News Article

Strengthening Mexico’s Formal Labor Market

By Cinthya Alaniz Salazar | Wed, 10/13/2021 - 13:16

Since the Federal Labor Law (LFT) came into effect in 2019, it has been met with both resistance and enthusiastic support from companies in Mexico. But the reform is not the only challenge employers and employees are facing. Although the COVID-19 pandemic cratered the labor market, it increased employer empathy prompting them to value the importance basic benefits for their employees.

Incentivized by greater support from the Federal Government, the domestic market has seen as of September 2021 an estimated 2.7 million employees migrate from outsourcing to employment with companies that offer benefits and services says Héctor Marquez Pitol, Human Capital Commission President of Coparmex and President of the Mexican Association of Human Capital Companies (AMECH), which helped draft the legislation and has been helping business comply with its requirements over the past three years.

From November 2020 to September 2021 subcontracting positions contracted by 9,000 as result to the regulatory change. This does not necessarily mean that formerly subcontracted employees are now unemployed as they could have transitioned to the informal market, which is growing explained Marquez. A comparative of study conducted by the Mexican Institute of Social Security (IMSS) from February 2020 and August 2021 found that informal labor market has grown by 17,684 jobs, supporting this hypothesis. In contrast, formal employment has contracted by 1.2 percent, representing an absolute loss of 286,297 jobs, according to 2021’s findings from INEGI. This indicates that the formal sector has taken longer to stabilize even with an accelerated vaccination rollout.

Further analysis from IMSS found that even amidst the pandemic businesses have slowly been increasing their minimum wage. In February 2020, the wages reported to IMSS averaged at MX$12,087 (US$585) and increased by 2.6 percent in the span of ten months to MX$12,403 (US$601). This trend continued into the new year, albeit at a slower pace, from MX$13,035 (US$631) in January to MX$13,133 (US$636) by September, equivalent to a 0.75 percent increase in nine months.

Although “this change represents a new epoch in in the labor market,” according to Marquez, this increase should be examined against the growing inflation that has increased the price of goods and services across the market, which has not been an isolated event to Mexico. Although economists cannot currently predict the progression of this matter until more variables are addressed, “the market will take [at least] another two years to stabilize from here,” said Marquez.  

Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst