Mexico's Massive Move on Minimum Wages

1/10/20

Mexican Labor Minister Luisa Alcade raised the Mexican minimum wage by 20% from the beginning of this year.  This comes on top of a 16% hike at the beginning of 2019.  

Many will recall that the minimum wage increase of 16% in 2019 prompted a strike of 90,000 workers in 90 companies in the border city of Matamoros as well as the famous 20/32 settlement.  (20/32 refers to the deal that ended the strike through a 20% pay increase and a 32K pesos bonus for all employees – not just those on the minimum wage.)  This is unlikely to happen this time around.  The 2019 strike failed to catch hold beyond Matamoros, and for 2020 the minimum wage increase in the border area will be just 5%.

This means that the national minimum wage will increase to 123.22 pesos per day (around $6.50) and the wage on the border to 185.56 pesos per day ($9.83).  To put it in perspective, this makes the daily wage south of border close to the hourly wage across the border in the U.S.  Around 11 million Mexican workers are paid the minimum wage, but it is not generally applied to around a half of Mexico’s workers who are employed in the informal sector.

There are two important questions for most U.S. companies.  The first relates not to the change in the absolute level of the minimum wage, but what companies will do to reflect existing differentials within the company and with external competitors.  After two major hikes in two years, pay differentials are starting to become compressed.  The second is how Mexico’s trade unions will use the new minimum in their strategies to secure collective bargaining rights under the new labor code.  This week, President Manuel Lopez Obrador suggested that more than 80% of Mexican workers were unaware of the collective bargaining agreements that governed their pay.  In a typical “economist” stance on this issue, Benito Barber, the Chief Economist for Latin America at Natixis, commented helpfully, “there’s no consensus on what effects this will have on other wages or how it will affect core inflation”.  

The minimum wage increase adds to the complexity of doing business in Mexico.  Labor Minister Alcade said yesterday that she expects the next tranche of implementing laws on trade union recognition and collective bargaining to take effect in October of this year.  At the same time, legislation to regulate (restrict) outsourcing is passing through the legislative process.  

With all this in mind, HR Policy and Littler Mendelson will host a meeting for all HR Policy members on Mexican and Latin America developments, including steps north of the border to assure implementation of the USMCA deal, on 12th March in Miami (register here).  Meanwhile, the regular meeting of LAMERG will take place (also in Miami) on 13 and 14 May (register here).