The formalization of employment in Mexico

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1 Regional forum for the exchange of knowledge between countries in Latin America and the Caribbean The formalization of employment in Mexico Patricia Martínez Cranss Undersecretary for Employment and Labour Productivity August, 2015 Lima, Peru

2 Situation diagnosis Government transition period (September-November 2012): Based on the official data available, the Transition Group identified informality as one of the main weaknesses in the Mexican labour market. Moreover, a change in the way informality was measured in Mexico was going to be announced, 1 which would elevate the official number of informal workers from 14.2 to 29.2 million, raising the Labour Informality Rate from 29.1% to 59.6%, 2 in order to reflect the true scale of the problem. December 2012 March 2013: The Secretariat of Labour and Social Welfare performed a diagnosis of the situation of informal labour in the 32 federal states of Mexico. The problem was presented to the President of the Republic, Enrique Peña Nieto, and a commitment was made to create a programme to formalize employment. 1 The method defined by the ILO in 2008 was used in Mexico for the first time. 2 2 Data for the second half of 2012 for the population aged 15 and over. National Occupation and Employment Survey (Encuesta Nacional de Ocupa

3 Design of the strategy April June 2013: The Secretariat of Labour and Social Welfare (STPS) analysed the different alternatives for preventing increasing informality and identified that within formal enterprises and institutions, both public and private, there was a large number of workers without social security coverage. Specific targets were agreed to formalize employment with the governments of 32 federal districts. July 2013: In a measure without precedent in Mexico, the President of the Republic, Enrique Peña Nieto, announced the creation of the Programme for the Formalization of Employment 2013 ( Programa para la Formalización del Empleo 2013 ), with employers organizations and trade unions making a commitment to promote actions to formalize employment. With a view to implementing the programme, the Federal Government working through the STPS and the Mexican Institute of Social Security (IMSS) signed 32 coordination agreements with local governments. 3

4 Programme for the Formalization of Employment 2013 Actions established in the Coordination Agreements: Monitoring of compliance with the provisions of the law on the right of workers to enjoy all the benefits of social security Promoting the registration of all workers to the obligatory social security scheme among employers Simplifying the procedures involved in registering workers with the IMSS with the aim of making them faster, more accessible and more transparent for employers Encouraging voluntary insurance through the Obligatory Scheme of the IMSS Promoting and supporting the registration of workers in central and local governments with the relevant social security institution. 4

5 Programme for the Formalization of Employment 2013 Efforts deriving from the Programme: Working Groups were established in each federal district body with the participation of employers and trade union organizations and the National Institute of Statistics and Geography (INEGI) in order to monitor and assess the actions taken in terms of compliance with state targets. With the support of the Public Service Secretariat, the obligation of registering all workers to the relevant social security scheme was promoted among suppliers and contractors working with the Federal Government. More than 43,000 labour inspections were performed, focusing on detecting workers who did not have social security coverage. In such cases, employers were supported to regularize the situation of the workers. 5

6 Results of the Formalization Programme 2013 Atypical growth in the number of workers registered with the IMSS. Official statistics made it possible to estimate the extent to which the number of workers registered with the IMSS had increased per percentage point of GDP growth: approximately 141 million. 1 Based on this calculation, with economic growth of 1.6% in 2013, the number of workers registered at the IMSS would have increased by 227 million. However, the figure recorded for December 2013 was 463 million: the surplus of more than 236 billion workers registered to the system was explained by the effects of formalization. Variation in the number of workers registered to the IMSS , , due to formalization Dato esperado 1 Source: STPS with data from the IMSS and INEGI. The public data available from the IMSS starts in Average annual variations were calculated for the period 1998 to Dato registrado 6

7 Actions in 2014 As part of the Tax Reforms approved at the end of 2013, the Scheme for Small Taxpayers and Scheme for Medium Taxpayers set out in the Income Tax Law were eliminated. In their place, a new Tax Incorporation Scheme (Régimen de Incorporación Fiscal, RIF) was created, which offers subsidies for up to 10 years for the payment of worker/employer contributions, with measures to facilitate the payment of social security contributions. It came into force on 1 January In April 2014, the President of the Republic, Enrique Peña Nieto, published a Decree awarding incentives to promote the incorporation of workers to the social security system with the aim of incentivizing formal employment. This new Social Security Incorporation Scheme (Régimen de Incorporación al Seguro Social, RISS), which subsidizes the payment of social security contributions so that employers and workers can access IMSS and INFONAVIT services and benefits, came into force on 1 July Institute of the National Workers Housing Fund (INFONAVIT). 7

8 Actions in 2014 The Governments of the Federal Districts made their own efforts to promote formalization, mainly by means of regularizing the situation of public employees who did not have social security coverage. The STPS carried out an intensive campaign to disseminate measures on the national level in order to raise awareness on the benefits of formal work under the slogan Con el trabajo formal, ganas tú, gana tu empresa y gana México ( With formal work, you win, your company wins and Mexico wins ). 8

9 Crezcamos Juntos Programme Within the framework of the Tax Reform driven by the President of the Republic, Enrique Peña Nieto, on 8 September 2014 the programme Crezcamos Juntos was launched to continue the formalization strategy. 9

10 Results Between the third quarter of 2012 and the second quarter of 2014, the Labour Informality Rate fell by 2.2 points and has continued this downward trend up to the second quarter of % 60.0% 59.5% 59.0% 60.0% Labour Informality Rate (as a percentage of the total occupation in employment) 59.8% 58.5% 58.0% % 57.5% 57.0% 57.6% IV I II III IV I II III IV I II III IV I II III IV I II III IV I II Source: STPS with data from the National Occupation and Employment survey (ENOE). 10

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