Ebrard’s battle: productivity vs. his own political project
Mexico’s Economy Minister, Marcelo Ebrard, speaking at the National Palace in Mexico City earlier this year. Image credit: Sipa US.
Mexico’s National Institute of Statistics (INEGI) released a report this week showing a decline in worker productivity under the López Obrador administration. There was a slight rebound in early 2024. However, El Economista reports overall labour productivity remains 4% below 2018 levels. The report follows a speech by Economy Minister Marcelo Ebrard last week, where he outlined his goal to bring more workers into the formal sector. Both issues reflect long-standing challenges in Mexico’s economy.
Carlos Ramírez is a partner at Mexico City-based public policy consultancy Integralia. He points out that productivity in Mexico has been sluggish for decades. However, he also says, “López Obrador (AMLO) exacerbated the problem.”
That’s because AMLO’s policies explicitly intertwined economic policies with political goals. Business leaders highlight rising costs in the formal sector as a key factor. While increases in the minimum wage may be overstated — most formal employers already paid above the minimum — other labour reforms created disruptions. These include the outsourcing ban, expanded holiday allowances, and increased payroll taxes. A shortened work week is also likely on the way. According to the National Alliance of Small Merchants, opening a business now involves a six-month process due to overwhelming paperwork. These measures collectively raise operational costs.
Rising insecurity compounds the problem. AMLO’s hands-off approach to organised crime forces businesses to absorb soaring security expenses. In manufacturing hubs like Guanajuato and Tamaulipas, companies are investing heavily in security. Combined with labour reforms, this further raises costs. Doing business in Mexico now rivals the expense of advanced economies like Texas.
When your economy’s future growth hinges on US nearshoring, that’s a serious issue.
Ramírez explains: “The unitary cost of labour went up 25% under AMLO. That’s not necessarily a bad thing, but clearly today it is much more expensive to hire someone than six years ago.” Ramírez also points to a political motive behind rising informality. “Politically speaking, informality has a benefit. It makes people more dependent on social programmes, which is exactly what [helped] Morena win this year.”
Informal employment has decreased by 5% since 2010, according to Statista. Most of that progress happened under President Peña Nieto. During López Obrador’s tenure, informality fell by just 1%. Ramírez sees this as part of a larger failure to address structural economic challenges. “Nobody cares about informality,” he says. “And that’s a bad omen if you really want to tackle the big problem of growth that Mexico faces.”
The government’s 2025 budget assumes economic growth of 2–3%. But many, including Ramírez, expresses doubts about this forecast. Mexico faces demographic and geopolitical pressures that threaten recovery. Its long-standing demographic dividend is nearing its end, which will add to labour market challenges. If Donald Trump returns to office and reimposes tariffs or disrupts migration flows, Mexico will face a short-term shock.
Some suggest Mexico’s own migrant influx might help offset this trend. Migration’s impact on productivity is hotly debated worldwide, with conflicting studies on its benefits. Migration might boost productivity in certain sectors, but there is no guarantee it will solve broader issues. Two factors stand out. First, migrants face steep barriers to joining Mexico’s formal economy. Second, Mexico’s long-standing issues with skills, training, and education exacerbate these challenges. Furthermore, nothing about the government’s treatment of migrants suggests it plans to capitalise on their potential.
Ebrard appears genuine in recognising informality’s impact on the economy. But his effort risks amounting to nothing beyond rhetoric. The government’s budget and policies offer few tools to support his goals. Mexico’s productivity stagnation is not Morena’s creation, but tackling it will require cohesive policies, better incentives for formalisation, and comprehensive security reforms. These have been in short supply over the past six years. Ebrard has his work cut out to manifest them in 2025.