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Few economies pose as big a paradox as Mexico's.A large part of the answer has to do with the Mexican economy's extreme dualism – a problem that has been called the "two Mexicos". The bulk of Mexican workers remain employed in "informal" firms – especially firms in which employees are not on salaried contracts – where productivity is a fraction of the level in large, modern firms that are integrated into the world economy. The cumulative growth of employment between 1998 and 2013 in the informal sector was a whopping 115 percent, compared to 6 percent in the formal economy. For capital, cumulative growth was 134 percent for the informal sector and 9 percent for the formal sector.Mexico does not seem to lack economic dynamism. Evidence shows that many low-productivity firms survive, while high-productivity firms die.As a result, the economy's overall productivity has been stagnant or declining.The result is that formal employment is unwittingly penalized, whereas informal employment is subsidized.Another possibility, which can accompany the first one, is that Mexico's rapid opening to imports has bifurcated its economy between a relatively small number of technologically advanced, globally competitive winners and a growing segment of firms, particularly in services and retail trade, that serve as the residual source of employment.
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