Overview

According to OECD data, Mexico is the country where the people work more hours per year. Unfortunately, this doesn’t mean they have the best salaries. In fact, they receive the lowest salary in OECD´s rank. Here the comparison; the average in hours according to OECD’s countries list is 1,765 hours with a personal income of 23,938USD per year, while in Mexico, they work 2,246 hours with an income of 14,867USD. In these report I’m going to explore the wage policies the country has and are causing this differentiation and share my opinion about the system.

México has an estimate population of 127Millions and 60.9% are able to perform a job according to World Bank data. Additionally, 50% of the population is under 26 years and only 18% of the people between 25 and 64 years have university degree.  The unemployment rate of the country is 4.3%, and the long-term unemployment, which is the people who have been unemployed for 12 months or more, is only 1.2%. The self-employment rate is 32.1%, these are the workers who work for themselves and they don´t have a formal contract with an enterprise or institution to receive a salary. The rest of the population who is able to work in México has a formal contract with a company.

There are 4Millions of companies in Mexico and 99.8% of them are SME, these companies contribute with the 52% of the GDP and have 72% of the jobs in the country. In the last years Mexico has developed new reforms to generate more SME, and this has generated more jobs. Some of the institutions to support SMEs are for example, PRO-MEXICO, PEPE y TOÑO, FONDO PYME, etc.

The “Secretaria de Economía” estimates that there are approximately 50 thousand foreign companies in the country. Due to a cheap labor force and the closest position to USA, Mexico has been a strategic ally for multinational companies to stablish factories and offices. Many of these enterprises hired thousands of Mexicans as their principal workforce. For example, Guanajuato estate has 973 foreign companies from everywhere such as China, Cuba, Germany, Spain, etc.

Just in the year 2014, the country received more than 30,000Millon USD as foreign investments.  Besides, according to “El Universal” data, Mexico is a “paradise” for many enterprises, due to they have earned until 73% of their utilities in this country. For 2017 and 2018 the expectative for foreign investments will be around 40,000Million USD.

There is a factor that it is still very complicate to regulate in Mexico, the informal market. Even when the country has a lot of foreign investments, global companies and SMEs, around 50 million citizens are poor and approximately 5 million live in extreme poverty. This causes that many Mexicans have to try different ways to earn money to their house and feed their families. The vast majority works in informal market, such as selling commodities in the streets, plumbers, carpenters, flea markets, etc.

The first problem in the informal markets is the lack of regulations before any governmental institution. According to Expansion data, it believes that 29.1Millons worked under these circumstances. And according to Forbes, at least 50% of the population has a labor inside this sector.

The second issue is that they avoid taxes. In Mexico the tax collection represents only the 18% of the GPD, while in many countries of the OCDE represents 33%. Mexico can´t remove out the informal market due to many families depend of it.

With a GPD growth of 2.0% and 2.5% during the last two years, with a political stability, ranked in the position 38 in Doing Business classification and with many predictions about foreign investments, it seems that Mexico is following the right steps to improve their economy and offer better jobs to their population. The question is: Does Mexico have the correct policies to protect their employees?

Policies

A brief history about policies, during “El Porfiriato” (1877-1911), period in which the military Don Porifirio Díaz ruled Mexico for 32 long years, during this season, the people worked and lived in plantations where the landlord decided how much money an employee should win and how many hours he had to work. It was not until 1910 when the Mexican revolution leaded by Francisco I. Madero started, and one of the promises of this movement was to stablish in the constitution better conditions of the work environment and a salary´s law.

The Mexican revolution was a success and in the Mexican constitution (“Constitución Política de los Estados Unidos Mexicanos”) was enacted a law to protect the labor class. The article is #123 and declares that “every person has the right to have a socially useful and decent work.”

The real and specific change appeared during the half of the twentieth century, where the Mexican constitution stablished that the objective of the minimum wage is to protect the worker with a base salary, in which every worker should earn enough to provide standard commodities and education to his family. With this modification the employer can´t make a change in the salaries of his employees.

Here is the list of some of the most important and basic rights for an employee:

• Working day will be only of 8 hours
• Working day during the night will be only of 7 hours
• People less than 16 years can´t work in an unhealthy or danger labor, they can´t do every industrial nocturnal shift and can´t work after 10:00p.
• It is strictly prohibited to hire people fewer than 14 years. Any person with the age of 15 years will have a work day of six hours.
• For every six days of work, the employee should have at least one day to rest
• Women during pregnant could not work in hard tasks or activities that can put in danger their healthy.
• Minimum wages should be enough to provide standard commodities to the family boss and to provide education to his children.
• Everybody should win the same for the same job, regardless of sex or nationality
• Minimum wage will be exempted of embargo, compensations or discounts.
• Every worker should be right for a participation in the profits of the company
• Salaries should be paid using the local currency
• Every time a worker should do over time, this can´t work more than three extra hours per day during three consecutive days. Every extra hour will be paid as double. People under sixteen couldn´t do overtime.
• Employers will take responsibility for every accident and illness of their employees, only if this was provoked or caused during the execution of the work.
• Every employer and worker can create or join to a union labor
• Strikes will be considered a right for workers and employers.

In 2015 the government modified the law to establish a new age to hire employees, a minimum of 15 years. Previously, companies could hire teenagers with 14 years old.

Minimum wage

According to SAT (“Servicio de administración tributaria”), the minimum wage for 2016 in Mexico established by the government is $73.04 MXD per day, around $3.94 USD, so a Mexican employee is earning approximately $120 USD in a month. In 2015 the minimum wage was $70.10 MXD, the change of $3.04 MXD is twice the 2.1% percent inflation of 2015.

The minimum wage in Mexico is established by the institution call it CONASAMI (“Comisión Nacional de Salarios Mínimos”). Unfortunately, even when the country has showed advances in government transparency, this institution is not very clear and to find information about it is complicated.

According to the newspaper “El Universal”, CONASAMI is integrated by 22 society members, 11 represent business class and the other 11 represent the union labors. The names or profiles of these agents are unknown and the president, Basilio Nuñez, has been in the power for more than 20 years, elected in 1991.

In México, at least once per year the minimum salary has an adjustment, but in cases of crisis this could have continues modifications. The new adjustment is proposed during the last month of the year and it will be a rule in the coming year.

The procedure to change the minimum salary it is simple, CONASAMI analyses the inflation of the country reported by the Bank of Mexico, and then they proceed with the adjustment. This process it is not transparent, but they have been following this “rule” since 1994.

This has been the behavior of the minimum since year 2000:

Information taken from salariominimo.com.mx and it is reported in MXD pesos.

As we can observe in the table, the increase of the minimum salary since 2000 it has been only $37.9 MXD or $1.8 USD. According to the experts, Mexico can´t promote an exaggerated increase in salaries due to this could cause and inflation and more unemployment. Companies could fire thousands of employees just to save money and keep their process as cheaper as they can. Additionally many products and services would suffer an increment in their prices. Other reason is that a big amount of the labor force of México doesn´t has higher education, so once someone loses his job, it is complicated to find a new one.

Other of the reasons is that Mexico prefers to have low salaries; it is because the country could be more attractive for foreign investments, even when in the world most countries have similar conditions these nations still have higher wages. According to “El Contribuyente” data, while in China the minimum wage is $1.19 USD per hour, in Mexico is $0.6 USD. Therefore, companies can produce more with a cheaper cost of production process.

In the next table we can observe the comparison of minimum wage per hour between countries of the OECD:

Information taken from “El contribuyente”

Union labors

In 1912 was created a non-constituted union labor of Mexico, “Casa del obrero municipal”, and one of its principal objectives were the education of the employees and its children, and to improve the conditions of the life of any worker. Besides, this union labor was part of the Mexican revolution because in 1915 signed an agreement with the revolutionaries to promote and decreed laws for the Mexican´s employees. But it was until 1934 when the first union labor, “Mexican confederacy of workers”, was formally constituted.

During the decades of 30s and 80s, the union labors were considered beneficial because they promoted a lot of laws to protect the worker. However, nowadays in Mexico, these organizations are known as resistance groups and “black boxes”. Union labors collaborate with political parties to obtain benefits for their leaderships and also all theirs processes and management are not transparency. The way in which the guilds were created allows the manipulation and opacity of the information.

There are more than two thousand union labors in Mexico and every worker has the right to select one that will represent and protect his interests against the law and recruiter. Once an employee is associated, he will pay a quota for the operations of the union labor.

Social insurance

All the employers in Mexico should assume the responsibility of social insurance with their employees. According to the law, “Social insurance act”, all the workers should be registered in the Mexican institution IMSS (“Instituto Mexicano del Seguro Social”). The IMSS is the bigger institution in the health sector in the nation and Latin-America, approximately more than half of the population in Mexico receives services from this entity.

There is a second institution in Mexico call it, ISSSTE (“Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado”). This institution offer services only for the workers, ex-employees, family of the employees, and pensioners of the federal government.

Employers should recognize their commitment with their employees and follow the next rules (only the most important will be mentioned):

• To register their employees into the IMSS
• Notification of any change in the employee’s wage or personal information. It is very important to clarify wages due to it is used to calculate the pension of the worker.
• Keep all the informative history of their employees for at least 5 years
• Make the employer’s contributions
• Comply with the rest of the Social security act dispositions

Additionally, any worker has the freedom to arrange any health insurance with private firms. This option doesn’t overlap his register with the entities mentioned before.

Pensions

Pension is an economic profit which is granted for all the employees that had work until his 65 years old or completed 1,250 weeks and were registered in the Social Insurance institutions, IMSS & ISSSTE, by their contractors.

Nowadays Mexico has two regimens:

1. Workers who were quoting before 1997. This kind can use the law decreed in 1973.
2. Workers who are quoting after 1997. This kind can only use the law decreed in 1997.

Before 1997 all the pensions were managed by the federal government through the IMSS or ISSSTE institutions, unfortunately the administration hurt the economic environment of the beneficiaries and apart for this case the government established a system of individual capitalization.

This system of individual capitalization consist in employee’s financial contributions into approved private firms (Called in Mexico “AFORES”), and these institutions manage the money professionally until the day of the worker´s retirement. Every employee can select the firm of his convenience.

The firms offer different interest rates through the years and the worker can change from firm according to the benefits. In case the employee forgot to select one, the government will pick one for him.

Other benefits

Among other base benefits that an employee has are:

• Every worker has the right to vacations accordingly to the time worked in the company. After the first year of been providing services, this could take 6 days and for the next 3 years the vacation´s period will increase for 2 days for each year worked.
• This is an institutions created by the government in 1972 that provides mortgage loans to any Mexican worker. The financial agreement will be done mainly to the monetary salary.
• Annual benefits, such as, monetary bonus, utilities, etc.
• Maternity support. Women employees will receive support during and after the pregnancy time. A woman will have 84 days of incapacity to take care of their pregnant receiving her complete payment during these days and the incapacity will could be extendible in case any complication appears.
• Incapacity support. Any worker will receive medical support in case this suffer and illness or accident. The worker will receive 60% of their salary during his incapacity.

According to the companies, the benefits provided could be better for every worker, for example, days, money, legal services, etc. Not all the benefits or bonus were mentioned.

Conclusions

It has passed more than 100 years since the first laws to protect and establish salary´s policies were enacted. And it looks that with all this history Mexico could be constituted a modern and strong model. However, the Mexican´s model is still weak in some areas and requires some improvements.

The minimum wage in Mexico is one of the lowest in the world, even lowest than China. This is caused because not all the Mexicans have a professional degree and the government has not made big increases in the salaries and many companies are taking advantage of this situation and are being installed in the nation and promoting more jobs. It seems that we are more interested in create low´s salary job than improve the education in my country to have a better salaries.

Mexico is a country that has established a weight wage system, but unfortunately this system still has transparency problems. These problems are being caused principally by the corruption, due to the leaders are more interested in retain the power for their political group than try to look for improvements to help the Mexican´s society.

The political entity in charge to make the changes in the wage salaries, CONASAMI, is governed by a group which is unknown for the Mexicans citizens and nobody can get more information about it, and the process to do it is still not fully transparency. Besides, the other group to improve or promulgate new policies is the legislative power. Both entities are corruptly contaminated and most of the modifications bring benefits only for a few.

Union labors are another example of lack of transparency and corruption. Even when they brought benefits during almost 50 years, now is a resistance group and it supports only the political parties which promises more power. Additionally, the unions force the employees to pay a fee and not always the worker receives help. Furthermore, union labors are untouchable and very complicated to handle because they manage and control a lot people, so, it is very easy to paralyze big part of the country with strikes.

Its sound very complicated how the country is managing the wage policies. However, the country has the laws to protect and improve the life of its employees. Some of the benefits are the social insurance, pension system and INFONAVIT. These laws also protect the families of the workers. Furthermore, the government has made the effort to publish all the information in internet about the laws that correspond to the employees and employer and also there are many institutions that can provide legal services.

Unfortunately for the people who live from the black market don´t receive any protection or has labor rights. As its name indicates, the future is still black and the government has not presented strongly interest in this topic.

In my personal opinion, Mexico has the possibility to improve its system. It has all the institutions and laws to do it, so now they need to focus on the opportunity areas. Maybe sounds very easy to do it, but in reality is very complicated. The corruption has penetrated until the legislative system and most of the modifications are still protecting and benefiting the upper echelons of power. However, I believe these echelons have lost power during the last years.

It´s complicated but it´s not impossible.

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