The rise in the minimum wage boosts the economy of Mexicans in times of high inflation

Workers inside a maquiladora in 2017, in Ciudad Juárez.
Workers inside a maquiladora in 2017, in Ciudad Juárez.Ivan Pierre Aguirre (Getty Images)

In the balance of the actions taken by President Andrés Manuel López Obrador, in the middle of his six-year term, one point stands out in his favor: the increase in the minimum wage. Although this was a commitment made with the United States and Canada as part of the renegotiation of the free trade agreement (T-MEC) that precedes the current Administration, the increases have been made during the last three years, boosting the income of many Mexicans, even in times of high inflation.

On Wednesday, a 22% increase was announced, the fourth increase since López Obrador came to power, which will take place in 2022. In real terms (that is, discounting inflation), with the three previous increases, the salaries of the Mexicans have already increased 43%, and, in the border area, the increase has been 115.3%. The north, where many US-owned factories are located, has enjoyed a more integrated policy when it comes to minimum wages, explains Axel González, a research economist specializing in the labor market at the independent center México How Are We Going? (MCV).

In the north, the minimum wage was doubled, the value added tax (VAT) was cut, the corporate tax was reduced and energy prices were adjusted until they were comparable with those of neighboring cities in the United States, says González. “This has been positive, especially if the reaction of the business sector is taken into account, let us say that the need to recover people’s purchasing power is understood,” he adds. In 2022, the daily minimum wage will be 260.34 pesos in the north and 172.87 pesos in the rest of the country.

Two studies published this year by academics, including one by the economist Gerardo Esquivel, a member of the Banco de México Governing Board, conclude that the increases have not had a substantive effect on the price level, that is, on the level of inflation. of the last three years. Also, the central bank, in its quarterly report published on Thursday, also assured that the country’s inflationary pressures are, for the most part, exogenous, such as bottlenecks in global supply chains, stimuli to spending in other countries, as well as the increase in the prices of raw materials and the reopening of some services.

The adjustment was slow in coming. The salary had been depressed since 1994, according to data from the National Minimum Wages Commission (Conasami). From that year until 2019, when López Obrador came to power, the accumulated increase had been 11%. This, in part, was due to the fact that foreign concepts such as fines, credits and social benefits, were measured in minimum wages, which hindered the increases, since they automatically increased the costs of these other concepts. During the previous Administration, the minimum wage was de-indexed.

“Given that it remained this way almost constant for so many years, there is enough space to consider these gradual increases that have been being considered,” says the specialist. The cost of labor in Mexico represents only 12% of total costs, he adds. “Comparing it with other OECD countries or even Latin America, it is particularly low,” says González. The intention of the presidency is that in the six years of mandate the minimum wage of the country is doubled.

With the increase in remuneration has also come an increase in the value of unpaid work, according to a survey published on Friday by the National Institute of Statistics and Geography (Inegi). The work of domestic activities, care and the production of self-consumption goods, had an estimated value of 27.6% of gross domestic product (GDP) in 2020 – an increase of 4.7% compared to 2019 -.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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