The Mexican economy is sluggish. Some of the reasons for its poor performance are wellknown:
oil revenues are down, many public institutions are weak and the level of infrastructure
is low. In addition, Mexico operates under a heavy burden of regulation and monopoly that
discourages investment, innovation and growth.2
These factors inhibit investment in industry,
infrastructure and people, and retard economic prosperity and growth. This paper reviews these
well-known causes of Mexican economic stagnation, but focuses its attention on two additional
factors that should receive more attention.
The Mexican family is under stress. The proportion of children living in single parent
families is increasing. For a number of reasons, these families invest less in their children. This
trend slows down the growth of skills in Mexico. Family policy is one aspect of a successful
growth policy.
We also examine the origins and consequences of Mexico’s large informal labor market.
Informality is associated with lower productivity, diminished investment and a weak fiscal base
to support public investment. At issue is why the informal sector is large and what should be
done about it.
Some analysts attribute the growth of components of the informal sector to an expansion
of social benefits to persons excluded from the formal sector. In our view, this factor is
relatively minor. Informality is a response to a flawed regulatory system. The major reason for
the size of the informal sector is taxation, regulation, and rigidity. To reduce informality,
Mexico has to reform the tax and regulatory system that stifles its economy.
Two powerful forces operate in economies around the world. First, the technology of
production has changed and continues to change. It increasingly requires skilled labor. An
economy with a skilled workforce can more easily adapt to the pace of technological change.