Understanding Income Inequality in Mexico

INCOME INEQUALITY IN MEXICO
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Income Inequality in Mexico
Rising poverty levels is one of the major societal problems affecting many countries around the world. Under-developed and developing countries in Africa and some parts of Asia and Latin America have for centuries been plagued by dwindling economic fortunes characterized by low standards of living of the majority of their citizens. Various parameters have been used to measure poverty in countries such as Mexico and include nutrition, clean water, housing, education, healthcare and access to quality and essential services. One of the significant factors that have been attributed to the increasing levels of poverty in these countries is income inequality. Mexico has witnessed widening income inequality resulting not only in increasing poverty levelsб but also in the gap between the rich and the poor. Despite sharing the border with an economic powerhouse in the United States, Mexico has failed to replicate the same success, and the majority of its citizens have languished in deplorable living conditions for decades. The affluent families have continued to amass their wealth while the poor suffer even to put food on their tables. The research paper, therefore, seeks to examine the aspect of income inequality in Mexico with an emphasis on the contributing factors, the impacts on the country and the recommendations on how to address the problem.
Understanding Income Inequality in Mexico
According to Veronica Amarante (2016) “income inequality refers to the unequal distribution of household or individual income across the various participants in an economy.” The concept of income inequality, therefore, refers to the unfair spread of income levels in a country where the rich have a disproportionally larger share in comparison to the general population. The rich control various aspects of the country’s economy and primarily own most of the industries and factories that employ many people but at low wages. Income inequality is a significant problem in Mexico, and the government has continuously failed to instigate effective policies to address the issue. The nation’s wealth is unevenly distributed with reports indicating that 10% of the country’s wealthiest people have about 45% of all income whereas 10% of the nation’s poorest have 1.3% of the remaining income. These statistics indicate the dismal spread and distribution of income in Mexico where the wealthy individuals control the country’s GDP. In the same regard, Carlos Slim who has considerable investments in many Mexican companies and was ranked 8th as per the recent Forbes’s listing of the World’s richest billionaires has a personal fortune that is almost 8% of the nation’s GDP. Individuals such as Carlos Slim have had significant backing by the national government which does not entirely support underprivileged businesses and on the contrary promote the establishment of monopolies both in the public and private sectors.[del Castillo Negrete Rovira, Miguel. "Income Inequality In Mexico, 2004-2014." Latin American Policy 8.1 (2017): p.103.]
The concept of income inequality can also be traced back to the colonial period before the country got its independence. Social stratification characterized the nation with the upper class comprising of individuals who owned large pieces of land while the lower level consisted of peasants who primarily offered labor in exchange for shelter and food. Land ownership was and to some extent still is the primary source of wealth for most Mexicans, but unfortunately, the rich have acquired and own large pieces of land throughout the country. Wealthy individuals such as Carlos Slim have vested interests in agriculture through the enormous chunks of land they hold across the country and have employed many people. They have also built their industries and factories on their properties.
As a result of income inequality in Mexico, the gap between the rich and the poor has continued to widen with rising poverty levels characterized by deplorable living conditions and ill-equipped learning and healthcare facilities. The four main Mexican Multimillionaires have in less than ten years managed to amass so much wealth that they control about 10% of the country’s GDP and currently have the capabilities to offer employment to over 3 million people at minimum wage without a significant impact on their revenues. On the other hand, reports indicate that more than half of the Mexican population live below the poverty line and are hardly able to afford their basic needs ща food, shelter, and clothing. Globalization and developments in technology among other factors have seen the increase in the standards of living in various countries around the world including Mexico. Goods and services have become extremely expensiveб whereas the household income of most Mexicans has remained almost stagnant.[Esquivel, Gerardo. "The Dynamics of Income Inequality In Mexico Since NAFTA." Economía 12.1 (2011): p.163.]
Additionally, with industrialization, many Mexicans migrated into еру cities in search of factory jobsб creating a shortage due to the few opportunities. Moreover, the factory jobs did not pay as much as was expected and therefore, the wages have proven to be too little to meet the growing demands of the families. Lack of enough funds to get appropriate housing has led to the rise of slums and shanties around the cities and access to quality education, and healthcare has become a pipe dream to many Mexicans. Furthermore, the illegal trading’s that are rampant of the US-Mexican border have significantly contributed to the increasing income inequality. Mexico has for decades been used for unscrupulous dealings by some US citizens to smuggle drugs, people and ammunition. The established families in Mexico have been known to engage in these trade activities for centuries and which have cemented not only their powerful positions but also accumulated them so much wealth.[Reyes, Miguel, Graciela Teruel, and Miguel López. "Measuring True Income Inequality In Mexico." Latin American Policy 8.1 (2017): p.131.]
Factors that Contribute to Income Inequality in Mexico
In the mid-1980s, the Mexican government put in place various neo-liberal reforms that were meant to not only reduce poverty levels in the country but also to address the issue of income inequality — specifically, the reforms intended to open domestic markets to foreign competition and reduce state intervention in the economy. However, the attempts proved futile as the issue of income inequality in Mexico remains staggeringly high and consequently, the country has witnessed dwindling economic fortunes through the years. Various factors are attributed to contributing to income inequality in Mexico significantly.
Wage restriction policies that have been in place even before the North American Free Trade Agreement (NAFTA) and during the economic recession of the 1980s have significantly fueled the decline in real wages. There have been subsequent policies over the years that have put further restrictions on the minimum wage and which have contributed to income inequality. Stagnant wages have characterized many households that have since been forced to cut down on various necessities such as quality education and healthcare. Efforts by labor unions in the country have proved futile, and the government has seemed unmoved at the suffering of its people despite the rising costs of living. Statistics indicate that Mexico has the lowest minimum wage of all the Latin American countries with the majority of the working population earning less than $200 per month.[Reyes, Miguel, Graciela Teruel, and Miguel López. P.135.] [Lustig, Nora. "Inequality And Fiscal Redistribution In Middle-Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru, And South Africa." SSRN Electronic Journal 1.1 (2015): p.44.]
The absence of progressive tax policy has also contributed to income inequality in Mexico. The Mexican government primary source of revenue has been through income taxes which consist of corporate and personal income, profits and personal gains. The tax schedule has 11 tax brackets that wage-earners are subjected to on a monthly basis and for each income bracket; the system combines a marginal tax rate and its corresponding tax payment. In such an order, some low income earning individuals tend to be taxed the same as those who receive much money. The adoption of a progressive tax system will have a significant impact in addressing the income inequality in the country. According to Nora Lustig, “progressive rates are based on the concept that high-income taxpayers can afford to pay a high tax rate.” The current Mexican tax system is not only a burden to the majority of the low-income earners, but also reduces their earnings after tax and eventually, the amount of money they are left with to spend on themselves and their families.
Additionally, the lack of an adequate education system in Mexico has also contributed to the income inequality in the country. Proper education structures characterized well-equipped learning facilities and experienced, and highly qualified teachers are non-existent in Mexico, and as a result, the majority of the students have been forced to seek quality education in other countries including the United States. The public schools and colleges in Mexico are in deplorable conditions while the private learning institutions are costly. Many parents do not value the benefits of education and have resorted to having their children help them with the practical activities. A country that has an effective education system brings forth skilled professionals who are not only able to assist in running various aspects of the nation but who demand competitive wages in the job market.
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