Mexico's Boom all On The Sly

From 2000 to 2004, the underground economy was Mexico's sole source of employment growth, and it's getting bigger all the time. Some economists estimate that as many as half the nation's workers eke out a living in subsistence jobs because there is nothing for them in the legitimate economy and no safety net for the jobless.

Wow, I had no idea the size of Mexico's underground economy.

Andrés Manuel López Obrador, mayor of Mexico City and a 2006 presidential hopeful, credits that entrepreneurial grit for easing tensions in a nation whose formal sector is creating far fewer than the 1 million jobs a year needed just to keep pace with population growth.

The friction is most evident in Mexico City, where an estimated 500,000 itinerant vendors ply their trade, hawking phone cards at traffic lights, bootleg CDs in the subway and snacks from kitchens set up on sidewalks.

In the first four years of President Vicente Fox's term that began in 2000, Mexico did not create a single net new position in its formal economy. That's the universe of legally registered businesses that pay employment taxes and enroll workers in the social-security system.

In contrast, off-the-books employment surged, fueled largely by street vendors, whose ranks ballooned by 40 percent from 2000 to 2003 to more than 1.6 million. In all, the Mexican government estimates that slightly more than 11 million Mexicans, or about one-quarter of the work force, toil in the underground economy. Some academics and economists here say half Mexico's work force is informal.

That shadow activity is weighing heavily on Mexico's development. Few in the informal sector pay business or income taxes. It's one of the reasons that Mexico, with one of the world's 15 largest economies, ranks with the likes of Sri Lanka when it comes to collecting revenue to pay for education, infrastructure and basic public services. That is hurting its global competitiveness.

via The Seattle Times