The Minimum Wage Increase: An Improvement Effort for Mexican Workers

05:00 11/10/2024 - PesoMXN.com

Experts warn that the strategy to raise the minimum wage will not be sufficient to genuinely improve the incomes and living conditions of workers in Mexico. Although it’s a positive step to establish in the Constitution that wage increases must align with inflation, it’s necessary to complement this measure with effective labor policies, investment, increased productivity, and training to achieve the expected results.

Productivity is Crucial

On October 9th, the Senate approved a reform to Article 123 of the Constitution, which stipulates that general and professional minimum wages must increase in accordance with inflation. This initiative is one of the 20 proposals presented by Andrés Manuel López Obrador during his presidency. Once approved, the reform will be sent to local congresses for review and approval; at least 17 states must approve it for the Executive to officially publish it. Iván Franco, founder of the consulting firm Triplethree International, commented that "Article 123 is outdated and no longer reflects current labor conditions." He pointed out that it is crucial to implement labor reform that includes all workers, not just those earning the minimum wage, as informal employment is on the rise in the country. Although the minimum wage grew by 110% in nominal terms during the previous administration, this increase did not stop the decline in purchasing power, meaning people could buy less with their money, according to Eréndira Yaretni Mendoza Meza, an economics expert. For wage increases to have the desired effect and to restore purchasing power, it is vital to boost productivity. Productivity is essential in Mexico, a country with moderate growth, as economic development requires the efficient use of available resources, as detailed in the report "Mexico, How Are We Doing?". In the second quarter of the year, productivity grew by only 0.2% and 0.8% year-over-year, falling short of the goal of achieving a 4.8% annual growth. Salvador Rotter Aubanel, spokesperson for the Fiscal Research Development Commission of the College of Public Accountants of Mexico (CPPM), stated that any increase in the minimum wage must be related to reforms that encourage labor productivity to generate economic growth. Mendoza Meza added that there is a need to promote foreign direct investment (FDI), suggesting that a moderate increase in inflation (between 8% and 9%) and interest rates (between 4% and 5%), along with a controlled depreciation of the peso, could attract investments. "Companies seek profits and returns. If prices rise, they will be motivated to invest. An increase in the interest rate encourages more business loans," noted Mendoza Meza. The depreciation of the peso could mitigate investment risk by offering attractive rates, making Mexico an appealing destination for investors.

State Services and Informality

To attract more investment, it is necessary to strengthen workforce training, invest in infrastructure and technology, and ensure security and legal certainty. The reform will also benefit teachers, police officers, National Guard staff, and medical personnel, ensuring that their salaries are not below the IMSS average. However, this will entail greater expenses for the government, which, as a service provider, will have to bear these costs. President Claudia Sheinbaum has indicated that she does not consider the possibility of a tax reform or tax increases. Mendoza Meza emphasized that if greater productivity is achieved in companies along with improved salaries, the government could experience an increase in tax revenue. "Increasing productivity has a direct impact on public spending, which will support wage increases," she stated. To combat informality, deep reforms are needed to alleviate labor precariousness. Mendoza Meza indicated that changes are needed that encompass all workers, as fewer and fewer are in formal employment. With a sustained increase in the minimum wage, supported by greater productivity and improved purchasing power, along with better benefits and state services, people could be encouraged to view formal employment as a more attractive option. Mendoza Meza noted that many workers are forced to have two jobs, one formal and one informal, because their salaries are insufficient.

It is essential that any labor reform implemented is accompanied by strategies that promote the creation of quality jobs and an attractive economic environment for employers. The key lies not only in raising wages but also in maximizing productivity and ensuring that workers feel the positive impact of these changes on their quality of life. Financial education and skills training are fundamental to achieving this goal.