Mexico City, Mexico – Some of Mexico‘s lowest-paid earners are experiencing their second pay rise in as many years.
Mexican President Andres Manuel Lopez Obrador lifted the minimum wage this year by 20 percent for workers in most parts of the country, following a 16 percent hike in 2019. Those earning the minimum wage in Mexico now make 123.22 pesos, or about $6.53 a day.
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Lopez Obrador’s administration, which rose to power in 2018 under a pledge to tackle corruption and inequality, says 3.4 million wage earners will benefit from the pay increase. It has heralded the move as a historic measure to offset decades of dismal wages in Mexico. “We haven’t seen something like this in four decades,” Lopez Obrador told journalists when he announced the pay rise.
But the impact of Lopez Obrador’s decision appears limited. Factors such as Mexico’s outsized informal economy, a historically depressed minimum wage, and persistently low wages in formal jobs mean the pay hike leaves much of Mexico’s working poor untouched. And the change has little potential to lift minimum wage earners out of poverty.
“In terms of reducing poverty, I don’t think it will be all that important,” says Valeria Moy, an economist at a think-tank in Mexico City called Mexico, Como Vamos? (How Are We Doing, Mexico?).
Meager wages and common hiring practices such as employing workers under short-term contracts, or underreporting income for tax purposes, help keep Mexico’s informal economy especially large, Moy says. Fifty-six percent of Mexico’s workforce is informal, according to the National Institute of Statistics and Geography (INEGI).
Jose Rodriguez, 38, works on a construction site near one of Mexico City’s main arteries, Paseo de la Reforma. Originally from the southeast state of Veracruz, he said he earns 150 pesos a day or around $8. Rodriguez has worked in construction in the Mexican capital for six years, always under short contracts, jumping from one project to another every few months.
“It’s not enough,” Rodriguez says of his earnings. In six years, he says, he has never received benefits such as medical care or social security because of the short-term nature of his work. Rodriguez, like many other Mexicans, earns $1 above the minimum wage. His wage did not rise at the start of the year.
In 2019, Mexico doubled the minimum wage along the northern border region, where now it is 185.56 pesos or around $9.90 per day. But in the rest of the country, even after the recent jump, Mexico’s minimum wage earners make less than their counterparts in Brazil and Colombia, countries with similar per capita income.
Indexing minimum wage
For decades, Mexico’s minimum wage was capped so it rose in sync with inflation. That was in part because the minimum wage, starting in the 1980s, was tied to the amount people paid in fines along with what they received in housing credits, social security, and other social services, says David Kaplan, a labor economist at the Inter-American Development Bank.
Some economists warn that sudden or frequent hikes in the minimum wage can result in what’s known as “wage push inflation”, as employers raise the prices of goods and services to offset the increased cost of paying salaries. Despite worries that Lopez Obrador’s previous 16 percent increase to the minimum wage would do just that, Mexico’s inflation dropped to 2.83 percent in 2019, a four-year low, according to INEGI.
“I think it’s overblown,” Kaplan says about fears that this year’s hike to the minimum wage could spark high inflation. “Recent experience suggests the impact is quite low,” he says.
“I see the recent pay increases as positive, but they can’t be replicated forever,” Moy says.
Runaway inflation in Mexico in the 1980s spooked officials away from raising the minimum wage when it was indexed to services. The government kept the minimum wage low for years and it stayed there, Kaplan says. Then in 2016, a constitutional reform divorced the minimum wage from social services and fines. The government began increasing the wage.
“The question is,” Kaplan says, “once inflation was under control, why wasn’t it increased?”
Persistent low wages
Persistent low wages in formal jobs are one reason economists say more than half of Mexico’s workforce remains under the table, peddling goods in outdoor markets called tianguis, selling food at streetside stalls, or working in small business often consisting of just a handful of people. While these jobs do not provide state-mandated benefits such as health insurance, in some cases, the pay beats that of formal-sector alternatives.
More than 17 million formal workers in Mexico earned between one and two times the minimum wage last year, according to INEGI. And many Mexican workers jump between the formal and informal economies throughout their working lives, Moy says.
In Mexico City’s crowded Zocalo Square, Raul Maisano, 33, mans a magazine stand offering up newspapers, cigarettes and soft drinks to the historic centre’s many passersby. Maisano, who works off the books for the stall’s owner, says he makes more than the minimum wage at 200 pesos a day or $10.60, without benefits. It’s not a lot, he says, but it’s enough to rent a room in neighbouring Mexico State and commute one and a half hours to work every day. When sales are up, Maisano says he makes a little extra.
“It doesn’t bother me that I don’t have health insurance,” Maisano adds. “It’s not a good service anyway.”
For others, informal work provides its own set of benefits. On a recent weekday afternoon, Jonathan Mateos, 22, drizzled Valentina hot sauce into clear plastic bags of chips, selling them to an impatient crowd of office workers near Mexico’s commercial downtown. Each bag goes for just 15 to 30 pesos, or around $1, yet Mateos says he makes on average 500 pesos, or around $27, a day – over four times as much as the new minimum wage earners. Some days, he estimates, he takes home as much as 1,500 pesos or $80 at the day’s end.
Mateos, who works with his two older brothers, says he has never held a formal job. He has never wanted one, he said.
“Since I was a boy, I’ve run a business,” he says. For now, Mexico’s new minimum wage won’t change that.