Causes of growth in the informal labor sector in Mexico's Northern Border Region

Abstract

The Mexican border region, along with other developing regions, is experiencing increasing pressure from a growing labor supply. Demand for labor in the modem industrial sector has not kept pace with this expansion. The necessity of survival prevents the resulting excess supply from being unemployed. Instead, this labor is forced to seek employment in the turning its creativity into the self-generation of income. This unorganized sector, which has come to be called the urban informal sector, consists of owners and employees of micro-enterprises (usually defined as no more than four employees), independent producers and unpaid family members (Ortiz 1985:105). It is characterized by ease of entrance, but also by low wages, marginalized living, lack of security and lack of opportunity to create physical or human capital. Its labor supply operates with a minimum of physical resources, but manages to compete by remaining hidden from government regulations, taxes and by accepting very low wages. The informal sector interacts with and subsidizes the formal sector by providing needed services cheaply and by maintaining a flexibility and adaptability that allows it to respond quickly to changing demands. Much of its market is directed toward other members of the informal sector, providing a cheaper source of goods and services. Growth in demand for labor in the informal sector does not depend on its own capacity for capital accumulation, but on labor surplus from the industrial sector and on possibilities of producing or selling anything that will generate income (Souza and Tokman 1976:355). Expansion of the informal sector in Mexico should not be viewed as an inevitable part of the development process. The size of this sector relative to the size of the formal labor sector is strongly influenced by government policies. Altering these policies could alter the proportion of workers channeled into marginalized living. For purposes of this study the urban informal labor sector is treated as a residual (U). It includes all labor (L) which is not in the urban industrial sector (N) and not in agriculture or mining (A). It can be expressed as: (1) U = L - N - A. That this residual has grown so rapidly during the course of Mexican border region development is regarded as a failure of the economic system. This study empirically examines the impact of various policies and cultural changes that have occurred in the Mexican border region on the growth of the informal labor sector during the last thirty years.