Mexico’s Informal Employment Crisis Deepens as 850,000 New Jobs Lack Contracts

Mexico City, MEX – Mexico’s labor market delivered seemingly positive news in early 2025: a surge of approximately 850,000 new jobs created in the first half of the year. Yet, beneath this headline figure lies a deepening crisis of Mexico informal employment. New data from Mexico’s National Institute of Statistics and Geography (INEGI, July 2025) reveals that nearly all these new positions lack formal contracts, social security, or legal protections, pushing the country’s informal workforce to a record high of 54.9%. This precarious shift signals profound economic instability despite low official unemployment.

Mexico informal employment

Record Job Growth Masks Alarming Informal Surge

The INEGI report paints a stark picture of duality in Mexico’s job market. While total employment grew significantly, the quality of those jobs deteriorated sharply. Formal employment – positions offering contracts, benefits like health insurance and pensions, and legal protections – actually decreased by over 278,000 positions during the same period. Instead, the growth was overwhelmingly driven by a staggering increase of nearly 674,000 self-employed workers, a category heavily associated with informality. This surge means that more than half of all Mexican workers (54.9%) now operate outside the formal economy, the highest proportion ever recorded by INEGI. The loss of approximately 220,000 salaried positions further underscores the financial strain on businesses, forcing them to cut formal payrolls.

Underemployment and Broader Measures Reveal True Stress

The headline unemployment rate of 2.7% masks significant underlying weaknesses. More revealing metrics highlight the pressure on Mexican workers:

• Underemployment Spike: The rate of workers laboring fewer hours than they desire or needing additional work rose to 7.4%, indicating widespread income insufficiency.
• Expanded Unemployment: A broader measure of labor market slack, which includes those loosely attached or discouraged from seeking work, approached 10.3%, suggesting millions face precarious connections to employment.
  Economists point to these figures as evidence that the low headline unemployment rate reflects not strength, but a survival strategy where individuals are forced into any available work, however unstable or poorly paid. “The data confirms a troubling trend: job creation is happening, but it’s predominantly in low-quality, unprotected sectors,” noted a labor economist at the Colegio de México, referencing the INEGI release. “This isn’t sustainable growth; it’s a symptom of economic fragility.”

Escalating Risks for Workers and the Economy

The relentless growth of Mexico informal employment carries severe consequences:

• Worker Vulnerability: Informal workers lack access to social security, health benefits, unemployment insurance, and legal recourse against exploitation. They face heightened risks during illness, injury, or economic downturns.
• Economic Fragility: Reduced consumer purchasing power among informal workers weakens domestic demand. Government tax revenues also suffer, limiting funds for public services and infrastructure.
• Investment Concerns: For businesses and international investors, the trend signals long-term economic instability. A workforce lacking security and disposable income hinders sustainable market growth. The Mexican Employers’ Confederation (COPARMEX) has repeatedly warned that high informality stifles productivity and formal investment.

Mexico’s record job creation in early 2025 is a double-edged sword, revealing a workforce increasingly pushed into the shadows of the informal economy. With over half of all workers lacking basic protections and benefits, the nation faces heightened social and economic vulnerability. Urgent, targeted policy interventions focused on reducing the cost of formality, strengthening enforcement, and boosting formal sector growth are crucial to reversing this dangerous trajectory and building a more resilient, equitable economy for all Mexicans.

Must Know

What is informal employment in Mexico?
Informal employment encompasses work without formal contracts, social security registration, or legal protections mandated by labor laws. This includes self-employed street vendors, domestic workers paid off the books, day laborers, and employees in unregistered businesses who lack access to benefits like health insurance or pensions.

How many Mexicans work in the informal sector?
According to the latest INEGI data (July 2025), a record 54.9% of Mexico’s total workforce is now engaged in informal employment. This translates to tens of millions of workers operating without job security or social safety nets.

Why is informal employment increasing in Mexico?
The surge is driven by economic pressures. Businesses facing financial strain are cutting formal salaried positions (down 220,000 in H1 2025) or avoiding hiring formally due to costs. Simultaneously, workers unable to find formal jobs are forced into self-employment or casual work to survive, leading to the 674,000 jump in that category.

What are the main risks of a large informal economy?
Key risks include heightened worker vulnerability to poverty, illness, and exploitation; reduced government tax revenue for public services; weakened domestic consumer spending power; and increased long-term economic instability and inequality, deterring productive investment.

Does a low unemployment rate mean Mexico’s job market is healthy?
No. Mexico’s 2.7% official unemployment rate is low partly because people cannot afford to be unemployed; they take any work, even informal. Rising underemployment (7.4%) and broader labor slack (approx. 10.3%) reveal the true stress, showing many are working less than they need or want.

What can be done to reduce Mexico’s informal employment?
Experts advocate policies like simplifying business registration and tax compliance, reducing non-wage labor costs for small firms, strengthening labor law enforcement against evasion, expanding access to credit for micro-businesses to formalize, and improving social protection systems that aren’t solely tied to formal employment contracts.