The Seaweed Situation

“¿Buscas empleo?” blares a billboard not far from the airport. “Are you looking for work?” There’s evidently quite a labor shortage on Mexico’s Caribbean coast. Signs seeking sales clerks and waiters adorn many shops and restaurants, and sound trucks cruise the streets soliciting applicants for work as cleaners and receptionists. The official unemployment rate in the state of Quintana Roo is around 4%, but there seems to be work for anyone who wants it.

Which leaves a puzzling question: why were a dozen laborers raking up the seaweed on the beach every morning and carting it away in wheelbarrows?

Economic theory teaches that low unemployment should set off a happy chain of events, quite aside from the fact that jobs put food on the table. If unemployed labor is scarce, wages should rise as employers compete for workers. Higher wages make it more sensible for employers to invest in equipment to get more output from each hour of work – to substitute capital for labor, in economist-speak. Giving workers more capital to use, whether computers to make hotel reservations or mixers to make dough for tortillas, enables each person to produce more wealth, a portion of which goes to provide higher living standards.

For some reason, this isn’t happening in Mexico. Although everyone knows about the country’s burgeoning automobile industry, its heavy use of modern equipment makes it the exception rather than the rule. Economy-wide, Mexico’s output per work hour – one standard measure of productivity – has barely budged since 2006. Productivity in the food and lodging industry has dropped nine percent over the past five years. And while millions of Mexicans tied to the more modern parts of the economy are prospering, the tens of millions working in less productive sectors, including tourism, are seeing little or no improvement in wages or living standards.

This situation is worth thinking about. The number of new jobs and the unemployment rate are among the main measures used to track economic performance. But job creation is only one sign of a healthy economy. Productivity growth is another, and is arguably far more important for the economy’s future prospects. The fact that beachfront hotels prefer to hire armies of workers to clear seaweed by hand rather than buying machines that could do the job much faster is not a good portent for Mexico.

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