Formal Employment Under Pressure: Labor Costs, Weak Investment, and Automation Cool Hiring
The drop in jobs with social security reflects a clash between higher costs, slow growth, and uncertainty—raising the risk of more informality.
The start of 2026 raised yellow flags in Mexico’s labor market: employment registered with the IMSS posted a notable decline in January, a performance not seen in years for that month and one that underscores how fragile the economic cycle is. Beyond the single data point, the underlying signal is clear: the engine of formal job creation is slowing in an environment of weak growth, restrained investment, and higher per-worker costs.
For companies of different sizes, the hiring equation has become more complicated. In recent years, wages have risen—not only the minimum wage—and labor obligations and conditions have also been adjusted in ways that, taken together, increase the total cost of adding staff. The problem is that this higher cost has not necessarily been matched by an equivalent gain in productivity, which weakens incentives to expand payrolls, especially in labor-intensive sectors.
Macroeconomic performance isn’t helping either. With GDP growing at a modest pace and domestic demand proving uneven, hiring decisions tend to become more cautious. On top of that is the persistence of relatively high interest rates (compared with the prior decade), which makes credit more expensive for working capital and productive investment—hitting small and mid-sized businesses hardest, even though they are often major job creators.
At the same time, indicators show that gross fixed investment has not regained sustained momentum, weighed down by regulatory uncertainty, corporate caution, and a global agenda shaped by trade tensions and supply-chain reconfiguration. Nearshoring has brought announcements and expansions in some industrial corridors, but its translation into broad-based formal employment has been uneven: it is concentrated by region, by company size, and in industries that require specific technical profiles.
Another important nuance is that IMSS figures may reflect administrative changes that do not necessarily amount to “new” jobs. For instance, bringing certain workers into the system or formalizing them—such as those tied to digital platforms—improves access to social security, but does not always imply net job creation; it can instead be a reclassification of existing employment. Even with these nuances, the cooling trend in formal hiring is consistent with the economy’s weaker momentum.
Productivity, Informality, and the New Cost of Hiring
The debate over formal employment in Mexico inevitably returns to a structural issue: productivity. When real wages and total labor costs rise faster than labor productivity, companies face a dilemma: absorb the cost (cutting margins), pass it on through prices (risking lost sales), or adjust operations (automating, downsizing, or shifting into informality). That last path is particularly sensitive in Mexico, where informality remains a social shock absorber—but at the cost of reduced access to social security, retirement savings, and job stability. In practice, a more expensive formal labor market paired with stagnant productivity raises the risk that some employment will move into precarious or unregistered arrangements, especially among microbusinesses and small-scale services.
Sector composition also matters. Some activities have shown prolonged erosion in formal employment, such as agriculture, which faces structural pressures (costs, weather, technology, financing, and income volatility) and whose loss of registered positions weighs on the aggregate picture. By contrast, export-linked industries and advanced manufacturing may sustain employment, but they tend to demand technical profiles and training, so they do not immediately absorb workers displaced from traditional sectors.
In the short term, the services economy could get a lift from events and increased tourist inflows in certain cities, which typically translates into more temporary hiring. The challenge is turning that bump into sustainable formal employment: that depends on continued demand, business profitability, and whether regulatory and labor costs stay within what the business can afford.
In public discussion, it has become common to attribute the cooling labor market to a single factor, but in reality it reflects a convergence: rising labor costs, insufficient investment, uncertainty about rules and markets, and accelerating technological change. The adoption of AI and automation is already reshaping administrative tasks, customer service, and operational processes; its effect can be mixed: it improves efficiency and competitiveness, but it can reduce openings in certain roles and increase demand for new skills, widening gaps among workers.
Looking ahead, formal employment performance will depend on whether the economy can revive investment and productivity, and on the ability of public policy to improve competition conditions, security, infrastructure, regulatory certainty, and talent development. In a moderate-growth scenario, a reasonable target for generating formal jobs is typically below what is seen during years of rapid expansion, and the pressure will be greater if policymakers seek to raise costs without a parallel jump in productivity.
In sum, the loss of formal jobs at the start of 2026 is not just an isolated data point: it is a sign that hiring in Mexico has become more expensive and riskier in a low-growth environment. Without improvements in investment, productivity, and certainty, the labor market could continue shifting toward temporary or informal arrangements, with direct implications for well-being and public finances.
