Stronger economic growth is the most effective way to boost job creation and incomes. There are few disincentives to work in Mexico and low open unemployment. But many workers are involved in low productivity and low rewarding jobs, often in the informal sector. According to most indicators, informal activities are pervasive and have been expanding over the past decade. A number of factors contribute to informality. First, low human capital makes it difficult for many workers to take up more productive jobs. Second, employment protection legislation is relatively restrictive, reducing labour demand in the formal sector and, in the absence of income support for many dismissed workers, these cannot afford staying unemployed, taking up the first job they find. Furthermore, measures that strengthen the incentives to work in the formal sector are required. Labour market difficulties are closely related to poverty and exclusion. Social policies have a key role to play in promoting access to the formal labour market and pulling people out of the poverty trap. This chapter argues that what is required to foster the creation of more jobs in the formal sector is a comprehensive approach, including: measures to improve the efficiency and reliability of social security services; a modernisation of labour market legislation with a view to better balance flexibility and workers’ protection; measures to upgrade competences, by promoting effective training programmes. It is also important to maintain the focus of policy intervention on fighting poverty and addressing basic social needs. The coherence between policies is the key to enhancing the adaptability of the workforce, helping workers take advantage of new work opportunities in the formal sector and allowing the most vulnerable to escape from poverty and exclusion.