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UNCLAS SECTION 01 OF 03 MEXICO 005168 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR DRL/AWH AND ILCSR, WHA/MEX AND WHA/EPSC, USDOL FOR 
ILAB 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV PINR SOCI MX
SUBJECT: MEXICO CITY,S GOVERNMENT PROPOSES UNEMPLOYMENT 
INSURANCE 
 
REF: MEXICO 4150 
 
 ¶1.  SUMMARY: Mexico City,s Mayor, Marcelo Ebrard, recently 
proposed the creation of an unemployment insurance program 
for the residents of the Mexican capital.  Eligible residents 
are limited to those that lost a job in the formal economy 
with eligibility retroactive to December 2006.  As proposed, 
eligible beneficiaries would receive approximately USD 150.00 
per month for six months; financed through the saving the 
city has obtained from renegotiating its municipal debt. 
Beneficiaries would also receive job training and job search 
assistance.  According to Ebrard, a leading figure in 
Mexico,s main opposition party, if approved the proposal 
would be the first ever unemployment insurance program in 
Mexico.  Critics of the proposal denied that Ebrand was 
creating an unemployment insurance program but rather a 
subsidy that would discourage people from working. GOM 
Secretary of Labor, Javier Lozano, took particular issue with 
 
SIPDIS 
the claim that the proposal would be Mexico,s first 
unemployment insurance program.  He also vigorously agreed 
with those who called the initiative a politically motivated 
subsidy and accused Ebrand of being more interested in trying 
to buy votes for future elections than in dealing with 
genuine unemployment problems.  As currently presented the 
proposal is in fact a subsidy and not real unemployment 
insurance.  However, with some thoughtful modifications, the 
proposal could be turned into an unemployment insurance 
system that could partially address the problem of laying off 
surplus (or unsatisfactory) workers that many employers cite 
as a major obstacle to job creation in Mexico.   END SUMMARY. 
 
 
UNEMPLOYMENT INSURANCE FOR MEXICO CITY RESIDENTS 
--------------------------------------------- --- 
 
¶2.  On September 17, Mexico City,s Mayor, Marcelo Ebrard, 
gave the first annual address on the activities of his 
administration (a sort of State of the Union Address for the 
nation,s capital).  Although the Greater Mexico City area 
has an estimated population of over 20 million people, the 
actual number of residents within the jurisdiction of the 
Government of Mexico,s Federal District (GDF) is only about 
half that figure.  Nevertheless, that figure of 9-10 million 
residents is larger than the population of any of Mexico,s 
31 other states.  Consequently, when something happens in 
Mexico City the rest of the country takes notice and in the 
area of labor related issues, Ebrard,s address contained a 
proposal that got the rest of Mexico,s attention. 
 
¶3.  Along with the usual listing of potholes fixed, streets 
cleaned and traffic regulation amended, GDF Mayor Ebrard 
proposed the creation of an unemployment insurance program 
for the residents of Mexico City.  Ebrard indicated that his 
proposal, which needs to be approved by the GDF Legislative 
Assembly (AL), was in response to the problem of unemployment 
in Mexico City which is at a rate 6.7 percent while the 
national average is only 3.9 percent.  While both of these 
figures are subject to interpretation and are probably two or 
three times higher than the official estimates (REFTEL), the 
fact remains that unemployment in Mexico City is higher than 
it is in the rest of the country.  According to Ebrard, his 
proposal, if approved, would be the first unemployment 
insurance program in the country. 
 
¶4.  The proposed unemployment insurance program would provide 
approximately USD 150.00 for up to six month to Mexico City 
residents who lost jobs in the formal economy (as opposed to 
the estimated 45 percent of Mexicans nationwide who work in 
the informal economy; see REFTEL).  The program,s benefits 
would be available retroactively to December 2006 for 
eligible city residents.  In addition to direct cash 
payments, eligible beneficiaries would also receive job 
training (or retraining) and job search assistance.  GDF 
Mayor Ebrard stated that the funds needed to pay for this 
program would come from the money the city government has 
saved by renegotiating down the interests on its municipal 
debt. 
 
 
THE USUAL DEVIL IN THE DETAILS 
------------------------------ 
 
¶5.  Although a broad spectrum of observers noted the that GDF 
is facing a serious problem because of the city,s high 
unemployment rate, even the kindest critics could not help 
pointing out Marcelo Ebrard,s proposal was much closer to a 
subsidy than to an insurance program.  Insurance programs, 
 
MEXICO 00005168  002 OF 003 
 
 
they pointed out, all have a financial reserve created by 
payments (or deductions) made from enrollees who, in times of 
hardship or emergencies, might need to apply for payee 
benefits.  The program Ebrard proposed would be financed 
through projected interest payment savings in the municipal 
budget with no requirement that potential beneficiaries ever 
have made any payments into the unemployment insurance funds. 
 
¶6.  Initially, at best the GDF proposal would only be able to 
make payments to some 30,000 people. Unfortunately, according 
to the GDF,s own figures, there are at least 240,000 who 
would be eligible for benefits under the program as proposed 
by Marcelo Ebrard.  Thus far no details have been released on 
what criteria would be used to determine which 30,000 of the 
eligible 240,000 would qualify for benefits.  Moreover, the 
estimated saving from the renegotiation of the municipal debt 
was expected to be around 450 million pesos (approximately 
USD 41.34 million).  No details were provided as to what the 
GDF would do when these funds were exhausted.  Nor were any 
specifics mentioned about the possible cost (in terms of 
administration and overhead) of the job training and job 
search assistance associated with the unemployment 
&insurance8 proposal. 
 
 
 
 
LABOR SECRETARY, AND OTHERS, HARSHLY CRITICIZE PROPOSAL 
--------------------------------------------- ---------- 
 
¶7.  One of the most outspoken, although certainly not the 
only, critic of the GDF Mayor Marcelo Ebrard,s unemployment 
&insurance8 proposal was GOM Secretary of Labor, Javier 
Lozano.  Secretary Lozano went to great lengths to publicly 
call the proposal a subsidy.  Lozano underscored that a real 
insurance program would be a self-sustaining institution 
based on contributions from employers, employees and the 
government.  Continuing on, Lozano declared that the proposed 
&subsidy8 also differed from a genuine insurance system 
because it lacked transparency, professional administration 
and no mechanisms for responding to market realities. 
 
¶8.  Labor Secretary Lozano also vigorously denied the claim 
that the GDF proposal was the first of its kind in all of 
Mexico.  According to Lozano, Mexico has had an unemployment 
assistance program since 1984 administered by the Secretariat 
of Labor (STPS).  The STPS unemployment assistance program, 
Lozano stated, provides job training and short-term benefit 
payments of anywhere between 1-3 times the minimum wage 
(approximately USD 85.00 ) 255.00 per month). 
 
¶9.  Other critics, in addition to calling the GDF proposal a 
subsidy, also described it as program that would actively 
discourage work.   In their view Ebrard,s proposal would be 
an incentive to avoid looking for a job because the 
beneficiaries would have a guaranteed income whether or not 
they actually worked.  Furthermore, these critics argued, 
Mexico was much better off with the system it currently has 
in which employers are required to pay a substantial 
severance packaged called &liquidation8 whenever an 
employee is let go from their job. (Note: Liquidation 
consists of three month wages plus a complicated formula 
based on an employee,s years of service. Employers are 
legally required to pay liquidation whenever an employee is 
dismissed regardless of whether the worker has already 
arranged subsequent employment.) 
 
¶10.  Both Secretary Lozano and the other harsher critics of 
GDF Mayor Ebrard,s unemployment assistance program indicated 
their belief that the real motive for his proposal was 
politics rather than a desire to help those who have lost 
their jobs.  Marcelo Ebrard, they pointed out, is a leading 
figure in Mexico,s main opposition party, the Party of the 
Democratic Revolution (PRD).  Although the date is still far 
in the future (2012) Ebrard is considered to be a strong 
contender for his party,s nomination for president of Mexico 
and the critics expressed their firm opinions that his 
unemployment assistance proposal was little more than an 
attempt to buy political loyalty and votes. 
 
 
 
 
 
COMMENT AND ANALYSIS 
-------------------- 
 
 
MEXICO 00005168  003 OF 003 
 
 
 
¶11.  Given the limited resources available to support it, and 
the many unanswered questions surround its possible 
implementation, it is hard to view GDF Mayor Marcelo 
Ebrard,s proposal as anything other than a subsidy. However, 
with some thoughtful modifications, the proposal could become 
something approximating a real unemployment insurance system. 
 The current mechanism in Mexico for dealing with job loss or 
layoffs is liquidation.  However, according to a study by the 
Mexican Institute for Competitiveness (an NGO that works 
closely with USAID) liquidating an employee in Mexico is so 
expensive that employers often take increased profits during 
times of economic growth to pay off employees they believe 
might be unnecessary during the next economic turndown.  In 
other words, instead of hiring new employees as happens in 
many countries during times of economic expansion, Mexican 
employers look upon times of economic growth as an 
opportunity to payoff and then cut their staffs. 
 
Moreover, because of the high cost of liquidation, many 
employers do everything they can to avoid hiring new workers 
in the first place because of the legally obligated cost of 
reducing staffs during times of economic downturns are too 
high.  If Mexico had a genuine unemployment insurance system, 
in place of the current &liquidation8 system, employers 
might be more willing to accept the risks of hiring new 
workers without the fear that there would be no way to reduce 
staff should market downturns and economic requirements 
compel them to do so. 
 
The creation of a true unemployment insurance system in 
Mexico, again in place of the current liquation system, could 
be looked at in a similar fashion as the establishment of the 
Social Security system in the United States back in the 
1930,s.  The very first workers in the U.S. eligible to 
receive Social Security benefits were in fact subsidized 
because none of them had worked long enough to make the 
contributions needed to qualify for extended benefits. 
However, the broader social good justified this subsidy.  In 
the case of creating a genuine unemployment insurance system 
in Mexico, the temporary need to subsidize some worker while 
others contribute to a reserve fund to pay out fixed term 
benefits might well be justified if the ultimate end was the 
establishment of a system that added greater flexibility to 
the workplace. 
 
 
 
 
 
 
 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA