Mexicans turn to street economy in recession

MEXICO CITY, June 11 (Reuters) - A deep recession in Mexico is pushing hundreds of thousands of workers to take irregular jobs like fixing drains, repairing TVs or selling everything from underwear to furniture on the streets.

At dawn on a recent morning, groups of people desperate to open a stall at the sprawling San Felipe open air market on Mexico City's north side waited to be allocated space on sidewalks and streets.

Bonfilio Sarabia, 30, lost his job running a computer network at a Mexico City architecture firm six months ago and now hopes to sell computer hardware at the market.

"I've looked and I can't find any other work," Sarabia said, standing in front of some plastic boxes holding his merchandise. To make ends meet, he also repairs computers in people's homes.

Hit by a drop in U.S. demand for its exports, Mexico is in its sharpest recession since at least the mid-1990s and the economy is expected to shrink nearly 6 percent this year.

That has pushed many into the informal economy where they are generally poorer than employees at tax-paying businesses.

Growing poverty is expected to hurt President Felipe Calderon's conservative National Action Party in mid-term congressional elections next month.

About 27 percent of Mexico's workers were active in the informal economy during the first quarter of this year, and that number has been edging up since the economy began slowing in 2007.

Despite being such a big part of the labor force, these workers only produce about 10 percent of the country's total economic output, according to the national statistics agency.

That still amounts to a lot of tax evasion, and Calderon is under pressure to get more people onto tax rolls as credit agencies threaten to downgrade Mexico. His government collects only about 10 percent of its gross domestic product in taxes, one of the lowest rates in Latin America.

GOING UNDERGROUND

Nearly 500,000 workers were dropped from payrolls in the formal economy in the year through April, according to government data on social security contributions.

Data suggests many of those laid off have gone into the underground economy. Others may have stopped working altogether. An estimated 218,000 people entered the informal economy in the year through March.

Under the patchwork of blue and red tarps covering the San Felipe market, more than 100 people have set up new stalls this year on the sidewalks and streets controlled by one of the market's organizers, Jose Luis Orozco.

"When people can't find work, they come to me," Orozco said as he sat with his shirt unbuttoned before a typewriter in a blue shack. Around him, hawkers shouted out their offers and pirate CD vendors blasted out salsa music.

Some of the people entering the informal economy work for family businesses, even small manufacturers, that have falsely told the government they closed in order to stop making tax payments or social security contributions.

But others are also young workers like Alberto Lozano, 18, who showed up in front of Orozco's office just after dawn with boxes of used tools to sell.

Lozano said he has been looking for work all year in the factories of Mexico City's Vallejo district. Like many of Mexico's poor, he never finished studies beyond middle school.

"They either told me there were no jobs available, or that a lot of people had applied and I lacked education," he said.

The economic slump could help the opposition Institutional Revolutionary Party, or PRI, overtake Calderon's ruling party as the biggest force in the lower house of Congress, which is up for grabs in the July 5 mid-term election.

Polls show the recession is a top concern for voters.

"Of course the PRI is benefiting from that," said Leo Zuckermann, a political analyst at the CIDE think tank in Mexico City.

The PRI, which has campaigned as a nationalist defender of Mexico's poor, currently holds a narrow lead in opinion polls. (Editing by Kieran Murray)