Interview: Angel Gurría

What factors are contributing to Mexico’s economic rebound and continued strong growth?

ANGEL GURRÍA: The Mexican economy has faced repeated delays to recovery over the past few years due to a combination of weak global demand, domestic financial problems and, until more recently, insufficient structural reforms. The ongoing strengthening of the US economy, an easing of the construction sector’s problems and a comprehensive reform package by the current administration are all contributing to improving the investment climate. In contrast to the recent slowdown observed in other emerging economies, Mexican manufacturing activity has been growing rapidly – supporting a robust formal job market and boosting household incomes and consumption growth.

Implementation of the reform package has begun, and includes major structural measures targeted at encouraging competition and improving sectors such as education, labour and the tax system. These reforms could increase the GDP per capita growth rate by as much as 1% annually over the next 10 years, but only if Mexico implements new reforms to improve the rule of law, tackle informality and reduce inequalities.

According to OECD estimates, Mexico has lost more than 10% in growth to rising inequality. How can this issue be addressed?

GURRÍA: These are rough estimates, but they reflect the potential negative effect that inequality has on growth. First of all, educational opportunity, equity and quality should be enhanced and the secondary school dropout rate reduced. This will promote intergenerational social mobility and improve the population’s skills base. Improving learning opportunities during compulsory education and making upper secondary education more relevant to the needs and interests of students as well as the labour market can achieve this.

Informal employment is another issue that affects growth and widens inequalities. Informal sector firms do not provide training opportunities and invest little or nothing in their workers, dampening productivity and prosperity. Moreover, informality has an adverse impact on both equity and efficiency, since workers experience a higher degree of job insecurity and have no access to social rights such as unemployment insurance, health care and pensions. The prevalence of informality hinders the government’s capacity to develop a social transfer system that contributes to reducing inequalities, and the current system has had a lesser impact on reducing inequality compared to other countries with similar income levels. A universal pension scheme and the establishment of unemployment insurance, integrated within the broader employment protection legislation, would help redress the situation. In addition, special incentives that strengthen productivity among micro and small enterprises, helping them expand and create formal jobs, will be key. This would not only help to create more formal jobs, but also higher quality jobs.

Mexico is the only OECD country in which young people spend more time working than studying. How does this limit economic growth?

GURRÍA: In the long run, education is a key determinant of growth. Secondary school dropout rates in Mexico remain very high. This means that youngsters who leave school early tend to join the informal labour market, where they have little chance to improve their skills or receive additional training. This, in turn, has a negative impact on overall productivity and growth. The sector has seen improvements in educational attainment and enrolment – almost all children aged 4-15, and more than half of those aged 15-19 are enrolled in school. However, the quality of education remains low, and spending is inefficient and regressive. The current administration has taken steps towards substantially improving teaching quality through new legislation. The implementation of these measures will be crucial to keep children in school, improve the number of graduates from tertiary education, and also to strengthen human capital and economic growth.