Equivalent Wages: INEGI Creates New Labor Market Indicator

The National Institute of Statistics and Geography (INEGI) presented a new indicator for the labor market: equivalent minimum wages. With this tool, INEGI can compare of income levels for the unemployed without distortions caused by rising minimum wages.

Since the end of 2018, the government has implemented a wage recovery policy that resulted in four historic increases in the minimum wage. Since then, the value of the benchmark has gone from US$4.4 to US$8.6 per day, making the minimum wage no longer a match with some indicators that measure the development of wages over time.

One of the distortions generated by the comparison of minimum wages after the substantial increases was on the Rate of Critical Occupational Conditions (TCCO), which includes people who work less than 35 hours a week for market reasons, those who work more than 35 hours a week with a monthly income below the minimum wage and those who work more than 48 hours a week earning up to two times the minimum wage.

As a result of the historical increases in the salary benchmark, when making the annual comparison, the TCCO included a greater amount of people whose employment situation had worsened. When the reference was raised, more people registered in a lower income range than they had a year before.

INEGI stressed that the comparison of the employed population in relation to minimum wages generated "erroneous conclusions" after the historical increases in the benchmark. To counteract this, the agency introduced a new indicator: the equivalent minimum wage, which makes it possible to compare the labor force and its income levels over time.

“In 2019 and subsequent years, the increases in minimum wages were significantly above the inflation rate. Therefore, INEGI issued a note in May 2019 that warned users about the temporal comparability of the information of the employed population classified in nominal minimum wages and of all the information in which the nominal minimum wage is involved,” the agency pointed out.

The equivalent minimum wage is the value in pesos to acquire the same amount of goods and services that were purchased with the daily minimum wage of the base period. "It seeks to correct the bias in the comparability of the statistical information classified in terms of nominal minimum wages, taking the minimum wage of a base period as a reference, updated with the general price level,” specified INEGI  in a note presented together with the results of the National Occupation and Employment Survey (ENOE) for 2Q22.