News, Insights and Best Practices for Manufacturing in Mexico

Mexican Workforce sees Changes on Horizon in 2012

12 May 2012

Category: Labor & Economics, Manufacturing in Mexico

There was a time in Mexico when the sight of an elderly person was a rarity. In 1970, just one of 20 Mexicans was over 70 years-old.

What a difference half-century, or so, can make: In 2040, that number will be 1 in 4.

The country is getting ready for -- or, better, is already in the process of experiencing a demographic ride, which will affect the nature and characteristics of the Mexican workforce. An understanding of its reaches will help any manufacturing executive to make informed long term decisions about what kind of labor availability will exist, and where the greatest numbers of Mexican workers are likely to be found.

Implications for Manufacturers in Mexico?

In all likelihood, over the long term, changing demographics will translate into rising wages and a shrinking of the 1:5 to 1:10 salary differential with US workers. It may also result in, however, a world of business and Mexico manufacturing opportunities as increasingly wealthier Mexican households invest more in education, increase their own buying power and consume more goods and services.

But that is the speculation. First, some facts:

Mexico led much of the world in population growth during the 20th Century. Life expectancy grew from 35.5 years for men and 37 for women in 1930 to 60.9 and 65.3, respectively, by 1975. By the early 2000´s, age expectancy exceeded 75 for both genders. At the same time, fertility reached 6.5 children per woman in the early 1960´s. At one end, infant mortality, and at the other end, better health care, have combined to catapult Mexico´s population from 13.6 million people in 1900 to the current 112 million.

But, at least in the case of Mexico, what goes up is absolutely coming down, a study by Transatlantic Council on Migration, http://www.migrationpolicy.org/transatlantic, shows. That´s what happens when a birth rate drops to 2.1 per woman, basically a zero population growth. If Mexico doesn´t check its falling birth rate, or take measures to encourage immigration, its population levels off around 2030 and then follows a follow trajectory similar to that of Italy, whose native-born population in 2050 is expected to be several million less than today´s 59 million..

Independent of world economic trends, key factors in what happens to Mexico´s workforce: the U.S. economy and the role of women in the workforce.

Poor economic circumstances in the United States have slowed the flow of undocumented Mexican workers to the U.S. In essence "what has been an economic safety valve has all but vanished," says Miguel Torruco, a Mexican City university founder and member of the team working on the candidacy of Mexican 2012 presidential hopeful Andrés Manuel López. This has meant that a pool of between 400,000 and 500,000 workers a year, about 10 per cent of whom had university degrees, are now forced to find work in Mexico.

Women today comprise 37 percent of the Mexican workforce. This almost double the number of their participation was in 1970. Any disproporionate participation, withdrawal or change in women´s education habits could make a difference if the future, either positive or negative.

The number of unemployed and underemployed professionals in Mexico is expected to reach its peak in 2015 at 1.2 million, the Transatlatic study showed, before falling gradually until 2025, when the surplus disappears and "a net requirement of professionals emerges."

Another wildcard: demographic changes within Mexico and an "evening out" of the regional imbalances in Mexico´s 32 states.

A study by Ernst & Young done four years ago shows that while income in Mexico´s northern in 2004 was $6,250 per capita, income in south was $4,475 and that number drops to $3,656 when excluding the Federal District and Morelos states are excluded. That number, in turn, drops to less than $3,300 if tourism areas of Yucatan, Campeche and Quintana Roo are excluded.  The upshot is that there is, and will continue to be available, plenty of untapped labor in certain areas of the Mexico and certain segments of the economy.

A note-worthy and counter-intuitive side-bar to those who believed all Mexicans were attracted to higher U.S. wages: Even during the peaks of illegal emigration to the U.S., less than one percent of that group came from Mexico´s prosperous border states Baja California, Sonora, Coahuila and Nuevo Leon; Federal District and Mexico state.

As is the case with every country, it will behoove astute manufacturing executives that are interested in Mexico, or any country, to have an understanding of its demographic characteristics. Making sure that the quantity and quality of labor exists in the location in which one is seeking to do business is of the utmost importance.

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