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Mexico's informal economy swells through recovery

MEXICO CITY, Aug 25 (Reuters) - The ranks of sidewalk vendors, house cleaners and street-corner cooks are swelling in Latin America’s No. 2 economy as out-of-work Mexicans turn to uncertain jobs to survive through a slow economic recovery.

“If there was real work, we wouldn’t be here,” said Francisco Orozco, pointing to a street lined with fellow vendors, shoe shine stalls, guitar players and makeshift news stands in Mexico City.

Mexico is limping back from its deepest recession since 1932 after its economy contracted 6.5 percent in 2009.

While the overall unemployment rate has floated roughly between 5 and 6 percent in the last eighteen months, the share of Mexicans laboring in the informal sector has climbed, according to the national statistics agency.

There were 660,000 more Mexican workers in the informal sector at the end of June than there were at the same point last year, pointing to a weakness that could ultimately slow the country’s economic recovery.

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While poorly-paid workers in the cash economy can count themselves as employed, analysts say Mexico will not attain full economic health while a large share of those workers remain shut out of factories, offices and large enterprises that offer stability and benefits that can fuel consumption.

“Labor conditions have not improved and the jobs being created are not of the highest quality,” said Arturo Vieyra, an economist with Banamex.

The share of workers in the informal sector has increased from 28.1 percent in the second quarter of 2009 to 28.8 percent by the middle of this year. The figure should touch 30 percent before they peak, said Vieyra.

Mexico’s informal economy is more fluid than the factories, offices and other brick and mortar businesses with a relatively fixed workforce.

“I’d rather find something more stable, but at my age it’s not so easy,” said Orozco, 59, a former police officer.

Hiring in the formal sector tends to lag during economic recoveries because businesses first increase productivity with existing employees before taking on new staff, Vieyra said.

Mexico does not offer jobless benefits, which helps explain why other labor data that underlies the raw unemployment number, such as workers who consider themselves ‘underemployed’, are also elevated, Vieyra said.

Reformers also say Mexico should deregulate labor laws and cut red tape that discourages new hiring in the formal sector.

President Felipe Calderon has tried to push major labor and other reforms but a Congress that is not controlled by his conservative National Action Party (PAN) has rebuffed him.

“We have a structural employment problem,” said Mario Correa, an economist with Scotiabank in Mexico City. “Needed reforms have not been implemented for political reasons.”

Workers leaving the informal sector for full-time jobs among the country’s factories and service sector would be a sign the Mexican economy is returning to full health, Correa said.

Reporting by Patrick Rucker and Caroline Stauffer;editing by Missy Ryan