 1995).

Ntoko, Pierre: «Le Positionnement Commercial and Social du Mexique dans l’ALENA», in Revue Tiers Monde, XXXVI, no. 144, octobre–décembre 1995.

Ortega Pizarro, Fernando: «Lo que deja a los pequeños empresarios el régimen Salinista» in Proceso (México, 31 de octubre 1994).

Peters, Susanna: «Labour Law for the Maquiladoras: Choosing between Workers’ Rights and Foreign Investment», in Comparative Labour Law Journal (Philadelphia), no. 11–2, Winter 1990, pp. 227–248.

Pozas Horcasitas, Ricardo: «El Desarrollo de la Seguridad Social en Mexico» en Revista Mexicana de Sociología (México, IIS), año LIV/núm. 4, oct.–dic. 1992. 

Porter, M: “The competitive advantage of nations” in Harvard Business Review, vol.168, no. 2, March-April 1990,

Raynolds Laura; Myhre David; McMichael; Carro-Figueroa Viviana; Buttel Frederick: “The ‘New’ Internationalization of Agriculture: A Reformulation” in World Development (Oxford, New York, The Pergamon Press, 1993), vol. 21, no. 7, pp. 1101–1121.

Robinson, Sherman; Burfisher, Mary; Hinojosa-Ojeda Raúl; Thierfelder, Karen: “Las Políticas Agrícolas y la Migración en un Area de Libre Comercio de los Estados Unidos y México, Un análisis de equilibrio general computable” in El Trimestre Económico (México) enero–marzo de 1993, vol. LX (1), núm. 237.

Rodrik, Dani: “Getting Interventions right: how South Korea and Taiwan grew rich” in Growth Policy (Columbia University).

Ros, Jaime; Rodríguez Gonzalo: “Mexico: study on the financial crisis, the adjustment policies and agricultural development” in CEPAL Review, (Santiago de Chile), no. 33, December 1987.

Rowen, Hobart: «NAFTA Bashers Obscure the Truths of a Treaty» in Washington Post (May 9, 1993).

Rudolph, Barbara: «Free Trade Fever» in Time October 3, 1994.

Shaiken, Harley: «Two Myths about Mexico: it isn’t low tech and it won’t be high wage» in New York Times (August 22, 1993).

Silvers, Arthur L.; Rookley, Cameron E.; «Salarios y Tecnología en los patrones regionales del tratado comercial Estados Unidos-México» in Ensayos y Artículos (México, UNAM, 1994).

Solis de Alba, Ana Alicia: «La Ayuda Laboral Femenina, las Trabajadoras Mexicanas ante la Flexibilización», in Nueva Sociedad (Caracas) no. 115, September–October 1991, pp. 48-55.

Soria, Victor M.: «Nouvelles Politiques d’Ajustement et Re-légitimation de l’Etat au Mexique. Le Rôle du «Pronasol» et de la Privatisation des Entreprises Publiques» in Revue Tiers Monde no. 135, Juillet-Septembre 1993.

Székely, Miguel: « Poverty in Mexico during Adjustment », in The Review of Income and Wealth (Washington) series 41, number 3, September 1995.

Tenorio Adame, Antonio: «La Ruptura del Salario en el Tratado de Libre Comercio» en CRISOL (México), 1, oct.–nov. 1991, pp. 36–41.

Torres Torres, Felipe: «La Agricultura autosustentable en el marco de la integración comercial de América del Norte» in Problemas del Desarrollo 96, (México, UNAM), vol. XXV, enero–marzo 1994.

Tybout, James R; Westbrook, Daniel M.: “Trade Liberalization and the Dimensions of Efficiency Change in Mexican Manufacturing Industries” in Journal of International Economics (Washington) 1995, vol.39.

Weintraub, Sidney: «Free Trade in the Western Hemisphere» in The Annals of the American Academy of Political and Social Science (Washington) volume 526, March 1993.

Willmore Larry; Máttar, Jorge: «Trade liberalization and industrial restructuring», in CEPAL Review, no.44. 

Zimmerman, James: «Laboring to Find a Solution to the U.S.-Mexico Face off» in Legal Times, July 19, 1993.

III. PAPERS PRESENTED IN CONFERENCES

Alba, Francisco : «El Tratado de Libre Comercio y la Emigración de Mexicanos a Estados Unidos» paper presented in El Colegio de México (México, 1993).

Alarcón González, Diana: «Trade Liberalization, Income Distribution, and Poverty in Mexico: An Empirical Review of Recent Trends», paper presented in the Conference Mexico-Canada Relations: Past, Present and Future (Calgary, Canada, November 10–12, 1994).

Alarcón González, Diana: «La Inestabilidad del Programa de Estabilidad en México», paper presented in Departamento de Estudios Económicos (Tijuana, México, El Colegio de la Frontera Norte, julio 1995).

Alarcón González, Diana; Zepeda, Eduardo; «Notas para la discusión sobre el diseño de Políticas de Reducción de la Pobreza en México» en Reunión de Consulta sobre Política Social convocada por la Secretaría de Desarrollo Social (México D.F., 30–31 de marzo de 1995).

Feenstra, Robert C.; Hanson, Robert : «Foreign Investment, Outsourcing and Relative Wages», paper prepared for the conference Political Economy of Trade Policy (Columbia University, 11–12, 1994).

García, Brígida; De Oliveira, Orlandina: The Meaning of the Work Force Exclusion in Developing Countries, The Case of Mexico (paper presented at a conference on July 23-27, 2001, Bellagio, Italy).

Mckinley, Terry; Alarcón González, Diana: «Widening Wage Dispersion under Structural Adjustment in Mexico», paper prepared for the conference The Impact of Structural Adjustment on Labour Markets and Income Distribution in Latin America, Centre for International Studies of the University of Toronto and the Maestría en Política Económica de la Universidad Nacional de Costa Rica, (San José, Costa Rica, September 8–9, 1994).

Mckinley, Terry; Alarcón González, Diana: «Globalization: the effects on employment and inequality», working draft (1996).

Mertens, Leonard: «Productivity and Labor Market in Mexico», document for discussion in Proyecto Regional OIT/ACDI: Cambio Tecnológico y Mercado de Trabajo ( México, April 1995).

Negrete, Rodrigo: “Case Studies on the Operation of the Concept of Informal Employment as Distinct from Informal Sector Employment” paper prepared for the Sixth Meeting of the DELHI Group (Rio de Janeiro, 16-18 September 2002); National Institute of Statistics, Geography and Informatics (Mexico, INEGI).

IV. WORKS PUBLISHED BY INSTITUTIONS, WITH NO AUTHOR

CEPAL: Anuario Estadístico de América Latina y El Caribe (Santiago de Chile, 1992).

CIEMEX-WEFA: Servicio Macroeconómico de CIEMEX-WEFA (México, 1994).

CIEMEX-WEFA: Maquiladora Industry Analysis, January 1995, volume 8, number 1.

COLEF-COLMEX: Ajuste Estructural, Mercados Laborales y TLC (México, Fundación Friedrich Ebert, 1992), 398 pp. 

GATT: La Ronda Uruguay, Paso de gigante para el Comercio y el Desarrollo y Respuesta a los Desafíos del Mundo Moderno (Geneva, 1995) .

GATT: International Trade 1993 Statistics, (Geneva, 1993).

GATT: Trade Policy Review Mexico 1993 (Geneva, 1993), vols I & II.

ILO (International Labour Office): Comisión de Expertos en Aplicación de Convenios y recomendaciones: México (Oficina Internacional del Trabajo, Departamento de Normas Internacionales del Trabajo, Marzo 19, 2002).

ILO: Decent Work and the Informal Economy, International Labour Conference 90th Session 2002 (Geneva, 2002).

ILO: “Employment Policy in the Global Economy” Special Issue in International Labour Review 1995 (Geneva, ILO), vol. 134, number 4

ILO: Labour Law and Labour Relations, Briefing Note, No.11.

ILO: Labour Overview of Latin America and the Caribbean 2001 (Santiago, 2002).

ILO: Mesa Redonda Políticas de Competitividad y Empleo: El Rol de las Instituciones (México, Oficina de la OIT para Cuba, Haiti, México y República Dominicana, 1995).

ILO: “Urban Unemployment: Diagnosis and Challenge of the Nineties” in PREALC Newsletter (Chile, April 1992).

ILO: Women and Men in the Informal Economy, A Statistical Picture (Geneva, International Labour Office, Employment Sector, 2001).

ILO: Regulación del Trabajo de la Mujer en América Latina, Documentos de Base para el Seminario Regional Tripartito (Montevideo, 22 al 24 de julio de 1992), pp. 2–47.

ILO: Working Party on the Social Dimension of Globalization (Geneva, November 2001).

ILO: Working Party on the Social Dimensions of the Liberalization of International Trade (Geneva, November 1996)

ILO: Working Party on the Social Dimensions of the Liberalization of International Trade (Geneva, March 1997).

ILO: World Labour Report 1993 (Geneva, 1994), pp. 24–26.

ILO: Yearbook of Labour Statistics (Geneva, 1985 to 2002).

Inter-American Development Bank (IADB): Economic and Social Progress in Latin America 1987 Report (Washington D.C., 1988) Labor Force and Employment Section.

IADB: “Facing Up to Inequality in Latin America” in Economic and Social Progress in Latin America 1998-1999 Report (Washington D.C., 2000)

International Coalition for Development Action (ICDA): An Alternative Report on Trade, an NGO perspective on international trade, (February 1995).

IMF (International Monetary Fund): International Financial Statistics Yearbook (Washington, 1980 & 2001). 

IMF: “World Economic Outlook, Recessions and Recoveries” in World Economic and Financial Surveys (Washington, April 2002).

IMF: Direction of Trade Statistics Yearbook (Washington, 2001).

North American Agreement on Labor Cooperation (NAALC): Protection of Migrant Agricultural Workers in Canada, Mexico and the USA, Commission for Labor Cooperation, Biennial Report 1999-2000.

OECD (Organisation for Economic Co-operation and Development): Foreign Direct Investment for Development (Paris, 2002).

OECD: Indicators of Tariffs and Non-Tariff Trade Barriers (Paris, 1997).

OECD: Services Statistiques sur les Echanges Internationaux 1970-1994 (Paris, 1995).

OECD: Services Statistiques sur les Echanges Internationaux 1985-2002 (Paris, 2003).

OECD: OECD Economic Surveys: Mexico (Paris, 1995).

OECD: OECD Employment Outlook 2002 (Paris, July 2002).

OECD: OECD in Figures 2001 (Paris, 2001).

OECD: Statistics on International Transactions 1987-1996 (Paris, 1998).

OECD: The Benefits of Free Trade: East Asia and Latin America (Paris, 1994).

OECD: Trade Liberalization Policies in Mexico (Paris, 1996).

The Economist Intelligence Unit (E.I.U.): Country Profile: Hong Kong (London, 1996-1997).

E.I.U: Country Profile: Mexico (London, 1982).

E.I.U: Country Profile: Mexico (London, 1986–1987).

E.I.U: Country Profile: Mexico (London, 1993-1994).

E.I.U: Country Report: Mexico (London, 4th quarter 1996–1997).

E.I.U: Country Report: Mexico (London, 1996-19972002)

E.I.U: Country Report: Singapore (London, 1996-19972002)

E.I.U: Country Report: South Korea (London, 1996-1997)

E.I.U: Country Report: Taiwan (London, 1996-1997)

The World Bank: The East Asian Miracle, Economic Growth and Public Policy (New York, Oxford University Press, 1995).

The World Bank: The Political Economy of Poverty, Equity and Growth: Brazil and Mexico (Washington, Oxford University Press, 1992).

The World Bank: “International Labour Standards and Trade” in Annual World Bank Conference on Development Economics 1996 (Washington, D.C.,1996). 

The World Bank: Mexico Agricultural Sector Adjustment Projects I and II (Washington D.C., The World Bank, 1996).

The World Bank: World Development Indicators (Baltimore and London, John Hopkins University Press, 1997).

The World Bank: World Tables 1994 (Washington, 1994).

The World Bank: A World Bank Comparative Study Brazil and Mexico: Mexican Outcomes in Terms of Equity and Alleviation of Poverty (Washington, 1998), pp. 185.

UN: Report on the World Social Situation 2001 (New York, 2001).

UN: Statistical Yearbook for Latin America and the Caribbean (New York, 2002).

UN: World Economic and Social Survey 2001, Trends and Policies in the World Economy (New York, 2001)

UNCTAD: Trade and Development Report, 2002 (Geneva, 2002).

UNDP: Human Development Indicators, Statistics from the 1999 Human Development Report (New York, 2000).

UNDP: Human Development Report 2002: Deepening Democracy in a Fragmented World (New York, 2002).

UNESCO: Statistical Yearbook 1999 (Paris, 1999).

UNIDO: Reference Information: Mexico (Geneva, 2000).

United Nations: World Statistics Pocketbook (New York, 1997).

United Nations Association of the USA: “The Social Implications of a North American Free Trade Agreement” in Report of the Economic Policy Council (New York, UN Association of the USA, 1993).

WTO: Annual Report 1996 (Geneva, 1996).

WTO: Annual Report 2001 (Geneva, 2001).

WTO-OMC: Examen de las Políticas Comerciales de México, Informe de la Secretaría, 1997 (Geneva, 1997).

WTO-OMC: Examen de las Políticas Comerciales de México, Informe de Gobierno, 1997 (Geneva, 1997).

WTO: International Trade, Trends and Statistics 1995 (Geneva, 1996).

WTO: International Trade Statistics 2001 (Geneva, 2001).

WTO: The World Trade Organization Trading into the Future (Geneva, 2003).

WTO: Trade Policy Review, Mexico 1993 (Geneva, 1993).

WTO: Trade Policy Review, Mexico 1997 (Geneva, 1997).

WTO: Trade and Foreign Direct Investment (Geneva, 1996). 

WTO: Trade in Goods, Annual Report 2001 (Geneva, 2002).

WTO: Trade Policy Review Mechanism: International Trade Agreements, Participation of the Production Sector (Geneva, 1995) pp. 42-47.

V. OFFICIAL WORKS PUBLISHED

BANAMEX-ACCIVAL: Mexico Social 1992-1993 (México, 1993).

Banco de México: The Mexican Economy 1999, Economic and Financial Developments in 1998, Policies for 1999 (México, July 1999).

Constitución Política de los Estados Unidos Mexicanos (México, Editorial Porrua, 1989).

Embajada de México en Suiza: Nuestro México : Alta Prioridad a la Protección de Nuestros Recursos Naturales (Berna, Abril de 2000).

Description of the proposed North American Free Trade Agreement prepared by the Governments of Canada, the United Mexican States and the United States of America (August 12, 1992).

GATT: Adhesión Provisional de México, decisión del 17 de julio de 1986 (Geneva, 1986).

GATT: Protocolo de Adhesión de México al Acuerdo General sobre Aranceles Aduaneros y Comercio, firmado por México el 25 de julio de 1986 (Geneva, 1987).

Gouvernement de Canada: Coup d’œil sur l’Accord de Libre Echange Nord-Américan (Ottawa, 1993).

INEGI: Cuaderno de Información Oportuna (México) 1987-2001.

INEGI: Características del Personal Ocupado y Requerimientos de Capacitación en Establecimientos Manufactureros Mexicanos (México, 1988).

INEGI: Encuesta Anual del Comercio 2001 (México, 2002).

INEGI: Encuesta Industrial Mensual del INEGI (México) 1989-2000.

INEGI: Encuesta Nacional de Ingresos y Gastos de los Hogares 1984, 1989, 1992, 1994, 2000 (México).

INEGI –- STPS: Encuesta Nacional de Educación, Capacitación y Empleo 1991, 1993, 1999 (México).

INEGI – STPS: Encuesta Nacional de Empleo 1988, 1991, 1993, 1995, 1998, 2000 (México).

INEGI – STPS: Encuesta Nacional de Empleo y Capacitación en el Sector Turismo, tomo I & II (México, 1993).

INEGI: Encuesta Nacional de Empleo y Seguridad Social 2000 (México, 2001)

INEGI: Encuesta Industrial Anual 2000 (México, 2001).

INEGI – STPS - ILO: Encuesta Nacional de Empleo, Salarios, Tecnología y Capacitación en el Sector Manufacturero 1992, 1995 y 1999 (México).

INEGI: Indicadores de Competitividad de la Economía Mexicana num 5 (México, 1994).

INEGI: Indicadores de Empleo y desempleo (México, 1997). 

INEGI: Indicadores del Sector Manufacturero (México, 2001).

INEGI: Micro, Pequeña, Mediana y Gran Empresa, Censos Económicos 1999 (México, 2000).

INEGI; Revista Internacional del INEGI: México Información Económica y Social (México), vol. IV, no.2, mayo-agosto 1992-2000.

INEGI – Secretaría del Trabajo y Previsión Social (STPS): Características del Personal Ocupado y Requerimientos de Capacitación en Establecimientos Manufactureros Mexicanos (México, 1991)

INEGI – STPS: Encuesta Nacional de Micronegocios 1992 (México, 1994).

INEGI: Sistema de Cuentas Nacionales de México- Oferta y Demanda Global 1993-1997 (México, 1998).

INEGI: Sistema de Cuentas Nacionales de México- Indicadores de la Actividad Industrial, Serie Empalmada 1980-1996 (México, 1997).

INEGI: Sistema de Cuentas Nacionales de México- Indicadores Macroeconómicos del Sector Público 1988-2000 (México, 2001).

Instituto Mexicano del Seguro Social: Comparativo de Leyes del Instituto Mexicano del Seguro Social 1973-1997 (México, 5 de Noviembre de 2002).

Instituto Mexicano del Seguro Social: Ramas de la Seguridad Social, (México, Diciembre 1993).

Nacional Financiera (NAFINSA): La Economía Mexicana en Cifras 1990, 1992, 1995, 1998 (México).

NAFINSA: La Empresa Mexicana Frente al Reto de la Modernización 1993, 1994, 1995 (México).

NAFINSA: Programa Global para el Desarrollo de la Microempresa (México, noviembre 2000).

Secretaría de Comercio y Fomento Industrial (SECOFI): Resultados de la Nueva Política de Inversión Extranjera en México 1989-1994 (México, 1994), 56 pp.

SECOFI: Tratado de Libre Comercio en América del Norte, Monografías (México), tomos I & II.

SECOFI: Mensaje Presidencial 13 de agosto de 1993, Conclusión de las Negociaciones sobre los Acuerdos Paralelos al Tratado de Libre Comercio en América del Norte (México, 1993).

SECOFI: Acuerdo de Cooperación Laboral de América del Norte entre los Estados Unidos Mexicanos, El Gobierno de Canadá y el Gobierno de los Estados Unidos de Norteamérica (México, 1993).

SECOFI: Tratado de Libre Comercio: Acuerdos de Cooperación Ambiental y Laboral de América del Norte (México, 1993).

Secretaría del Trabajo y Previsión Social (STPS): La Mujer y el Trabajo en México (México, 1986), pp. 13–84.

STPS: Identificación de Sectores Clave en la Generación de Empleo Productivo en México (México, 1990).

STPS: Inversión Extranjera y Empleo en México (México, 1994), 145 pp.

STPS: El Sector Informal en México (México, 1993). 

STPS: Principales Indicadores de Empleo, Desempleo y Subempleo (México,1994).

STPS–COLEF : Mercados de Trabajo en la Industria Maquiladora de Exportación, coord. Jorge Carrillo (México, 1991).

The Governments of Canada, the United Mexican States and the United States of America: North American Free Trade Agreement (August 12, 1992).

U.S. Department of Labor-Bureau of International Labor Affairs: Foreign Labor Trends, Mexico 1994-1995 (Washington D.C. 1995).

U.S. International Trade Commission: Review of trade and investment liberalisation measures by Mexico and prospectives for Future United States-Mexican Relations (Washington, D.C. 1989) Investigation no. 332-282, phases I and II,.

U.S. International Trade Commission: “Impact of the North American Free Trade Agreement on the U.S. Workforce” in Summary of the U.S. International Trade Commission Study (Washington, 1995).

VI. PUBLICATIONS IN WEBSITES WITHOUT AUTHOR’S NAME

Financial Globalization: Manna or Menace, The Case of Mexican Banking (http://www.maquilaportal.com).

Flexibility and Labor Regulation: A Sociological Perspective (http://www.maquilaportal.com).

Foreign Direct Investment in Mexico is Expected to Reach US 12.377 Billion in 2000 (http://www.maquilaportal.com).

ILO: ILOLEX Las Normas Internacionales del Trabajo (http://www.ilo.org).

Labor Shortfalls Hampering Industry Growth (http://www.maquilaportal.com).

Maquiladora Industry Outlook, Maquiladora Labor Trends (http://www.maquilaportal.com).

Mexican and U.S. Authorities Extend Tax Regime Applicable to Maquiladoras beyond 2002 (http://www.maquilaportal.com).

Mexican Automotive Industry: A World-Class Player (http://www.maquilaportal.com).

Mexican Tax Reform 2002, Executive Summary (http://www.maquilaportal.com).

Mexico and Brazil Sign Trade Agreement (http://www.maquilaportal.com).

Mexico establishes an FTA with Guatemala, Honduras and El Salvador (http://www.maquilaportal.com).

Mexico-European Union Free Trade Agreement (http://www.maquilaportal.com).

Mexico Offers a Huge Business Potential in High-Tech Sectors (http://www.maquilaportal.com).

NAALC: Income Security Programs for Workers in North America (http://www.naalc.org).

NAALC: Review of the North American Agreement on Labor Cooperation (http://www.naalc.org/english/publications/review.ht).

NAFTA Boosts the Textile and Apparel Industry (http://www.maquilaportal.com). 

NAFTA: Land Transportation Dispute (http://www.maquilaportal.com).

NAFTA, the U.S. Economy and Maquiladoras (http://www.maquilaportal.com).

Seven Years of U.S.-Mexico Trade under NAFTA, A New Economic Policy to Improve Mexico’s Competitiveness (http://www.maquilaportal.com).

Special « Foreign Trade Zones » for Maquiladoras (http://www.maquilaportal.com).

The Exchange Rate, Unexpected Hostage (http://www.maquilaportal.com).

The New Retirement System (http://www.maquilaportal.com).

U.S.-Mexico Trade in Rubber and Plastics Flourishes (http://www.maquilaportal.com).

U.S.-Mexico Trade in Chemical Allied Products: A Success Story (http://www.maquilaportal.com).

U.S.-Mexico Trade in Electronics Transforms North America into a World-class Manufacturing Center (http://www.maquilaportal.com).

U.S.-Mexico Trade in Footwear and Leather Products Increases (http://www.maquilaportal.com).



Appendix V. Endnotes

1 While the theme of this Ph.D thesis has already been subject of wide scholarship, most of the existing studies are punctual and very specific covering only certain sectors or subsectors of the economy and for shorter periods of time. Until now, the author has not found any other thorough report that comprises the whole economy and the 15-year period covered by the present study.

2 Consists of all persons over 12 years old who are either employed, actively seeking work, or expecting recall from a layoff. The term labour force is a synonim of economic active population.

3 The National Survey of Manufacturing Workers (ENTRAM) 1993; the National Survey on Employment, Wages, Technology and Training in the Manufacturing Sector (ENESTyC) 1992. 1995 and 1999; the National Employment Surveys (ENE) 1988, 1991, 1993, 1995, 2000; the National Survey on Education, Training and Employment (ENECE)1991, 1993 and 1999; the National Households Income and Expenditures Surveys (ENIGH) 1984, 1989, 1992, 1994 and 2000; the National Survey on Employment and Social Security (ENESS) 2000; the National Survey of Microindustries 1992 (ENM); the Micro, Small Medium and Large Enterprise Survey Economic Census 1999; the National Survey of Wholesale and Retail Trade (EAC) 2001; and, finally, the survey “Characteristics of Employed Personnel and Training Requirements in Manufacturing Establishments” 1988. Other statistical information published by the Mexican Institute of Economics, Geography and Informatics (INEGI) such as the Sistema de Cuentas Nacionales de México 1988-2000, the Mexican Bulletin of Statistical Information 1987-2001. As well as very useful compilations of statistical information published by the National Financial Institution (NAFINSA) like the « Economía Mexicana en Cifras » 1990, 1992, 1995, and 1998.

4 Van Ginneken, Wouter; Socio-economic Groups and Income Distribution in Mexico; A Study prepared for the ILO World Employment Programme (London, Croom Helm, ILO, 1980); p.70-71.

5 In 1970, about 12 per cent of total production and about 7 per cent of gross domestic product was under the control of foreign, mainly North American, enterprises. The proportion of foreign enterprises in manufacturing, particularly in chemicals, rubber, tobacco and engineering, amounted to more than 60 per cent.

6 The IMF defines direct investment as capital flows used by private firms to produce future output including equity capital, reinvested earnings and other capital associated with various intercompany transactions between affiliated enterprises. Indirect or portfolio foreign investment comprises loans, bonds and stocks , and any other exceptional financing, such as debt-for-equity swaps.

7 Van Ginneken, op. cit. p.146.

8 Bernal, Sagahún; “The Impact of Multinational Corporations on Employment and Income: the Case of Mexico” (Geneva, ILO, 1976), p. 120-121.

9 Van Ginneken, op.cit. p. 68.

10 Van Ginneken, op. cit. p. 56-71.

11 Van Ginneken, op. cit. p. 146.

12 A tax levied on imports with the purpose of making imported goods more expensive inside a country than they are outside. Tariffs are levied as a fixed charge for each unit of goods imported.

13 Ros, Jaime; Mexico’s Trade and Industrialisation Experience since 1960’s, a reconsideration of past policies and assessment of current reforms in Trade Policy and Industrialization in Turbulent Times (London and New York, Routledge Press, 1994); p.172.

14 Buzcaglo, Jorge D.; Planning Alternative Development Strategies: Experiments on the Mexican Economy (Stockholm, Institute of Latin American Studies, 1984), p.19

15 Ros, Jaime; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; ILO working paper in World Employment Programme Research (Genève, International Labour Office, 1991) p.36.

16 Van Ginneken, op.cit. p.74



17 La Política Exterior de México: Desafíos en los Ochenta, ed. By Olga Pellicer (Mexico, 1983), Ensayos del CIDE, p.276.

18 Speech by Mexican Foreign Minister Manuel Tello at the OAS: Eight Meeting of Consultation of Ministers of Foreign Affairs (Punta del Este, Uruguay, January 22-31, 1962), p.18.

19 Politics in Mexico, ed. By George Philip (New Hampshire, Dover, 1985), p.168.

20 Garces Contreras, Guillermo: México 50 años de Política Internacional (Mexico, PRI, 1982), p.359.

21 Clines, Francis: “Mexico continues to differ with Reagan on Latin issue” in the New York Times, (May 17th, 1984).

22 Inter-American Development Bank: “Simulations of labor markets in two countries” in Economic and Social Progress in Latin America 1987 Report (Washington, Inter-American Development Bank, 1988), p.195.

23 An extra charge that a country places on imported goods to counter the subsidies or bounties granted to the exporters of the goods by their home governments. Countervailing duties can be imposed only after the International Trade Commission has determined that the imports are causing or threatening to cause material injury to national industry.

24 General Agreement on Tariffs and Trade; Trade Policy Review; Mexico 1993 (Geneva, GATT, July 1993), vol. I, p. 118.

25 Nogues, Julio and Gulati, Sunil; Economic Policies and Performance Under Alternative Trade Regimes: Latin America during the 1980s in The World Economy (Cambridge, Basil Blackwell, 1994); p.493-494.

26 Lustig, Nora “ed. by Laura Randall”; The 1982 Debt Crisis, Chiapas, NAFTA, and Mexico’s Poor in Changing Structure of Mexico, Political, Social, and Economic Prospects (London, M.E. Sharpe, 1996), p.159.

27 Ad-valorem tariffs are taxes that are levied as a fraction of the value of the imported good.

28 GATT: Trade Policy Review, Mexico 1993; op. cit. p.118-119.

29 Informe del Grupo de Trabajo de la Adhesión de México al Acuerdo General sobre Aranceles Aduaneros y Comercio adoptado el 15 de julio de 1986 (L/6010).

30 Decisión de 17 de Julio de 1986 (L/6024) Adhesión de México, Adhesión Provisional al Acuerdo General sobre Aranceles Aduaneros y Comercio; and, Protocolo de Adhesión de México al Acuerdo General sobre Aranceles Aduaneros y Comerdio firmado por México el 25 de julio de 1986 (L/6036).

31 Anti-dumping duties are tariffs imposed in response to alleged dumping: the selling of goods in a foreign country at a price which local producers regard as unfairly low. This may mean selling at less than the long-run average costs of production plus transport costs, or simply selling at a price with which producers in the importing country cannot compete.

32 The programme for the promotion of the pharmaceutical industry was abolished in October 1988, and that for the electronics industry in March 1993. Lastly, the Programme for the promotion of the computer industry ceased to be into effect on December 1993.

33 Lara Fernandez, Martha; Mexico’s Accession to the GATT, A turning point in Mexican foreign trade policy and its possible implications (Genève, IUHEI, 1987); Mémoire du diplôme, p.24.

34 Teichman, Judith “ed. by Manuel R.Agosin and Diana Tussie”; Dismantling the Mexican State in Trade and Growth New Dilemmas in Trade Policy: The Political Economy of North American Free Trade (New York, St. Martin’s Press, 1993); p. 179.

35 Ten Kate, Adriaan: Structural Adjustment in Mexico in Trade and Growth, New Dilemmas in Trade Policy (St. Martin’s Press, 1993), p.245.

36 Sanders, Thomas G.; Mexico’s Three Modernizations in UFSI Field Staff; Latin America Reports (Indianapolis, 1990), no. 9, p.5.



37 Lustig, Nora and Ros, Jaime “ed. by Lance Taylor”; Mexico in The Rocky Road to Reform: Adjustment, Income Distribution, and Growth in the Developing World (London, the MIT Press, 1993), p.276.

38 An import quota is a direct restriction on the quantity of a good imported.

39 Alarcón, Diana: La Inestabilidad del Programa de Estabilidad en México (Tijuana, El Colegio de la Frontera Norte, 1995), p.2).

40 Lustig, Nora and Ros, Jaime; Mexico in The Rocky Road to Reform; op. cit p.280.

41 Moffett, George: “Mexico sees itself in no-win situation as a result of tilt toward U.S.” in The Christian Science Monitor, April 16, 1987.

42 The effective rate of protection is defined as (Vt-Vw)/Vw, where Vw is value added at world prices and Vt value added in the presence of trade policies.

43 GATT; Trade Policy Review; Mexico 1993, op.cit. vol. 1, p.6.

44 Even if Mexico’s debt was reduced, it still represented at the beginning of 1994, 124 billion U.S. dollars. The second highest, after Brazil, among developing countries.

45 GATT; Trade Policy Review; Mexico 1993, op.cit. p.61.

46 GATT; Trade Policy Review; Mexico 1993, op.cit. p.129.

47 Riordan, Roett: Political and Economic Liberalization in Mexico, at a Critical Juncture? (Lynne Rienner Publishers, 1993), p.4-5.

48 Wilkie, James W. and Lazin, Olga, M. “ed. by James W. Wilkie, Carlos Alberto Contreras and Catherine Komisaruk”; Mexico as Linchpin for Free Trade in the Americas in Statistical Abstract of Latin America (Los Angeles, UCLA Publications, University of California, 1995); volume 31, part 2.

49 GATT; Trade Policy Review; Mexico 1993; op. cit. p.48.

50 The Economist; American Survey, Waking up to NAFTA (September 18, 1993).

51 Secretaría de Comercio y Fomento Industrial: Tratado de Libre Comercio en América del Norte, Monografías (Mexico, 1994), p.36-47.

52 Grinspun, Ricardo and Cameron, Maxwell; The Political Economy of North American Free Trade (New Yord, St, Martin’s Press, 1993), p.16.

53 Vinod K. Aggarwal; APEC and NAFTA commonalities and differences in North American Free Trade Agreement prospects and implications (Berkeley, July 1993), p.29.

54 Governments of Canada, The United Mexican States and The United States of America; Description of the Proposed North American Free Trade Agreement (August 12, 1992), p.14.

55 Treatment accorded to most favoured trading or investment partners.

56 OECD: Trade Liberalisation Policies in Mexico (Paris, 1996), p. 65.

57 Description of the Proposed North American Free Trade Agreement prepared by the Governments of Canada, the United Mexican States and the United States of America, op.cit. p. 3

58 Description of the Proposed North American Free Trade Agreemen, op.cit. p. 1.

59 Gobierno de México: Acuerdo de Cooperación Laboral de America del Norte entre el Gobierno de los Estados Unidos Mexicanos, el Gobierno de Canada y el Gobierno de los Estados Unidos de America; 1993, p. 31.



60 Hufbauer, Gary Clyde and Schott Jeffrey J.: NAFTA an Assessment (Washington D.C. Institute for International Economics, 1993) p. 160.

61 Office of the United States Trade Representative: How Complaints would be Handled.

62 U.S. Department of Labor-Bureau of International Labor Affairs: Foreign Labor Trends in Mexico 1994-1995 (Washington D.C., 1995), p.7.

63 Robinson, Ian; North American Trade as if Democracy Mattered (Ottawa, Washington, Canadian Centre for Policy Alternatives, International Labour Rights Education and Research Fund, 1993), p.41.

64 U.S. Department of Labor-Bureau of International Labor Affairs: Foreign Labor Trends in Mexico; op. cit. pp. 4–5.

65 Muñoz Ríos, Patricia: En 20 meses del TLC, ni más empleos, ni precios más bajos ni mejor acceso a EU en La Jornada (México, 7 de octubre de 1995).

66 Llanos, Raúl; Pide la IP actuar con energía en las divergencias con EU sobre el TLC ; en La Jornada (Mexico, 11 de enero de 1996).

67 Teichman, Judith, op.cit. p.183.

68 Benería, Lourdes; Subcontracting and Employment Dynamics in Mexico city in the Informal Economy; Studies in Advanced and Less Developed Countries (Baltimore and London, The John Hopkins University Press, 1989), p.174.

69 Alarcón, Diana; La Inestabilidad del Programa de Estabilidad en México», p.7

70 Faux, Jeff; NAFTA delusions in The Washington Post (Washington D.C., September 3, 1993).

71 Sanlam; The Mexico Crisis in Economic survey (South Africa, March 1995), p.1.

72 Anderson, Sarah; Cavanagh, John; Hansen Kuhn, Karen; Heredia Carlos and Purcell, Mary; No Laughter in NAFTA: Mexico and the United States Two years After (Institute for Policy Studies, The Development Gap, Equipo Pueblo 1996), p.3.

73 La Jornada ; La deuda mexicana superó los 170 mil mdd, advierte la CEPAL, 13 de febrero de 1996.

74 WTO; International Trade Statistics (Geneva, 2001), p.48-50.

75 Mexico was a signatory founding member of the Latin American Integration Association established by the Treaty of Montevideo of 1980.

76 GATT: Trade Policy Review; Mexico 1993; op.cit. p. 48.

77 Villareal Gonda, Roberto; Jiménez Gomez, Adrian “ed. by Turnham, David; Foy, Colm; and Larraín, Guillermo”: Economic Opening, Financial liberalisation and Employment: the Mexican Experience in Social Tensions, Job Creation and Economic Policy in Latin America, (Paris, OECD, 1995), p.45.

78 Wilkie, James and Lazin, Olga M.: Mexico as Linchpin for Free Trade in the Americas; op.cit. p.1184.

79 Currently, Mexico imports from the European Union: automotive parts, telephones, PC boards, medicines and dry milk. At the same time, exports from Mexico to the EU include: oil engines, autoparts, coffee, copper and sugar.

80 Formal employment or social security registered workers in the public sector (mainly ISSSTE) only augmented by 200 thousand workers from 1987 to 1998.

81 Secretaría del Trabajo y Provisión Social (STPS)-United States of America Department of Labor (USDOL): The Informal Sector in Mexico (Mexico city, Washington D.C., 1990), p.13a.

82 Secretaría del Trabajo y Provisión Social (STPS)-United States of America Department of Labor (USDOL): The Informal Sector in Mexico; op.cit. p.15.



83 Secretaría del Trabajo y Provisión Social (STPS)-United States of America Department of Labor (USDOL): The Informal Sector in Mexico; op.cit. p.50.

84 Secretaría del Trabajo y Provisión Social (STPS)-United States of America Department of Labor (USDOL): The Informal Sector in Mexico; op.cit. p.35

85 Gutierrez Garza, Esthela; La Crisis Laboral y la Flexibilidad del Trabajo 1983-1988 in Testimonios de la Crisis y los Saldos del Sexenio 1982-1988 (México, Siglo XXI, 1992); p. 208

86 Secretaría del Trabajo y Provisión Social (STPS)-United States of America Department of Labor (USDOL): The Informal Sector in Mexico; op.cit. p.37.

87 INEGI; Negrete, Rodrigo, Case Studies on the operation of the concept of “Informal Employment” as distinct from “Informal Sector Employment; Sixth Meeting of the Delhi Group, (Rio de Janeiro, 16-18th September 2002).

88 ILO: Compendium of official statistics on employment in the informal sector, (Geneva, ILO, 2002), STAT working paper, 2002, no. 1, p. 4.

89 ILO’s Employment Sector; Women and Men in the Informal Economy, A Statistical Picture, (Geneva, ILO. 2002), p.38.

90 E.I.U.: Country Profile Mexico 1996-1997 (London, 1997), p.30.

91 ILO’s Employment Sector: Women and Men in the Informal Economy, A Statistical Picture; op.cit. p.39.

92 International Labour Office: Report of the Director General “Decent Work”, International Labour Conference, 87th Session, 1999 (Geneva, ILO, 1999); p.3-4.

93 Mesa Lago, Carmelo: “Social Security and the Informal Sector in Latin America; the Case of Mexico” in Work without Protection: Case Studies of the Informal Sector in Developing Countries; (Washington, U.S. Department of Labour, Bureau of International Labor Affairs, 1993), p.42.

94 Gutierrez Garza, Esthela; Crisis Laboral y Flexibilidad del Trabajo; op.cit. p. 207.

95 Sernau, Scott; Service Sector Growth and Informal Employment in Economies of Exclusion: Underclass Poverty and Labor Market Change in Mexico, (London, Praeger, 1995); p. 91.

96 Mesa Lago, Carmelo; op.cit.,; p. 43.

97 Open unemployment rates comprise all persons older than 12 who during the reference week did not work, but were available for work and tried to incorporate themselves to an economic activity in the two previous months without any success.

98 Scott Sernau: Economies of Exclusion, Underclass poverty and labour market change in Mexico; op.cit., p.136.

99 Nava Salmerón, Rubén: La flexibilidad laboral in La Jornada Laboral, (México, 23 de febrero de 1995), p. 3.

100 Benería, Lourdes; op.cit.p. 184.

101 Benería, Lourdes; op.cit. p. 175.

102 Benería, Lourdes; op.cit. p. 179.

103 Benería, Lourdes, op.cit. p. 183.

104 The ILO defines subcontracting as a system whereby an employer sublets part of the work to other employers. Thus, subcontracted workers are defined as personnel not depending legally on the establishments.



105 Pozas, María de los Angeles “ed. by Laura Randall”; Flexible Production and Labor Policy: Paradoxes in the Restructuring of Mexican Industry in Changing Structure of Mexico, Political, Social, and Economic Prospects (London, M.E. Sharpe, 1996), pp. 369–370.

106 Gutiérrez Garza; La Crisis Laboral y la Flexibilidad del Trabajo 1983–1988 in Testimonios de la Crisis y los Saldos del Sexenio 1982-1988; op.cit.,; p. 203.

107 Lara Flores; op.cit. p. 43.

108 García, Norberto E.; Ajuste, Reformas y Mercado Laboral; (Santiago, OIT-PREALC, 1993), p.190.

109 Ros, Jaime; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; op.cit. p. 49

110 CIEMEX-WEFA: The Exchange Rate, Unexpected Hostage, Article 19.

111 CIEMEX-WEFA: NAFTA boosts the Textile and Apparel Industry, article 29e.

112 INEGI: Micro, pequeña, mediana y gran empresa; Censos Económicos (Mexico, 1999).

113 Weintraub, Sidney “ed. by Laura Randall”; Mexico’s Foreign Economic Policy: From Admiration to Disappointment in Changing structure of Mexico, Political, Social and Economic Prospects; (London, M.E.Sharpe, 1996), p. 51.

114 Nacional Financiera: Programa Global para el Desarrollo de la Microempresa; (Mexico city, November, 2000).

115 García, Norberto E.; Ajuste, Reformas y Mercado Laboral; op.cit. p. 197.

116 Oliveira, Orlandina; García, Brígida: Expansión del Trabajo Femenino y Transformación Social en México: 1950- 1987, in Centro de Estudios Sociológicos México en el Umbral del Milenio; (México, El Colegio de México, 1990); p. 346.

117 Teresa Rendón and Carlos Salas, ibid, p. 28.

118 ILO’s Employment Sector: Women and Men in the Informal Economy, A Statistical Picture (Geneva), 2002, p.39.

119 Bryan R. Roberts, p. 115.

120 La Jornada : En México uno de cada cinco nños trabaja, informa la CEPAL ; 12 de enero de 1996.

121 Ejidos are small holdings owned by communities and farmed by individual peasants.

122 Levy Santiago and van Wijnbergen Sweder; Agriculture in the Mexico-U.S. Free Trade Agreement; The World Bank: Policy Research Working Papers; Latin America and the Caribbean; (Washington, The World Bank, August 1992); p.28.

123 Buzaglo, Jorge; op.cit. p.30-31

124 Hewitt de Alcántara, Cynthia: Restructuración Económica y Subsistencia Rural, El Maíz y la Crisis de los Ochenta ; (El Colegio de México, Instituto de Investigaciones de las Naciones Unidas, Centro Tepoztlán, 1991), p.28-29.

125 Plant, Roger: Labour Standards and Structural Adjustment in Mexico in Interdepartmental Project on Structural Adjustment; (Geneva, International Labour Office, 1993), Occasional Paper no.10, p.16.

126 Ros, Jaime and Rodriguez, Gonzalo Rodriguez; Mexico: study on the financial crisis, the adjustment policies and agricultural development in CEPAL Review; (Santiago de Chile, United Nations Economic Commission for Latin America and the Caribbean, December 1987), no.33, p. 150.

127 Ros, Jaime and Rodriguez, Gonzalo Rodriguez; Mexico: study on the financial crisis, the adjustment policies and agricultural development; op.cit. p.152.



128 World Bank: Agricultural sector adjustments Projects I and II, (Washington, World Bank, 1994), p.9-11.

129 Garibay Flores, José-Luis: «Nouvelle Loi Agraire au Mexique, Les Ejidos en Question», in Coopératives et Développement ; (Centre Interuniversitaire de Recherche, d’Information et d’Enseignement sur les Coopératives, Québec, 1993-1994) ; p.97-98

130 Garibay Flores ; op.cit. p.101.

131 Levy and van Wijnbergen: Agriculture in the Mexico-U.S. Free Trade Agreement; op.cit. p.28.

132 Gomez Flores, Laura; La Jornada; (Mexico, July 9, 1996).

133 Barkin, David; Distorted Development, Mexico in the World Economy; (San Francisco, Westview Press, 1993), p. 5.

134 Harvey, Neil “ed. by Laura Randall”: The Reshaping of Agrarian Policy in Mexico in Changing Structure of Mexico, Political, Social and Economic Prospects; (London, M.E. Sharp, 1996), p.109.

135 In 1995, after the devaluation, small subsidies in fertilizers and machinery were reintroduced.

136 Anderson, Cavanagh, Hansen-Kuhn, Heredia and Purcell; No Laughter in NAFTA: Mexico and the United States, Two years after; op. cit. p.5.

137 Gomez, Manuel Angel and Caraveo, Felipe de Jesús: La Agromaquila hortícola: la nueva forma de penetración de las transnacionales, in Comercio Exterior; (México, 1990), vol. 40, núm. 12.

138 Lara Flores; op.cit. p.46.

139 Morales Aragón, Eliécer; Tratado Trilateral de Libre Comercio: un desastre potencial para la agricultura mexicana, in Problemas del Desarrollo; (Mexico, UNAM, January-March 1994); vol XXV, p.180-181.

140 Freebairn, Donald K.: Posibles pérdidas y ganancias en el sector agrícola bajo un Tratado de Libre Comercio entre Estados Unidos y México en Revista Mexicana de Sociología, año LIV/núm. 1 (México, UNAM, enero-marzo de 1992); pp. 16 & 22.

141 Hufbauer, Gary Clyde and Schott, Jeffrey J.: NAFTA an Assessment; (Washington D.C., Institute for International Economics, 1993).

142 Gómez Flores, Laura ; Se importarán 6 millones de toneladas de maíz in La Jornada ; (México, 20 de diciembre de 1995).

143 WTO: International Trade Statistics 2001, (Geneva), p. 99, 101.

144 Freebairn, Donald; op.cit. p.23.

145 Garibay-Flores, José Luis; op.cit. p.101.

146 Hewitt de Alcántara, Cynthia; op.cit. p.61.

147 Most of the information on the manufacturing sector comes from the ENESTyC survey and comprises a sample of 5071 establishments divided into nine industrial sectors and four size categories of establishments.

148 Ros; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; op.cit. p. 46.

149 Ros; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; op.cit. p. 51

150 WTO; International Trade Statistics 2001; (Geneva, WTO, 2001); p.54, 115.



151 Ros; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; op.cit. p. 45.

152 Alarcón Gonzalez, Diana; Changes in the Distribution of Income and Trade Liberalization in Mexico, p. 63.

153 Mertens. Leonard; Productivity and Labor Market, México; (Mexico, Oficina Internacional del Trabajo, 1995), p. 8.

154 Alarcón Gonzalez, Diana; La Inestabilidad en el Programa de Estabilidad en México; op.cit. p. 8.

155 Kopinak, Kathryn; The Maquiladorization of the Mexican Economy in The Political Economy of North American Free Trade; (New York, St. Martin’s Press, 1993), p. 141.

156 Kopinak; op.cit. p.149.

157 Kopinak; op.cit. p. 142.

158 Hanson, Gordon H.: Industria, especialización y libre comercio in Ajuste Estructural, Mercados Laborales y TLC; (México, El Colegio de México-El Colegio de la Frontera Norte, 1992), p. 316.

159 Kopinak; op.cit. p. 143-144.

160 Christman, John; Labor Shortfalls Hampering Industry Growth; CIEMEX-WEFA; article 45 e.

161 Wilson, 1990, p. 150.

162 CIEMEX-WEFA; Maquiladoras: Still Growing; article 96 e.

163 Johnson, Scott; Mexico’s China Obsession in Newsweek; (November 4, 2002).

164 GATT: Trade Policy Review Mexico 1993; op.cit. p. 155

165 GATT: Trade Policy Review Mexico 1993; op.cit. p. 156.

166 United Nations Association of the USA- Report of the Economic Policy Council; The Social Implications of a North American Free Trade Agreement; (New York, UN Association of the USA, 1993); p. 11.

167 «NAFTA a Free Trade Zone Emerges, Sector by Sector Key Provisions of Trade Agreement», in The Journal of Commerce, August 13, 1994.

168 SECOFI; Tratado de Libre Comercio en América del Norte, Monografías; tomo I, (México, 1994); p. 135–138.

169 WTO: International Trade Statistics: (Geneva, WTO, 2002), p.128-129.

170 WTO: International Trade Statistics; (Geneva, WTO, 2002), p.141-142.

171 Ros; The effects of government policies on the incentives to invest, enterprise behaviour and employment: A Study of Mexico’s economic reforms in the eighties; op.cit. p. 29–30.

172 CIEMEX-WEFA; U.S. Mexico Trade in Electronics Transform North America into a World-Class Manufacturing Center; Article 52e, November 2002.

173 CIEMEX-WEFA; U.S.- Mexico Trade in Rubber and Plastics Flourishes under NAFTA; article 47e.

174 CIEMEX-WEFA; U.S.-Mexico Trade in Chemical and Allied Products: A Success Story; article 62e.

175 SECOFI: Tratado de Libre Comercio en América del Norte, Monografías; op.cit. tomo II., p. 44–46.

176 GATT: Trade Policy Review Mexico 1993, op.cit. p. 117



177 Hanson, Gordon; op.cit. p. 321.

178 Hinojosa Ojeda, Raúl and Robinson, Sherman “ed. by Lustig, Nora; Bosworth, Barry P.; and Lawrence, Robert Z; Labor Issues in a North American Free Trade Area in North American Free Trade Assessing the Impact;(Washington D.C., The Brookings Institution, 1992), p. 103.

179 WTO: International Trade Statistics, (Geneva, WTO, 2002)), p.145-149.

180 CIEMEX-WEFA: U.S.-Mexico Trade in Footwear and Leather Products Increases, 2002.

181 WTO: International Trade Statistics, op.cit. p.154-155.

182 GATT: Trade Policy Review Mexico 1993; p. 162.

183 Economist Intelligence Unit; Country Profile Mexico 1992/93; (London, E.I.U., 1994); p.25.

184 Weintraub, Sydney; Modeling the Industrial Effects in North American Free Trade; (Washington D.C., The Brookings Institution, 1992); p. 135.

185 Sernau: The Service Sector, Tourism and Community Development; op.cit. p. 103.

186 Real wages are calculated by dividing the nominal wage by the Consumer Price Index for each year and by multiplying by 100. Real wages suggest how much can be purchased with workers’ nominal wages. Real wages are useful in comparing the purchasing power of workers’ earnings over a period of time when both nominal wages and product prices are changing.

187 Gutierrez Garza, Esthela ; Reconversión Industrial y Lucha Sindical; (Caracas, Fundación Friedrich Ebert, Editorial Nueva Sociedad, 1989), pp. 48-50.

188 María de los Angeles Pozas “ed. by Laura Randall”; Flexible Production and Labor Policy: Paradoxes in the Restructuring of Mexican Industry in Changing Structure of Mexico, Political, Social, and Economic Prospects, (London, M.E. Sharpe, 1996), p. 139.

189 Mckinley, Terry and Alarcón, Diana: Widening Wage Dispersion under Structural Adjustment in Mexico in Conference on the Impact of Structural Adjustment on Labour Markets and Wages Distribution in Latin America; (San José, Costa Rica, 1994), pp. 4–6.

190 Revenga, Ana; Employment and Wage Effects of Trade Liberalization: the Case of Mexican manufacturing; (Washington, The World Bank, 1995), p.1.

191 Mckinley and Alarcón: Widening Wage Dispersion under Structural Adjustment in Mexico; op.cit. p. 18.

192 Main Brian G.M. and Reilly; The Employer Size-Wage Gap: Evidence for Britain in Journal of Political Economy (1989); vol. 97, pp. 1027–59.

193 Hanson, G. H. (2003). What have happened to wages in Mexico since NAFTA? Implications for hemispheric free trade. National Bureau of Economic Research, Inc. Working Paper #9563.

194 Generally, women have a higher educational attainment in the social field, while men in technical careers.

195 Alarcón, Diana and Mckinley, Terry; Gender Differences in Wages and Human Capital: Case Study of Female and Male Urban Workers in Mexico from 1984 to 1992 in Frontera Norte; (Mexico, vol. 6, núm 12, July–December 1994), p. 43.

196 Riz, Liliana de: El problema de la condición femenina en América Latina: la participación de la Mujer en los Mercados de Trabajo. El caso de México in La Mujer y el Trabajo en México; (Secretaría del Trabajo y Previsión Social, México, 1986), p. 25.

197 The consumer price index is derived by what a fixed “bundle” of consumer goods and services (including food, housing, clothing, transportation, medical care, and entertainment) costs each year. The cost of this bundle in the “base”



period is then set to equal 100, and the index numbers for all other years are set proportionately to this base period. The consumer price index is the most widely used mesure for comparing the prices consumers face over several years.

198 I.L.O.; 2000 Labour Overview in Latin America and the Caribbean; (Lima, LI.L.O., 2000), p-.15.

199 A numerical measure of the degree of income inequality among individuals that can range from a value of zero (perfect equality) to 1.0 (perfect inequality. If income were perfectly distributed, the Gini coefficient would equal zero; the more unequal the distribution of income, the more closely the coefficient approaches 1.0

200 Alarcón, Diana; Changes in the Distribution of Income in México and Trade Liberalization; (San Diego, El Colegio de la Frontera Norte, 1994), p. 96.

201 Vidal Garza: UTIP (University of Texas Inequality Project), http://utip.gov.utexas.edu/ 202 Working Paper no.1

203 Working Paper no. 5 and Working Paper no. 8

204 Alarcón; «Changes in the Distribution of Income in México and Trade Liberalization; op.cit. pp.74 and 126.

205 Lustig, Nora and Ros, Jaime “ed. by Lance Taylor”: Mexico in The Rocky Road to Reform; Adjustment, Income Distribution, and Growth in the Developing World; (London, The MIT Press, 1993), p. 286.

206 Buzaglo; op.cit. p. 42.

207 Alarcón; Changes in the Distribution of Income in México and Trade Liberalization;op.cit. p. 45.

208 Report of the Economic Policy Council of the United Nations Association of the USA: The Social Implications of a North American Free Trade Agreement, (New York, 1993), p. 16.

209 Zapata, Francisco; What Flexible is , rigid can be: the Mexican Labor Market in the eighties; (México, El Colegio de México), p. 7.

210 «Ajuste, Reformas y Mercado Laboral», p. 196.

211 Alarcón; Changes in the Distribution of Income in México and Trade Liberalization; op.cit. pp. 135–143.

212 Lustig; Debt Crisis, Chiapas, NAFTA, and Mexico’s Poor; op.cit. p. 162.

213 UNESCO; Statistical Yearbook 1999; (Paris, UNESCO Publishing and Bernan Press); p. II-53 to II-55.

214 Lustig: Debt Crisis, Chiapas, NAFTA, and Mexico’s Poor; op. cit. p. 160.

215. Lorey, David E and Mostkoff Linares, Aida: Mexico’s Lost Decade 1980-90: Evidence on Class Structure and Professional Employment from the 1990 Census; in Statistical Abstract of Latin America, vol. 30, part. 2 (Los Angeles, UCLA Latin American Center Publications, University of California, 1993).

216 Mungaray-Lagarda, Alejandro and Ocegueda, Juan M.: Community Social Service and Higher Education in Mexico in Statistical Abstract of Latin America, vol. 36 (Los Angeles, UCLA Latin American Center Publications, University of California, 1996).

217 INEGI: Social and Demographic Statistics, Population Receiving Social Assistance, 1991-1995.

218 Mesa-Lago, Carmelo; op.cit. p. 86

219 Arteaga García, Arnulfo and Sierra Romero Sergio; Human Resource Development in Mexico: Recent Policies, in Training Policy Studies; (Geneva, ILO, 1996), p. 16.

220 U.S. Department of Labor: Foreign Labor Trends, p. 14.

221 GATT: Trade Policy Review Mexico 1993; vol. I, p. 126-127.



222 CIEMEX-WEFA: Mexican Automotive Industry: A World Class Player; article 228e, September 2002.

223 NAFIN: La Economía Mexicana en Cifras 1998, p. 516.

224 Administradoras de Fondos para el Retiro.

225 Close to 44 per cent of informal workers in urban centres migrated from rural areas either to follow the family or to find a job.

226 Andreas, Peter; U.S. Mexico: Open Markets, Closed Border in Foreign Policy; no. 103, summer 1996.

227 Bustamante, Jorge “ed. by Richard S. Belous and Jonathan Lemco”: Mexico’s interests and the NAFTA in NAFTA as a model of Development; (Washington, Friedrich Ebert Stiftung, 1994), p. 125.

228 Verhaal, J. Cameron: Political Economy of Latin America: “The Effect of High Skilled Mexican Migration to the United States: Is Mexico Experiencing a Brain Drain?, April 19, 2001

229 Stiglitz, Joseph: Employment, social justice and societal well-being; (ILO, Geneva, November 2001).

230 I.L.O.: 2001 Labour Overview, Latin America and the Caribbean; (I.L.O. Lima), p.17.

231 Nacional Financiera: Mercado de Valores: An update on Mexico’s Economy and Finance, Mexican Migration to the U.S.; (Mexico, NAFIN, July-August 2001), p.39.

232 World Bank: The East Asian Miracle, Economic Growth and Public Policy (Washington, Oxford University Press), p.19.

233 E.I.U.: Country Profiles, 1996-1997, South Korea (p.52) and Taiwan (p. 13).

234 op. cit. The East Asian Miracle, Economic Growth and Public Policy, p.19.

235 op. cit. The East Asian Miracle, Economic Growth and Public Policy, p.19.

236 Trade and Growth: New Dilemmas in Trade Policy, An Overview, p.26

237 OECD: The Benefits of Free Trade: East Asia and Latin America (Paris, 1994), Trade Policy Issues 3, p.29

238 E.I.U.: Country Profiles, 1996-1997, South Korea, Taiwan, Singapore and Hong Kong.

239 Bruce F. Johnston : « Rural development in the U.S. , Mexico, Japan, and Taiwan » in U.S.-Mexico Relations Agriculture and Rural Development, (Stanford, Stanford University Press, 1988), p.30-31.

240 op.cit. The Benefits of Free Trade: East Asia and Latin America, p.25-27.

241 op.cit. The Benefits of Free Trade: East Asia and Latin America, p.25-27

242 op.cit. The Benefits of Free Trade: East Asia and Latin America, p. 74-75

243 WTO: International Trade Statistics 2001; Geneva, p. 50, 54, 59.

244 op. cit. The Benefits of Free Trade: East Asia and Latin America, p.27. and p.71.