Mexico Is Increasing Minimum Wage By Record Levels But It’s Still Shockingly Too Low
There’s been a lot of changes since Andrés Manuel López Obrador became president of Mexico, and not everyone would say the changes have been positive. Unfortunately, the situation in Mexico has gotten increasingly worse. There’s an increase in violence. The cartel seems to have continued their reign — and not just in the drug industry but in the farming one as well. However, there is some good news — sort of.
Mexico’s president has announced they are increasing the minimum wage by 20 percent.
This is the first time the government has made any changes to the minimum wage in 44 years.
“We continue to gradually recover the value that the minimum salary has lost over time without creating instability, without creating inflation,” Lopez Obrador said, according to Reuters. “This is an important increase.”
While the increase is definitely welcomed, there are some issues. For starters, the wage hike means Mexicans will now be able to earn 123.22 pesos or $6.50 a day.
You read that correctly, not $6.50 an hour, but a day! That day rate feels incredibly low. The northern region of Mexico will see an increase of 5 percent to 185.56 pesos. Lawmakers were in talks to request a 29 percent increase. However, the concern is that while people need an increase in wages, the inflation rate has slowed down.
Economists say that the increase could actually hurt Mexico’s economy in the long run because the wage increase doesn’t correlate with how their economy is doing.
“In the past, real wage growth had been generally aligned with productivity,” economists at JPMorgan noted, according to Reuters. “The new wage policy has opened a significant wedge between the two, which eventually will likely create economic imbalances.”
But the president has urged since before his election that in order to see Mexico prosper and to keep violence down is to help the poor.
“This is going to help the economy, of course, because it strengthens the internal market,” Lopez Obrador said, according to Time magazine. “If there’s more revenue, it helps reactivate the economy, there are more sales for merchants.”
Some also point out that if employers are forced to pay their workers at a higher rate than they’re expected to — while the economy isn’t at a good point, then they may have to fire some of their employees ultimately.
No one is disputing that people in Mexico should be paid more, but the problem is, economically speaking, it will be a challenge for employers to increase their employees’ paychecks if the economy and inflation are not prospering.
This is not the first time Lopez Obrador has increased the minimum wage. Last year he did so as well, but this time the increase is a lot more significant.
Last year, President Donald Trump also raised concerns about Mexico’s low minimum wage standards, but not because he was looking out for the people of Mexico. He said the low wages would be an incentive for companies in the U.S. to move their laborforce to Mexico. Mexico’s minimum wage standard is low, but other Latin countries are pretty bad as well.
According to the Tecma Group of Companies, “The minimum wage in Mexico is not only low when compared to its NAFTA trading partners, but is also low compared to workers’ wages in the other countries of Latin America. For instance, Mexico’s minimum wage is 44 percent of that of Brazil and is only 27 percent of what is paid to laborers in Argentina. In terms of a comparison with a country outside of the region, Mexico’s minimum wage represents only 16 percent of that of Spain.”
How this move will play out for Mexico remains to be seen. The increase goes into effect on Jan. 1, 2020.
The shift in the economy, whether good or bad, will take some sort of shape after six months. If all goes well — in other words, if employers don’t fire their workers, and the economy grows — then perhaps the president by increase the minimum wage again. But we can’t imagine he would raise the minimum wage if the economy remains at this low point.