Friday, May 1, 2020

Mexico’s President Moves to Increase Mexico’s Minimum Wage

A former professor at Harvard University, Dr. Jorge I. Dominguez also served as Antonio Madero Professor for the Study of Mexico. Focused on economic and trade trends, Dr. Jorge I. Dominguez continues to maintain a strong interest in developments in Mexico.

A recent Forbes article drew attention to a second recent move by president Andres Manuel Lopez Obrador to increase the minimum wage, this time by 20 percent. The aim is to address persistent inequalities. Despite Mexico’s economic transformation over the past three decades, in which manufacturing and exports have soared and investment has been made in areas such as automotive, electronics, and aerospace, wages are among the lowest in the OECD.

Unlike most industrial countries, Mexico still has a minimum wage that is extremely low relative to the overall economy. With the average minimum wage worker earning just $2,000 in 2018, this has allowed the country to compete with countries such as China when it comes to labor intensive, low productivity jobs. Unfortunately, a corollary impact has been a stunted market for services and goods domestically.

The new minimum wage for 2020 is 123.22 pesos per day (approximately $6.50), which if properly enforced will raise wages for approximately 10 million Mexicans.

A major issue is that many Mexican workers have informal employment with family-run businesses and receive cash salaries that are not officially reported. This may prevent the move from having its intended effect in generating broad improvements for a large segment of the population. It also remains to be seen whether the minimum wage hike will dampen activity in the formal employment sector or increase inflation.