Increasing Social Prosperity

To improve social prosperity and alleviate poverty, Mexico needs to promote labor markets and an integrated social protection system. The objective should be to increase wages through productivity growth and move toward a more efficient, effective, and integrated social protection system that will protect people from unexpected welfare losses, including those related to violence.

Promoting labor markets for inclusive growth

The challenge:

A crucial ingredient to alleviating poverty and promoting shared prosperity is higher wages through greater labor force productivity. Although wages grew slowly over the past 20 years, the economic crisis of 2009 reversed the gains; since then, Mexico has had difficulty regaining the wage growth. The related slow growth in labor income, the largest source of income for families, has not translated into poverty reduction and has limited shared prosperity.

Measures to increase labor productivity may work through three channels: regulations, skills, and employment services.

A multi-year program of lending, knowledge, and convening services has supported the labor productivity agenda.

• Lending activities included the Compensatory Education Project, which supports the Consejo Nacional de Fomento Educativo (CONAFE) to expand quality early childhood development services to the most marginalized municipalities in Mexico
• The second phase of an Adaptable Program Loan (APL)[i] for the Quality Schools Project (PEC).

These were accompanied by a richly laden program, including activities such as evaluating the impact of Mexico's teacher training program on student outcomes;

• An impact evaluation of an ECD program targeted at poor children living in marginalized areas;
• An evaluation of the school-based management models;
• An analysis of the gap between the supply and demand for skills, both nationally and in the State of Oaxaca.

The Bank will build on this program through new activities, including:

• reforming the labor courts according to the recently approved labor law to lower labor costs;
• improving the job relevance of education by strengthening and expanding the school-based management model, improving the reach of ECD services, further reforming the secondary education system, and implementing strategies to reduce upper secondary dropout and youth inactivity;
• supporting labor market policies that improve the skills level, formality, and allocative efficiency of the labor force, including the National Employment System (Sistema Nacional de Empleo); and
• promoting appropriate options for skills acquisition and school-to-work transition for the poorest youth under the Oportunidades program. 

In parallel, IFC expects to continue supporting skills development and employability by:

• investing in private education providers that have a focus on viable and scalable models for low- and middle-income students;
• supporting innovation by investing in new service delivery models to increase affordability and quality; and
• leveraging WBG convening power to share best practice and foster partnerships.

IFC’s education strategy in Mexico aims to expand equitable access to quality education and affordable costs leading to employment opportunities. MIGA can contribute to the effort by supporting projects related to education focusing on skills development for employment opportunities reaching underserved sectors, and projects in other sectors that will result in job creation and transfer of knowledge and skills.

Promoting an integrated social protection system

The challenge:

Although Mexico has been at the forefront in social protection policy, new reforms are needed to build on the gains achieved and reduce inequities and inefficiencies to begin building a more inclusive, effective, and integrated social protection system that provides protection from income shocks and helps smooth consumption over the life-cycle.

The WB is supporting efforts at designing and implementing second generation reforms in Mexico’s conditional cash transfer programs.

Mexico’s two flagship social assistance programs are a good base toward a more inclusive, effective, efficient, and integrated social protection system. While Oportunidades and Seguro Popular (Régimen Estatal de Protección Social en Salud – REPSS) are recognized globally for their poverty alleviation and human capital development impacts, they represent programs and policies and not in themselves a system.

To begin moving toward such a system, the WBG will provide support to:

• Develop a unified registry of beneficiaries, as a basis for a social protection system that provides information on how families are accessing any social security or assistance programs. This allows for proactive management to reduce duplication, improve efficiency of program administration (such as unifying cash payments from various programs into a single monthly payment), and link families to other eligible programs.
• Improve functioning of the health system (particularly primary health care) by strengthening the incentive and accountability framework between the Federal Government; the state through its fund holders, particularly Seguro Popular; and providers.
• Enhance inter-institutional links between the Oportunidades program and education, labor market, and ECD programs.
• Support a transition of the health system from one that only responds to acute illness to one that also ensures prevention and control of chronic conditions (i.e., non-communicable diseases, particularly those related to obesity such as diabetes and heart disease).