Mexico’s Labor Market Enters 2026 with Low Unemployment, but More Informality and Lower Participation
January’s ENOE suggests employment is holding up in headcount, but losing ground in quality as informality rises and labor force participation declines.
Mexico’s labor market started 2026 with mixed signals: unemployment held at historically low levels, but informality picked up and labor force participation slipped— a combination that often points to a less dynamic backdrop for household incomes. The overall takeaway for the start of the year is that employment is still “holding up” in terms of numbers, even as it faces mounting pressure on quality, stability, and access to benefits.
According to the National Survey of Occupation and Employment (ENOE), the unemployment rate stood at 2.7% in January, the same level as a year earlier. However, this figure coincides with a relative decline in the Economically Active Population (EAP): the participation rate came in at 58.5%, down from 59.4% in January 2025. In practice, this suggests that some working-age people are not looking for a job or are unable to join the labor market, which reduces the statistical “pressure” on headline unemployment but does not necessarily imply greater well-being.
In terms of employment, the country recorded 59.7 million people employed, an annual increase of 229,000. Still, the index of critical employment conditions— which captures pressures from insufficient income and/or problematic work hours— rose to 38.3% from 36.4% a year earlier. In other words, more people are working, but a larger share is doing so with lower pay and/or less favorable conditions— a key issue in a context where domestic consumption depends on the wage bill and job stability.
One of the clearest signs of deterioration in job quality was the rise in informality. The labor informality rate increased to 54.9% from 54.1% in January 2025, equivalent to 32.7 million people working in informal arrangements. Employment in the informal sector— unregistered microbusinesses— also rose to 29.3% of total employment, 1.3 percentage points higher than a year ago.
By sector, performance was uneven: construction added 276,000 jobs year over year, miscellaneous services added 223,000, and transportation added 123,000. In contrast, agriculture shed 271,000 jobs and commerce (retail and wholesale trade) fell by 120,000. The secondary sector stood out with a year-over-year increase of 310,000 employed people, an important nuance for assessing momentum in activities tied to construction, manufacturing, and supply chains.
Why does the drop in labor force participation matter?
A decline in labor force participation is often read as a sign of cooling or barriers to employment access, especially when it coincides with higher informality. In Mexico, participation can be affected by factors such as discouragement amid limited opportunities, caregiving costs (children and older adults), shifts in local job availability, seasonality, and decisions related to schooling or retirement. It can also reflect that part of the population is moving into low-productivity activities or outside the formal statistical radar of formal employment, which ultimately weighs on disposable income and saving capacity while weakening access to social security.
From a macroeconomic perspective, lower participation tends to constrain potential growth over the medium term unless it is offset by productivity gains. Also, when job growth is concentrated in informal segments, it becomes harder to lock in progress on health coverage, pensions, and tax collection, and dependence on more volatile labor income persists. For businesses, a labor market with high informality can mean higher turnover, less training, and uneven competition versus firms that do not bear regulatory costs.
Implications for consumption, wages, and economic policy
The labor market is the main transmission channel to household consumption, which in recent years has been a meaningful pillar of economic activity. A rise in informality and in jobs with critical conditions can translate into more cautious spending, greater reliance on short-term debt, and less resilience to price shocks. While minimum wage hikes and slower inflation have helped restore some purchasing power, the benefit is uneven when a large share of workers remains outside formal arrangements or has variable income.
On the economic policy front, the challenge is twofold: sustain an environment that supports formal job creation— with regulatory certainty and manageable formalization costs for small economic units— while also raising productivity through investment, training, and regional supply-chain linkages. Looking ahead, if economic activity moderates and formal employment does not rebound, the adjustment is likely to show up first in participation and informality rather than in a sharp increase in open unemployment— keeping the unemployment rate low, but making job quality more fragile.
In short, January 2026 confirms a labor market that looks stable on unemployment, but is under greater strain in participation, informality, and employment conditions. The focus going forward will be whether job creation shifts back toward formality and whether real income gains are reinforced by productivity— or whether the economy continues to generate work mainly through more precarious arrangements.
