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Current issues and policy approaches

Income, employment, and social services in the 1980s

When harmful macroeconomic policies are abandoned, there is often a further deterioration in economic conditions before any sort of turnaround is achieved. This has been the experience in much of Latin America, Eastern Europe, and the countries of the former USSR. In addition, the conditions for optimal policy transitions are not yet well understood (Van Wijubergen, 1992). Both factors apply to Mexico, where the 1980s are often referred to as "the lost decade." Government-imposed wage restraints and a new system for setting minimum wages resulted in substantial drops in formal-sector real wages between 1982 and 1985-86. Nationwide, real average wages dropped by 30 per cent during this period, minimum wages saw a similar decline, and general manufacturing wages fell by 35 per cent in real terms (Gonzalez and Escobar, 1991; Lustig, 1990).

However, Lustig (1990) points out that a drastic decline in wages may not translate into an equivalent loss in total household income. Wage income represents a smaller share of poor families' incomes than it does of that of wealthier families. It appears, then, that middle-and upper-middle-income households (who generally rely more on wage income than do poorer families) bore more of the brunt of adjustment arising from this decline in real wages. On the other hand, nonwage incomes actually rose slightly between 1981 and 1984. However, this gain is explained more by a rise in profits (generally accruing to the rich) than to increases in the incomes of self-employed owners (generally the informal sector), so it is unlikely that these small increases could compensate households for larger losses in wage incomes. Finally, as Lustig (1990) notes, even small absolute and relative declines in incomes of the poorest households can exacerbate already severe conditions.

Falling real wages help explain how, while output declined sharply for Mexican firms in the early 1980s, the open unemployment rate did not rise dramatically. Firms were able to reduce their labour costs and the government could cut its own expenditure through a combination of layoffs and wage cuts. In spite of this the actual number of unemployed is reported to have risen from 2.7 million to 4.6 million between 1981 and 1984. In addition, underemployment rose, as workers were forced into lower-paying and less productive jobs, often in the informal sector (Lustig, 1990). Indeed, according to one report, informal employment in Mexico rose faster between 1980 and 1987 than in most other Latin American countries (Gonzalez and Escobar, 1991).

Not surprisingly, the effects of falling wages and shifting employment patterns on the distribution of income is not straightforward. In fact, it is not clear whether income inequality rose or fell in Mexico in the 1980s.3 Lustig asserts that the economic crises and subsequent structural-adjustment process decimated the Mexican middle class, while wealth was increasingly concentrated in the hands of the rich between 1981 and 1985 (Lustig, 1990). Lorey and Mostkoff-Linares (1993) examine the economic fortunes of various occupational groups and income strata through the 1980s. They conclude that "... the evidence from the 1990 census is perplexing. Data on both income and occupation imply that the situation in the 1980s was characterized by a clustering of population in the lowest middle-class and highest lower-class subgroups rather than by a dramatically increasing misery at the lowest levels of Mexican society."

Other standard social indicators for the 1980s, also point to an ambiguous picture of the impacts of Mexico's economic crisis. Indeed, Hirschman (1994: 344) reports that "during the 1980s, when indexes of economic performance leveled off or declined in some Latin American countries under the impact of the debt crisis, important social indicators, such as infant mortality, illiteracy, and the extent of birth control continued showing improvement." Adjustments at the household level to falling incomes and to workers involved in lowerproductivity activities appear to have had an effect on school enrolments and infant nutrition. Primary and secondary school enrolment dropped relative to the number of eligible children in the early 1980s. Although aggregate health indicators, such as infant mortality rates, did not rise, illness and mortality were more frequently related to poor nutrition. These nutritional deficiencies may also be related to the government's move away from general food subsidies toward more targeted programmes. Though defensible from a fiscal standpoint, rising food prices for those poor households no longer included in these programmes may have led to nutrition problems (Lustig, 1990). On the other hand, shrinking per capita outlays on education, public health, and social security are not necessarily an indication of lower service levels. Lustig (1990: 1337) concludes that these figures actually reflect the declining wages of workers and a lack of new investment in these sectors.

Housing and urban services

Over half of all housing in Mexico City consists of self-help structures in various states of consolidation (Azuela, 1990; UNDIESA, 1991). Self-help housing is concentrated primarily in the State of Mexico, where enforcement of prohibitions on construction on unauthorized sites has traditionally been less stringent. Unlike the situation in other Latin American cities, land invasions have not been common in recent decades. More typical are illegal subdivisions of private and ejido land: it is estimated that 9 to 10 million people live on land that has been developed in these "irregular" ways (Connolly, 1988; Coulomb and Duhau, 1989; Schteingart, 1989; Ward, 1990a). The result has often been settlements on land poorly suited for service provision; on the steep, rocky slopes of volcanoes to the south-west of the city and on the desiccated lake beds to the east, prone to flooding during the rainy season and dust storms during the dry months.

Few other options for home ownership exist for the poor, given the limited reach of public-sector housing (see below). The traditional, irregular forms of providing land for housing the poor in Mexico City may be drying up, as bans on squatting in territorial reserves, as well as on illegal subdivisions and ejido sales, are being more stringently enforced (Ward, 1990a). This is partly a response to competition in the land market from developers of middle-class housing (Connolly, 1988). As a result, population densities and land prices are increasing in lowincome areas. Rental accommodation is the tenure choice of increasing numbers of Mexico residents, even though the proportion of renters is declining (Coulomb and Sanchez, 1991; Gilbert, 1993a: 55).

Questions about the legality of landholdings plague housing development of all types. But while some high-income neighbourhoods have been built on irregularly obtained land, the issue of land tenure is particularly vexing in low-income, self-help settlements. Security of tenure is generally cited by residents of irregular settlements as the single most important issue they face (Aguilar, 1988; Jiménez, 1989; Varley, 1993). Unfortunately, regularization is often complicated by uncertain land records and the overlap of jurisdictions of various government agencies, particularly for former ejido lands. In addition, tenure issues offer ample opportunity for the political jockeying and influence peddling which often accompanies highly sensitive and rather arbitrary procedures in Mexico.

There is some disagreement among researchers over the degree to which regularization continues to be used by local officials primarily as a political tool. Ward maintains that since the late 1970s, land regularization has become more systematic and technical, a process motivated by concern to incorporate residents into the tax base, recover costs of service infrastructure investment, and exert greater authority over planning and building (Ward, 1990a; Ward, 1990b). Varley (1993), in contrast, argues that in spite of increased bureaucratization, the PRI still exercises a great deal of control over the timing and location of regularization. In her view, land-tenure regularization continues to serve as a means for demobilizing non-PRI political movements in low-income neighbourhoods and maintaining political stability in the city.

Political patronage and co-optation is also a motive for constructing public housing. Mexico City is notable for the large number of agencies which have been involved with public housing construction, sometimes working cooperatively, and at other times at odds with one another. The most prominent agency in the construction of housing for low-income residents is the Trust Fund for Popular Housing (FONHAPO), which has also been important in sites and services schemes and in the earthquake rebuilding programme. Two major housing funds for employees are also active in publicsector housing: the National Institute of the Fund for Workers' Housing (INFONAVIT), whose membership is limited to registered blue-collar workers, and the Housing Fund for State Workers (FOVISSSTE), which serves state employees. Both funds are supported by mandatory payments in the form of fixed percentages of workers' salaries (Ward, 1990b: 417). State credit guarantees toward the purchase of privately built housing are also available to certain low-income workers through Central Bank of Mexico programmes called the Fund for Banking Operations and Discounts to Housing (FOVI) and the Fund for the Guarantee and Support of Housing Credit (FOGA). These public-sector housing agencies have played a significant role in housing provision in Mexico City since 1970. Whereas only 10 per cent of the population lived in housing produced by one of the various forms of government intervention in 1970, by 1985 over 20 per cent benefited from state assistance (Connolly, 1988: 168; Ward, 1990b: 419). A special agency, Popular Housing Renewal, was also set up following the 1985 earthquake; it built 54,000 units in the central area for highly subsidized purchase by newly homeless low-income residents (Gilbert, 1993a; Ward, 1990b).

Only about 15 per cent of the housing in Mexico City consists of private, single-family units built on legally obtained land (Dowall and Wilk, 1989). This type of housing is concentrated in a relatively small number of expensive neighbourhoods, populated by the wealthiest Mexico City residents.

Urban service provision is a major problem in the city. Of course, those who can afford to pay the prevailing user fees for urban services have no difficulty obtaining them; heavy government investment in basic water, drainage, electricity, and other systems, as well as generally competent and non-politicized management of these agencies, has greatly increased capacity (Gilbert and Ward, 1985). However, the situation is very different in low-income and irregular neighbourhoods. There the inhabitants are more likely to find themselves at the mercy of political manoeuvring. Indeed, some authors posit a link between regularization and the ability to demand and receive urban services (Ward, 1990b), although others cite examples of illegal settlements dealing directly with the utilities to obtain water or electricity services (Aguilar, 1988; Varley, 1993). What is clear is that services are obtained gradually by lower-income residents, and servicing depends in part upon their ability to organize and make their demands known.

In Mexico City, 91 per cent of housing units have some type of sewerage connection, 94 per cent have piped water, 64 per cent have in-house water, and 99 per cent have electricity. But household service provision varies widely both between neighbourhoods and between the DF and the conurbated municipalities of the State of Mexico. Sewer connection rates are 95 per cent in the DF and 85 per cent in the State of Mexico, piped water 97 per cent and 91 per cent, and in-house water 72 per cent and 54 per cent (Rowland, 1993).

Water provision and disposal

Water has to be pumped up to Mexico City over the surrounding mountains from areas far from the metropolitan area. The cost of provision has become increasingly high as the main local supplies, the water table beneath the city and the agricultural lands to the south, have become depleted. At the same time, the frequent failure to collect service fees has also discouraged maintenance and extension of service to newly settled low-income areas.4

Water disposal is an even more serious problem. Because the Valley of Mexico lacks a natural outlet, both sewage and storm water tend to accumulate. Sewage-treatment plants do not run at full capacity and cannot satisfy the city's needs. The collection system is also in disrepair, suffering from old age as well as from damage sustained in the 1985 earthquake. As a result, particularly in poor areas, sewage is collected in poorly maintained septic tanks or left in the open air. In the wet season, surface runoff must be pumped out of the valley or allowed to run northward with the sewage, where it is often used for irrigation. The highly permeable soil to the south of the city is not able to cleanse the drainage water and the subsoil aquifer is increasingly contaminated.

Air pollution

The most pressing environmental problem faced by Mexico City is its air pollution. In 1991, international norms were exceeded in the city centre on no less than 307 days. In other parts of the city they were exceeded anywhere from 232 days in the north-eastern zone to 325 days in the south-west (Lacy, 1993: 27). The source of the problem is similar to that in other large cities, but an unfortunate combination of natural phenomena accentuates what would otherwise just be a major nuisance. Surrounded by mountains in a basin 2,240 metres above sea level, the metropolitan region suffers from very stable air. In winter, thermal inversions trap cold, stagnant air beneath the level of the mountains. At the same time, the sunshine at this latitude produces photochemical smog 60 per cent more efficiently than the sunshine in Los Angeles (Lacy, 1993: 45). In addition, altitude increases automobile emissions and the high-octane gasoline required for combustion at this level also has a high lead content. To make matters worse, people are more susceptible to the negative effects of pollution at high altitude. As Walsh (1989, quoted in UN, 1991: 22) puts it: "if one was asked to design a city with characteristics conducive to high air pollution, one could not do a much better job than has been done in the Valley of Mexico."

Transport is the primary source of air pollution in Mexico City, with the private automobile contributing almost half of all emissions (table 8.11). Exacerbating the problem is the deteriorated state of so many vehicles. Even rudimentary pollution-control devices are rare. In a voluntary emission-testing programme of 600,000 vehicles conducted from 1986 to 1988, 70 per cent of petrol-driven vehicles and 85 per cent of diesel vehicles failed to meet the standards (Walsh, 1989: 23). Unfortunately, as the number of private cars increases, petrol consumption is growing rapidly: deliveries to retailers in 1991 were 22

Table 8.11 Sources of emissions, Valley of Mexico, 1989

Sector and source % of total emissions Weighted by toxicity of emission
Transportation 76.6 42.4
Private automobiles 34.9  
Gasoline trucks 19.9  
Combis and minibuses 10.5  
Taxis 7.9  
Diesel trucks 1.6  
State of Mexico buses 1.1  
Ruta-100 (DF buses) 0.5  
Others (trains, planes, etc.) 0.2  
Industry and Trade 4.4 16.9
Industry 3.7  
Trade 0.7  
Energy 4.0 10.8
PEMEX 2.4  
Thermo-electric production 1.6  
Ecological factors 149 29.9
Eroded areas 9.6  
Fires and other processes 5.3  
Total 100.0 100.0

Source: Derived from Lacy, 1993. per cent higher than in 1986 (Lacy, 1993: 50). Should car ownership continue to increase, air pollution is likely to become worse.

Industry is not a major source of pollution, although it does contribute most of the sulphur dioxide. In addition, the number of commercial and service establishments using polluting processes, such as restaurants, hotels, dry cleaners, public baths, and bakeries, is growing.

The first serious attempts to reduce air pollution were begun in 1986. In 1991, these efforts were stepped up with the announcement of the Integrated Programme against Atmospheric Pollution (PICCA). This programme was undertaken by the Salinas administration in conjunction with the Comisión Metropolitana and the private sector. The total cost of the programme between 1990 and 1994 has been estimated at over US$4.7 billion (Lacy, 1993: 61).

Perhaps the best-known anti-pollution effort is the Hoy no circula programme, which forbids driving one day per week in the Federal District. A variety of other measures directed toward private vehicles include mandatory catalytic converters, a compulsory vehicle-inspection programme, and improvements to traffic controls and roads. New types of fuel including unleaded petrol and low-sulphur diesel fuel, have also been developed by PEMEX to lower harmful emissions.

Measures are also being taken to increase usage of the mass-transit system. These include the gradual extension of the metro system into the State of Mexico, the expansion of the trolley-bus network, the construction of a light train along Avenida Zaragoza, and the introduction of luxury buses. A major programme is also under way to reduce pollution from public transport, including fitting catalytic converters to taxis, combis, and microbuses and replacing 3,500 Ruta-100 buses with newer models (Lacy, 1993: 64).

The closure of PEMEX's 18 de Marzo refinery in 1991, at a reported cost of US$500 million, was the most dramatic step yet taken against industrial pollution. However, additional measures include a ban on new contaminating industries, agreements with existing companies aimed at controlling their emissions, continuous monitoring of the worst polluters, and mandatory switching from petrol and diesel fuels to natural gas. The two thermo-electric power plants serving the metropolitan area have been almost entirely converted to natural gas. They have been also instructed to suspend operations during thermal inversions (Lacy, 1993: 65-6).

The likelihood of success of these pollution-abatement programmes remains to be seen. Even if fully enacted - rarely the case in previous efforts - many programmes will take years before they are effective. This is particularly true of those that rely on improvements to the fleet of private road vehicles, since the average age of these is so high. Retrofitting with improved pollution-control equipment is difficult to implement and virtually impossible to enforce. Other programmes, such as Hoy no circula, are easily subverted and possibly contribute to increased vehicle sales. What is more, progress in some areas may actually worsen other types of environmental damage. For example, the unleaded fuel introduced by PEMEX may have led to increased ozone levels (Walsh, 1989: 23).

Table 8.12 Modal split of transportation in Mexico City, 1985

Mode % of total daily person-tripsa
Private autos 24.0
Metro 18.5
DF Buses 27.0
State of Mexico buses 15.0
Combis and shared taxis 10.8
Trolleys and streetcars 3.0

Source: UNDIESA, 1991.
a. Figures are rounded.

Fortunately, the deconcentration of population and economic activity from the city centre to the suburbs and from Mexico City to other regions of the country suggests that the problem of air pollution may not be wholly intractable. The development of urban sub-centres may help to contain average commuting times and reduce industrial pollution (Gordon and Richardson, 1993).

Transport policy

Transport congestion is a major problem. The government's main response has been to try to reduce reliance on the private automobile and to increase the use of public transport. Unfortunately, the main tool used to achieve this goal, highly subsidized fares, has had little impact on the modal split (table 8.12). Those presently without cars take the metro if it goes near their destination, but otherwise rely on buses or collective taxis (Walsh, 1989: 26). The real problem, however, is rising car ownership. Once people own a car, they use it. With car ownership likely to grow faster than population and incomes, congestion is bound to get worse.

Of course, the current trend towards deconcentration of population and employment can be expected to help traffic management. As Ward (1990b: 97) points out, the emergence of new centres of employment, commerce, and services has allowed people to fulfil most of their daily needs within a limited sector of the city. He claims that average journey times for most residents have not increased much in recent years, an observation which is consistent with data from cities in developed countries.


The recently observed tendency for the rate of population growth in Mexico City to slow, together with the spatial deconcentration of population and employment within the metropolitan area, is good news for national and local policy-makers. Many doomsday scenarios had been based on the expectation of housing, infrastructure, and services falling further behind the rapidly growing population. It now appears that the authorities may finally have a chance to catch up with these problems. There is much scope for improvement in living conditions for low-income residents in particular. Unfortunately, the effectiveness of policy in this area, for example, greater "rationalization" of land-tenure regularization, depends greatly on changes in the political system. Such changes are extremely difficult to predict, especially given the current volatility of Mexican politics. In addition, difficulties in financing and implementing projects will continue to be complicated further by the conflicts and overlaps between the city's two political jurisdictions. However, the PICCA programme, designed by the Comisión Metropolitana, offers evidence that these difficulties can be overcome once the political will has been mustered.

It is interesting that many of the changes in Mexico City and the national urban system have come about after a decade of severely constrained resources. During the 1980s, the country's efforts were more closely focused on international debt problems and macroeconomic policy than on metropolitan and regional goals. The economic liberalization undertaken by Mexico, however, has done more in less than a decade to further the goals of regional decentralization than any set of programmes devised for that purpose. In this irony Mexico is not alone; the same trends have been noted in other developing countries as well. As Gilbert (1993b: 733) points out: "The great paradox of polarisation reversal is that regional policy has contributed very little to it. Deconcentration has occurred in practice when regional planning was at its weakest."

While Mexico City will continue to face the tough problems of housing and service provision and environmental degradation, the evidence presented here suggests that in terms of settlement patterns the effects of continued liberalization are mostly benign. Now that NAFTA has been signed it is to be hoped that the effects of continued integration into the world economic system will work in the same direction.


1. This paper was written before the devaluation of December 1994 and Mexico's subsequent economic recession.

2. Ejidos were established after the Mexican Revolution as inalienable areas of community land; ejidararios are members of the community.

3. Gini coefficients for the country have stayed remarkably stable for decades, according to a variety of sources (Ahluwalia et al., 1979; Paukert, 1973). For example, nationwide Gini coefficients between 1950 and 1990 remained near 0.53 with no obvious trend (1990 value calculated by E. Zepeda). Although metropolitan data are seldom available, Gini coefficients derived for Mexico City reflect a distribution that is less unequal than that of the nation as a whole, with a value of 0.49 (E. Zepeda, personal communication, 1994).

4. System losses may reach as high as 30 per cent (UNDIESA, 1991: 21).


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