Population aging and the labour market: issues relevant for social security in Mexico

This paper addresses the issue of the structures of wages and employment in Mexico in the light of their aging population. Using quarterly data from the National Urban Employment Survey covering the period 1987-1999, several key parameters of the Mexican labour market are estimated in order to be able to predict future changes of wages for young and old workers due to demographic and economic developments.

Findings:

• the process of aging of the labour force and the technological change that favours the demand for young workers make it possible that the relative wages of old age workers will fall between 34.3% and 66.7% in the next 25 years
• the absolute level of the earnings of young labour will probably rise 16.2%
• these facts imply that in the future wage profiles will become flatter but starting from higher levels. As a consequence, it is likely that savings accumulation of workers close to retirement will be greater, perhaps 5.1% higher, but the wage rate of the elderly will be 13.7% lower
• if the absolute level of accumulated savings of the elderly is low, as seems to be the case in Mexico, their more adverse employment conditions will not discourage their labour participation, but they will have to work receiving significantly lower wages, that is, suffering of a diminished status

Conclusions:

• in Mexico, both the bias of technological change that favours the demand for young labour and the increase of the relative and absolute labour supply of the elderly (due to population ageing) make it likely that the employment conditions of old age workers will worsen in the next decades
• unless enough non-wage income is available for them, either from accumulated savings (private or in the form of social security pensions) or through social assistance support, their economic well-being in the future will therefore be decreased compared to the one enjoyed by current old age population, that is, the elderly will suffer of a diminished status