Can We Eliminate Mexico's Massive Informal Economy? Should We? El Daily Post
go to original May 3, 2016

Franc Contreras reports from Mexico where around 30 million workers are not paying official taxes. (CCTV Global Business)

It’s hard to imagine a Mexico without an informal sector. But maybe that’s because we haven’t had a chance to even consider such a thing in living memory. There are sound economic reasons for wanting to bring Mexico’s vast “gray economy” into line. Doing it, however, is another story.

The official goal, at all levels of government in Mexico, is to eliminate the informal economy. It’s a goal not just because of the lost tax revenue that off-the-books employment and unregistered businesses cost the public treasury. Nor is it just because informal vendors are a nuisance.

It’s because the immense size of the Mexican informal sector is a drag on economic growth.

The numbers tell the story.

As of the end of 2015, Mexicans who work in the informal sector make up more than half the labor force.

In other words, 53.4 percent of Mexicans who earn money do it without paying taxes or even being registered with the tax service (SAT) of the Finance Secretariat. They are not enrolled in the Social Security System. They are not officially employed or registered as a business.

Still, they’re undeniably part of the landscape across Mexico. They can be, for example, domestic helpers or seasonal farm workers who are not formally hired as employees. Or they can run informal businesses, such as street vendors or self-employed service providers of any kind who get paid in cash without submitting invoices and don’t declare their earnings.

Reducing informality in economic activity and off-the-books employment has been a longstanding public policy goal, or at least talked about as such. But informality continues to increase. This year’s 53.4 percent is up from last year’s 52.8 percent.



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