2023 Brings New Challenges for CHROs

In 2022, the labor market in Mexico has undergone a number of changes that have increased employee costs for companies. These include sustained talent scarcity, the globalization of labor markets and shifting labor laws. With a foreseeable downturn in demand in the new year, companies have responded with layoffs, placing an important task before CHROs who will likely be charged with handling downsizing and supporting employees. 

Despite a slight hiccup at the beginning of the year with the Omicron COVID-19 variant, unemployment has continued to shrink despite recovery projections for until 2023. The greatest gains were in commerce and manufacturing in the last months of 2022 as demand in travel and consumer demand picked up with the easing of COVID-19 restrictions. 

Sustained productivity during lockdowns proved to both employers and employees that the remote work model was viable despite concerns from business leaders who feared a lack of control/oversight would undercut individual productivity. However, despite this model increasingly becoming an employee expectation, some companies have resisted its adoption. Unsurprisingly, this has given way to greater turnover among companies and promoted quiet quitting among some, a phenomenon that has ballooned as a symptom of general dissatisfaction and disengagement from collaborators. 

Meanwhile, sustained demand in other sectors heightened demand for skilled labor, leading to competition to offer greater compensation packages and benefits. Nearshoring trends have also led companies to look for skilled and cost-effective talent. The most affected sector has been technology, where turnover has remained high throughout the year. 

At the same time companies have had to contend with federal labor law changes, including a raise in the minimum wage, doubling of vacation days and a teleworking law, all of which imply implicit costs for companies that have accumulated throughout the year. These market forces have coalesced to augment labor costs for companies by an estimated 40 percent, with more legislative costs expected to come in 2023 including another minimum wage hike set to begin in 2023. USMCA has also had an important impact on collaborators bargaining power, which has opened the door to additional union benefits and thus additional costs for companies. 

Companies have also been looking to drive key internal incentives centered around diversity, equity and inclusion to remain competitive in the labor market. However, a rush to expedite results has  turned this into performative checkbox diversity initiatives that have failed to create real tangible results within their organizations.

Altogether these market pressures have collided to force companies to make greater investments in their human resource departments, many of which still relied on manual processes. Overall, CHROs appear to have a technology gap significantly superior to that of other company departments who have been provided funding and have been encouraged to digitize. Most CHROs lack a critical understanding of existing HR solutions that stand to be automated to save greater time, including payroll and talent management, overall indicative of the immaturity of Mexico’s HR tools market. 

What is next for companies?

With an economic downturn on the horizon, tech companies have begun to announce layoffs in preparation for a slowdown in demand. This has placed an important task before CHROs who will likely be charged with handling downsizing effectively. Companies should have a strategic roadmap to make sure that as they cut talent, they have the people to remain operationally efficient with a smaller team, without overbearing their team with so much work that it burns them out. 

Yet to be observed is whether the employment gains that were made in manufacturing and hospitality will be sustained through the first months of 2023. Moreover, CHROs will be expected to have greater application of data so companies can learn to make more efficient business talent decisions, while being prepared to scale their teams back up should demand picks up again.