When will we see the informal economy in Mexico with different eyes? Of it, we can say that it is large or small, it all depends on the color of the glass with which it is looked at and on the prejudices of the opinion. 55.6 percent of the employed population works there, so we could say that it is large. Informality generated 21.9 percent of GDP in 2020, so we could say that it is relatively small.
It is necessary to underline this of “relatively small” because, in reality, it is giant. No federal entity generates 21.9 percent of the Gross Domestic Product (GDP). If informality were a state, in terms of GDP it would be larger than Mexico City and would exceed the sum of the GDP of Jalisco, Nuevo León, and the State of Mexico.
A “thing” that produces 4.79 trillion pesos is not small. Informality is more than four times greater than the total sales of Petróleos Mexicanos and it is also greater than the foreign exchange reserves of Banco de México, valued at 212,000 million dollars. To finish shortly, what the informal economy produces in a year is three times greater than Carlos Slim’s fortune.
I use for this article the statistics that the National Institute of Statistics and Geography (Inegi) has just published and which corresponds to 2020. 21.9 percent is the lowest contribution figure to GDP since a more precise measurement of informality began. The highest record corresponds to 2009 when it was 24.4 percent. That year we had a 7.7 percent drop in the Gross Domestic Product, in the context of another great world crisis.
Why did the largest and the smallest contribution to GDP occur in the years with the greatest crises? In times of sharp downturns in the economy, it is normal for the formal sector to be unable to generate or maintain jobs. The population of age and willingness to work takes refuge in informality. This was the case in 2009, but it could not be in 2020 due to the pandemic. In this, too, it was an atypical year. The strategy to combat COVID included the prohibition or severe restriction of street market operations and street markets, especially in the second quarter of the year.
The difficulties to operate businesses produced a huge shrinkage of the informal sector in 2020. Its fall of 12.2 percent was greater than that of the economy as a whole, 8.5 percent. This is largely explained by the fact that retail trade represents 26 percent of the GDP of the informal sector. In pesos, they are more than 1.2 trillion pesos, 70 percent higher than the sales of the leading company in formal retail trade, Walmart de México. In 2020, it sold 696 billion pesos.
In employed personnel, the fall was also very important. At its lowest point, in 2020, there were 22.8 million people working informally. At this time, at the end of 2021, 31 million people work in informality. In order of importance, trade is followed by the construction industry, which contributes 14.6 percent of the GDP from informality; the manufacturing industry, with 13.3 percent and the agricultural sector, 11.1 percent.
How much does each person who works informally produce? If we divide the 4.79 trillion pesos that it generated in 2020 by the 20.8 million people who worked that year, we have an interesting figure: 230 thousand 500 average pesos per person per year, who said they are small?
Note: the measurement made by Inegi considers within the informal economy not only the informal sector understood as economic units that do not have the basic legal records to operate, but also other forms of informality, such as subsistence agriculture and work paid domestic workers, in addition to the varieties of work that do not have legal protection for labor relations.