Making Mexico’s Formalization Reforms Work For Youth

November 13, 2015

Youth entrepreneurship training programs in Mexico showcase the potential expanding education access can unleash.

Tempting as it might be to focus on Mexico’s slowing GDP growth in recent years to assess the country’s progress, there’s another set of figures with important bearing on its future. Between 2009 and 2014, the country’s unemployment rate for young people (aged 15-24) has barely budged, from 10.3% to 9.5%. Even these numbers likely understate the scope of the challenges faced by Mexico’s young workers. Nearly 60% of the country’s population is employed in the informal sector, a rate that is one of the highest of the OECD and in Latin America. The young are especially likely to be employed there and subject to the poor working conditions, lower salaries and lack of labor and security rights that characterize it.

In view of the social costs and the missed opportunities for productivity such a large informal sector represents, the government’s efforts to support formalization in the last five years have attracted much attention. In 2012, for example, the government introduced regulations for outsourcing, hourly and part-time work, and specified conditions for probationary work and training schemes. Over the long term, the reform is expected to improve the links between training and jobs. Bécate, the main government program to improve youth employment, provides cash and in-kind grants to support training, with the similar goal of opening pathways to jobs with better pay and social security benefits. Mexico’s main anti-poverty program, Prospera (the latest incarnation of the conditional cash-transfer program previously known as Progresa), now has a training element, and offers job-search assistance for those who finish school.

So, what can be done to maximize the impact of these measures?

Making formalization flourish requires starting upstream: Education

As a recent McKinsey report notes, a big part of the reason that so many of Mexico’s young end up in the informal sector is the mismatch between the needs of modern, formal-sector jobs and the supply of skilled and educated workers. Gabriel Martínez, head of the Public Policy Program at the Instituto Tecnológico Autónomo de México (ITAM), states that “The educational system itself is the core institution to be modernized. There is not even enough scope to educate half the population in school age.” Martínez adds: “My estimates for the education gap suggest that Mexican youth may be living with this problem for the foreseeable future.” Official data from the Secretaria de Educación Pública (the ministry of education) forecasts the number of 18-to-25-year-olds graduating at the upper secondary education level (with 12 years of schooling) to grow from more than 2.7 million in 2015 to 3.5 million in 2025. This segment, however, will represent less than half (41%) of that overall age group in the country.

Finding high-skilled employment without completing secondary school is difficult. And despite government efforts to encourage entrepreneurship, “working for an employer is still seen as a desired path among young people, especially those from families with limited means,” says Linda Chiu, director and vice president of Licensed Partners at the Network for Teaching Entrepreneurship (NFTE).


Showcasing the potential of empowered entrepreneurs

Starting a business can thus seem like an unattainable goal. To tackle this challenge, NFTE is engaging students with hands-on learning activities that foster entrepreneurship. Teachers in the program “make entrepreneurship accessible to their students,” says Ms Chiu. By encouraging students to start their own businesses, NFTE aims to spur “innovation, risk-taking and a future orientation, all of which can play a pivotal role in self-employment and local job creation.”

Against the broader challenge of scaling education in Mexico, NFTE focuses its efforts on underresourced communities, working with its program partner in Mexico, Fundacion É, to foster collaboration with local educational and governmental organizations. The National Institute of Entrepreneurship, for example, contributes to Fundacion É by providing business-plan competition judges and mentors to participants of NFTE’s BizCamp, a two-week-long intensive entrepreneurship program.

Such initiatives don’t negate the need for improving education access on a broader scale. As Susan W. Parker, an academic specializing in development economics at the Centro de Investigación y Docencia Económica, states, “Improving the quality of education overall and particularly in rural and poor communities—which have very few resources and suffer as a result from much higher dropout rates—is the most important investment Mexico can make for permanently reducing youth unemployment.” Rather, stories like those from NFTE’s BizCamps highlight the potential of young people in these underserved communities, and therefore underscore the urgency of expanding access to power Mexico’s economic development. Speaking of BizCamps held in Mexico, Ms Chiu notes, “Students walked away with the tools and foundation to create their own business and, more importantly, an entrepreneurial mindset that will put them on multiple pathways to future success.”


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