2023 Labor Concerns Center on Inflation, Employment

There is evidence that inflation is decelerating, but a volatile economic outlook composed of multiple moving variables has renewed domestic concerns of cyclical unemployment and sustained inflation, according to a survey conducted by Indeed. This macroeconomic context could eat into laborers bargaining power and likely motivate companies to seek to renegotiate workplace demands. 

“As employees and employers find a middle ground for their demands, the future of work in Mexico for 2023 will have a favorable outlook," said Madalina Secareanu, LATAM Senior Manager, Indeed.

Mexico’s economic recovery outlook for 2022 oscillated in response to domestic and foreign political economy influences, including COVID-19 restrictions, abrupt interest rate hikes, geopolitical tensions and others. Ultimately, Mexico would close the year with a bridged economic growth of 2.6% and an inflation rate of 7.82%, the highest it has been since August 2000, according to Banxico.

However, there is optimism as the US’s strong economic performance during 2H22 points towards disinflation, according to James Bullard, President, US Federal Reserve (Fed). This forecast will necessitate the preservation of high interest rates, an important footnote for Mexico’s central bank, which has typically fallen in-step with the Fed’s interest hikes. 

If this economic expectation unfolds in the right direction, Mexico’s gross domestic product could grow by 2% in 2023, according to Rodrigo Mariscal, Chief Economist, Ministry of Finance (SHCP). Growth has been dependent on employment, public spending and external factors such as “the resilience of the US economy,” Mariscal told Banorte. 

Should Mexico and the US be able to expedite nearshoring investments for the production of semiconductor chips, the Latin American country would see job creation, boost exports and increase foreign direct investment. But this is highly vulnerable strategy contingent on missing public infrastructure that would take months to build. 

Nevertheless, at least for the first quarter of the year, job growth is expected to slow, which will eat into the bargaining power of Mexico’s labor force. This circumstance will force players to the bargaining table to renegotiate demands, especially for low-skilled laborers who face greater competition for limited job opportunities. This eventuality could increase informal employment in the country. 

However, at the other end of the spectrum and at the dismay of companies, highly-skilled, cost-intensive and technology-trained talent is likely to escape this market adjustment unscathed. Moreover, these individuals have highlighted a willingness to change employers in search of greater compensation (82%) and increased flexibility (50%) even amid this volatility, according to Indeed.