Show me the money, says the Mexican government.

Not so fast, say women in the informal sector, a significant group of the Mexican population. In 2017, informal labor in Mexico stood at 56 percent, with women more likely than men to be employed in the informal sector. A large informal sector is dangerous for the productivity and financial health of a nation because it causes the government to be under-informed. This incomplete information constrains the government in the volume of taxes they collect, limiting revenue, and blocks the achievement of distributional goals, since they cannot employ income-taxation and income-contingent in-kind transfers. Given this, politicians often try to use the legislative tools at their disposal to reduce informality in their economies.

These legislative tools fall into the category of what scholars call ‘processes of formalization’ – government regulations designed to transition informal laborers into the formal sector. But formalization is not about a top-down approach, compelling people to work in the formal sector through brute force and legislation. To make the transition, workers need to be incentivized to join the formal sector because they believe that their hard earned money will be used by the government to make catalytic investments.

But, politicians in Mexico do not have the best track record of putting tax dollars to good use. In 2018, Mexico scored 28 out of 100 (with 1 being perceived as a highly corrupt country) on Transparency International’s Corruption Perceptions Index, a score which has dropped six points since 2012. These days, allegations of corruption, even on the scale of El Chapo’s bribe of $100 million to the former President, Nieto, no longer shock Mexicans. One example of how this seeps into the informal sector is the unfavorable terms of exchange that street vendors face with public authorities, such as demands for cash payments to access public space and bribes to avoid evictions. While these costs reduce the income and productivity of those informal workers, it has the more profound effect of causing informal workers to interact frequently with public sector corruption.

Women are smart, powerful, and savvy. They would not put themselves in a vulnerable position unless they felt like the alternative was truly a worse option. In the case of Mexico, the government certainly has not convinced women in the informal sector that they can be trusted to spend their hard earned money on programs that will benefit their lives and the lives of their children. Transitioning the large numbers of women from the informal sector to the formal sector is not a question of government regulations; it is a question of understanding the push and pull factors. The pull factor of the informal sector is that women can be sure that 100 percent of their hard-earned money will be invested in things they care about, e.g. their children’s future, because they control completely how their earnings are spent. Additionally, it offers the flexibility in scheduling required for childcare/elderly parental care obligations. The push factor from the formal sector is the perception that any contribution to the government will go into the rent-seeking pockets of corrupt public officials. If the government can offer the flexibility in scheduling in the formal sector and convince women that their taxes will be put to good use for the social benefit of everybody, then they can make real progress on reducing the number of women in the informal sector.

Andres Manuel Lopez Obrador ran and was elected in 2018 on a platform of anti-corruption, so maybe he will be able to make progress in this space. But building trust and reducing perceptions of corruption is a long process that is unlikely to happen in the short-term. So, while this process of trust creation is going on, the Overseas Development Institute recommends a few short-term options to protect vulnerable informal workers, including:

• Broaden financial inclusion to catalyze business growth and smooth consumption

• Improve access to and uptake of technology to increase productivity, such as investing in improved electric sewing machines

• Extend universal health coverage, particularly for women who experience lifecycle risks (such as pregnancy and childbirth)

• Encourage informal membership-based worker organizations/unions

• Invest in skills upgrading programs for informal workers.

If the Mexican government wants money from women working in the informal sector, they are going to have to earn their trust.

#Women #InformalSector #Mexico #Corruption