Mexico | A Machine That Works, but Falls Behind: The Productivity Trap

Summary

Mexico has made progress in achieving macroeconomic stability and improving labor conditions, yet it still faces its biggest structural challenge: an economy that grows without boosting productivity. Informality and the lack of investment in innovation and human capital keep the country trapped in low growth.

Key points

• Key points:
• Mexico consolidated macroeconomic stability, but for decades this coexistence came with stagnant wages and a loss of purchasing power. Recent labor reforms —such as minimum wage hikes and the elimination of outsourcing— have improved incomes, yet productivity and informality remain major challenges.
• Total factor productivity (TFP) in Mexico has been negative for more than 30 years, subtracting an average of 0.5 percentage points from growth.
• Economic growth has relied mainly on the accumulation of capital and materials, rather than on efficiency, innovation, or technological progress.
• In the United States, productivity is driven by intangibles —software, R&D, and highly skilled human capital— while in Mexico only 13.8% of workers have higher education, limiting productivity and perpetuating informality.
• Overcoming this trap requires greater public and private investment, modern infrastructure, quality education, and a strategy that embraces innovation, digitalization, and artificial intelligence as engines of development.

Geographies

Topics

Tags