Labor Costs to Continue Rising Through 2024

Mexican companies’ wince at compounding labor costs following amendments to the nation’s federal labor law (LFT), and brace for additional legislative proposals that are expected to continue inflating costs through 2024. Ahead of a forecasted economic recession, unrestrained wage increases are likely to compromise the country’s macroeconomic recovery, warned the Center for Economic Studies of the Private Sector (CEESP).

“The concern is that this is happening at a time when the country requires economic reactivation after the slowdown in 2019, [lingering] effects of COVID-19 and in the face of recessionary prospects for the global economy linked to inflation and current geopolitical tensions,” reads the CEESP report. 

Labor costs are estimated to have increased by 40 percent since 2018, raising their total representative cost for companies by 4 percent in the last four years, according to the business report. At the same time, however, total costs for companies have only grown by 4.3 percent, indicating that formal labor costs have risen at a disproportionate rate, the report underlined. Furthermore, the economic studies center expects this trend to persist through 2024 in response to pending legislative labor compliance measures, including greater contributions to the national pension system, minimum wage revisions and NOM-037. 

Against the backdrop of a forecasted economic recession, companies will likely see themselves obligated to increase their consumer prices. A natural reactionary countermeasure that is expected to further inflame inflationary pressures, undermine the country’s economic recovery and encourage labor informality, the report suggests. To avoid inflationary risks, it is essential that the federal government approach minimum wage increases with modesty and 15 percent as a cap, according to José Luis de la Cruz, Director General, Institute of Industrial Development and Economic Growth (IDIC).

“These implications are inopportune, to say the least, when the economic reactivation and the reduction of inflation are urgent…For this reason, moderation in terms of everything that affects labor costs is necessary, including in an important way the review of minimum wages,” said CEESP in its weekly report, as reported by El Financiero. 

Disregarding these findings outlines explicit risks to Mexico’s economic recovery, entrepreneurial competitiveness and productivity, finalizes the report.