Mexico's Productivity Lower Than 25 Years Ago, Warns Former IDB Executive

The stark warning from economist Santiago Levy, former vice-president of the Inter-American Development Bank (IDB), that Mexico's productivity has not only failed to grow but has actually decreased over the last quarter-century should serve as a wake-up call. Levy, now a senior fellow at the Brookings Institution, identifies the deep chasm between Mexico's formal and informal economies as the primary culprit behind this persistent stagnation.

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En 25 años, el país no ha logrado aumentar su productividad. Es más, es más baja hoy que hace 25 años

This isn't just an academic observation; it's the core of Mexico's struggle to achieve more robust economic growth. Despite enjoying macroeconomic stability and benefiting from trade agreements, particularly with the United States, the nation remains trapped in a low-growth cycle. Levy's analysis points to a polarized economy: a highly productive segment of formal businesses integrated into global value chains, contrasted with a vast majority of low-productivity informal enterprises.

The implications are profound. Levy calculates that a peso invested in capital and labor within a formal company yields 39% more in GDP than the same peso placed in an informal one. His projection that reallocating resources from the informal sector to the formal sector could boost national productivity by 27% and per capita income by 17% without any additional investment or work hours is a powerful illustration of the inefficiency plaguing the Mexican economy.

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Hoy podríamos tener un ingreso per cápita 17 % más alto, sin que nadie trabajara ni un minuto más, sin que nadie invirtiera y solo hiciéramos las cosas de mejor manera

This diagnosis aligns with concerns voiced by leaders within Mexico's financial sector, such as Eduardo Osuna of BBVA México, who notes the country's failure to break the 2% growth barrier for decades. The data on labor formality, hovering around 44% for years, and the rise of informal businesses, paint a grim picture. Levy emphasizes that many in the informal sector aren't operating illegally but within a system that makes remaining outside formal regulations more economically advantageous. This structural issue, coupled with reforms that increase labor costs without addressing the underlying informality, risks further entrenching the problem, hindering Mexico's potential for widespread prosperity.

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no ha roto el 2 % de crecimiento en los últimos 25 años