Introduction
The evaluation of poverty by the National Institute of Statistics and Geography (INEGI) shows a substantial decrease in poverty rates between 2018 and 2024, which is positive for families whose situations have improved and for the country as a whole. However, this progress is not indicative of a healthy economy but rather the result of political and administrative decisions.
Minimum Wage Increases: Causes and Consequences
The primary cause of the reduced pobreza is the significant increase in labor incomes for households, driven by an enormous 110% real increase in the minimum wage (SM) from 2018 to 2024.
Contrary to popular belief, the SM increase did impact inflation. In 2018, the SM only covered 15.6% of workers and was detached from many prices due to a reform. However, by 2022, it was perceived by 30% of the population, and by 2024, it reached 35%, matching its real value from 1983 when inflation exceeded 100%. During this period, the SM increased by 180%, labor costs rose by approximately 60%, and inflation reached 36.4% – the highest in six years since 2006.
While the SM increased, labor productivity declined by over 5% between 2018 and 2024. There are indications that productivity falls in the formal sector while rising in the informal one. This pattern is unsurprising, as higher SM and labor costs with lower productivity elevate the cost of formality and fuel informality, ultimately reducing the average productivity of the economy – a widely recognized issue in Mexico’s economic landscape.
Social Programs and Their Impact
Another factor contributing to the reduction in poverty is the cash transfer social programs with minimal requirements, whose public spending cost increased by nearly 50% in real terms from 2018 to 2024.
Concerns have been raised about the fiscal sustainability risks, which worsened between 2018 and 2024 due to the significant increase in social programs. Public spending rose by 3 percentage points of GDP, concentrated in social programs and energy, with minimal allocation to health and education and none to public security – crucial functions for generating human capital, a fundamental requirement for sustainable long-term growth and individual development.
Decline in Education, Healthcare, and Fiscal Sustainability
The INEGI’s multidimensional poverty assessment reveals that educational lag and healthcare deficiencies worsened between 2018 and 2024. Educational lag does not account for the widely documented deterioration of educational services, while healthcare deficiencies more than doubled to reach 44.5 million in 2024, despite a substantial increase in public spending on this function.
The question remains: how long can this fiscal situation be maintained? It could persist for years if the country continues to prioritize development and future productivity over health, education, public security, and infrastructure, without causing immediate concerns for financial markets but ultimately sinking Mexico into economic and social mediocrity.
Key Questions and Answers
- What caused the reduction in poverty rates between 2018 and 2024? The primary cause was the significant increase in labor incomes for households due to a substantial rise in the minimum wage.
- Did the minimum wage increase impact inflation? Yes, although initially not perceived, the minimum wage increase did contribute to rising inflation by 2024.
- How did labor productivity fare during this period? Labor productivity declined by over 5% between 2018 and 2024, with indications of falling productivity in the formal sector and rising informality.
- What role did social programs play in reducing poverty? Cash transfer social programs with minimal requirements significantly contributed to the reduction in poverty rates.
- What are the concerns regarding fiscal sustainability? The pronounced increase in social programs and energy spending, with minimal allocation to health, education, and public security, has raised concerns about fiscal sustainability.
- How did education and healthcare fare during this period? Despite increased public spending, educational lag and healthcare deficiencies worsened between 2018 and 2024.
