Means for job creation - Economía - Reeditor.com - red de publicación y opinión

. First, a stable and growing macroeconomic environment is critical for job creation. In this respect, although Mexico was strongly hit by the crisis, it has managed to keep macroeconomic stability; however it is still facing challenges to boost sustained economic growth. Macroeconomic stability is fundamental for job creation but it is clearly insufficient to encourage economic growth and socioeconomic development. Mexico needs to apply counter-cyclical fiscal and monetary policies to support aggregate demand, stimulate growth and the creation of formal employment.

Easing pain, in a phasing-out format, and targeted job subsidies could be also relevant. However, Mexico faces some fiscal constraints to move forward on this matter. The non-oil tax revenue is the lowest among the OECD countries, accounting for 9% as a share of GDP. This reality imposes a financial constraint to carry out broader pro-growth, pro-poor investment and social development strategies to encourage growth and job creation. A fiscal reform may be politically justified under such conditions, aimed at financing targeted job subsidies and an unemployment insurance, for instance, among other things.

The investment climate could be also improved in Mexico. In this respect, it is well-known for still suffering from barriers to competition. There are many private monopolies in various sectors, such as telecommunications. An improved investment climate could be achieved by opening up those sectors where currently nil competition exists. Such institutional reform would bring more private domestic and/or foreign investment, leading to stimulating innovation, higher productivity and lower prices which have a positive impact on consumers.

After the domestic financial crisis that took place in 1995, Mexico has been facing challenges to guarantee greater access to finance. This is another area with which Mexico could encourage private employment creation. Micro, small and medium enterprises need easier access to financial resources. In achieving so, the country would grow faster and job creation would take place.

An active industrial policy and a revisited role of the government are also needed for job creation in Mexico. As it has been observed mainly in East Asian countries, a targeted, effective and non-distorting-market government intervention to (1) protect infant industries, manage and harness technological and informational spillovers, and (2) treat coordination and capital market failures preventing negative externalities, has been critical for sustained growth and employment generation.

Undoubtedly, another effective way for job creation in Mexico is the strengthening of the labor market institutions. In this respect, a labor reform seems to be required to build coherent incentives for enterprises and workers to create employment and join the formal sector, respectively. The wage determination mechanism should be also revisited since many people in several states, such as Chiapas, earn only between 1 and 2 minimum salaries. In addition, Mexico also needs to focus on promoting productivity and reducing income inequality by ensuring a universal social security system and inclusive growth in labor markets. Nowadays, the interaction between social security, social protection, and Oportunidades (the conditional cash transfer program) seem to have created incoherent incentives, which distort labor markets and lead to a larger informal sector, lower productivity, lower economic growth and lower wages, making harder for poor households to break the intergenerational transmission of poverty (Levy, 2007). Therefore, social security/protection, the social policy and the labor market institutions should be also carefully revised with the aim of stimulating sustained growth, job creation and poverty reduction in Mexico.

Reference:

Levy, Santiago (2007). Productividad, crecimiento y pobreza en México. ¿Qué sigue después de ProgresaOportunidades? Inter-American Development Bank. Research Department. June.