Friday, October 11, 2024

Mexico passes inflation-matching minimum-wage reform

Reuters
Wed, October 9, 2024

A woman carries a package of meat in a butcher's shop, in Monterrey


MEXICO CITY (Reuters) - Mexico's Senate unanimously passed a constitutional reform guaranteeing the country's minimum wage will be revised annually to at least match inflation.

WHY IT'S IMPORTANT

Around four in 10 Mexicans earn the minimum wage or less. The reform is meant to cement a floor for annual wage increases, although the previous administration of President Andres Manuel Lopez Obrador backed some of the highest wage increases in decades.


His successor, President Claudia Sheinbaum, has promised annual minimum wage increases of about 12%.

CONTEXT

The reform, which already passed in the lower house, had been proposed by Lopez Obrador before leaving office. Congress is currently working through a long list of constitutional reforms sent by Lopez Obrador, including a controversial judicial reform that passed last month.

BY THE NUMBERS

The minimum wage in Latin America's No. 2 economy currently stands at 248.93 pesos ($12.80) a day.

Sheinbaum has said her government will work to gradually raise the minimum wage to cover the cost of 2.5 basic food baskets, or a standardized list of common grocery items for two people to live on per day, up from the current 1.6.

KEY QUOTE:

"Mexicans' wages will no longer fall victim to inflation," ruling party Senator Oscar Canton said. "We urgently need a Mexico where the minimum wage no longer sentences someone to a life of poverty."

WHAT'S NEXT

The reform will now be sent to state legislatures for vote. It is expected to pass in a majority of states.

($1 = 19.4540 Mexican pesos)

(Reporting by Kylie Madry; Editing by Jamie Freed)

Mexico’s Congress Guarantees Minimum Wage Rises Above Inflation

Maya Averbuch
Wed, October 9, 2024 



(Bloomberg) -- Mexico’s Congress approved a constitutional reform proposed by former President Andres Manuel Lopez Obrador that would require annual minimum wage increases be higher than the previous year’s annual inflation rate.

The Senate unanimously approved the proposal submitted to guarantee that Mexicans’ purchasing power is not eroded by annual price increases.

The change would not have an immediate impact on the lowest salaries, since Sheinbaum said that they would increase roughly 12% in 2025 and by a similar amount in future years. But analysts say the law could have a greater impact if inflation rises beyond current levels of about 5%.

“The main concern is how do we start to wind down the increases so that they become sustainable in the long-run,” said Luis Monroy-Gomez-Franco, assistant professor of economics at the University of Massachusetts-Amherst.

Sheinbaum, who took power at the start of October, has made continuous calls for improvements to the minimum wage after it formed a cornerstone of Lopez Obrador’s bid to better the lives of working Mexicans.

It increased by about 151% in real terms during Lopez Obrador’s six-year administration. The pace of changes overseen by the ex president would, if continued, constrain Mexico’s fiscal space, according to analysts that have warned businesses could eventually limit their staffing due to the measure. Sheinbaum set softer hikes.

During Lopez Obrador’s term “the increases of the minimum wage were of a magnitude that haven’t been seen in the last 40 years in the country in real terms,” which would be unsustainable for many more years, for which reason Sheinbaum “set a clearer goal,” Monroy-Gomez-Franco said.

Mexico’s inflation in the last decade has not risen above 8.7%, the level it reached in 2022. Its last period of historic runaway inflation was in the mid-1990s, when inflation spiked to around 52% in annual terms.

Sheinbaum has said that the minimum wage should be the equivalent of the price of two and a half basic baskets of goods by 2030. Now that it has been approved by Congress, the bill will pass to state legislatures — where the ruling coalition holds large majorities — before Sheinbaum’s administration publishes it into law.

The ruling coalition was able to pass the bill since it has close to the two-thirds majority needed in both houses of congress to make changes to the constitution.

The bill is part of a package of changes to the constitution proposed by the ex president that the new Congress has vowed to pass by December.

--With assistance from Alex Vasquez.

©2024 Bloomberg L.P.

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