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Tuesday, September 7th 2021

How Raising Minimum Wage in Mexico Can Affect You

Written by

Rafael Bracho

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When Will it Happen?

Raising Minimum Wage in Mexico

The Mexican government announced a massive increase in the minimum wage for their workers—and it could have an impact on you. On December 16th, the Mexican government announced that it would raise minimum wage standards. An estimated 3.44 million workers will benefit from these measures.

Luisa María Alcalde, the Secretary of Labor, announced in the National Palace of Mexico City that the national minimum wage would increase by 20%. The wage increase will roll out on January 1st, 2020. This would be the largest increase in the last 44 years.

Will It Affect the Inflation Rate?

Raising Minimum Wage in Mexico

This wage increase represents seven times the national inflation rate—which actually managed to go down in November to 2.85%.

As Luisa María Alcalde was quick to point out, the 16% increase to the minimum wage that began at the start of this year did not increase the rates of inflation. In fact, the inflation rates are the lowest they have been in the last 4 years.

Further proof is found in the Northern Border Region where the minimum wage doubled at the start of this year, and it actually holds the lowest inflation rates compared to the rest of the country.

How Much Will it Increase?

Raising Minimum Wage in Mexico

The minimum wage throughout all of Mexico will increase to $123.22 MXN a day. That’s the equivalent of $6.50 USD per day.

In the Northern Border Region, the minimum wage will also be going up. Though the minimum wage in this region will only be increasing by 5%, it will have a minimum of $185.56 MXN per day. In US dollars, that’s $9.80 USD per day.

*You may recall from our article on importing a car to Mexico that this Northern Border Region has a specific definition of 20km from the US/Mexico border and the entire Baja Peninsula.

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AMLO’s Comments:

Raising Minimum Wage in Mexico

President López Obrador said that increasing the minimum wage will “strengthen the internal market” thus helping the overall economy. This “trickle-up theory” holds that higher incomes help to spur business which stimulates overall economic growth.

In addition, AMLO thanked the support of the business sector, and he made the concession that though he hopes to increase minimum wage even higher, President López Obrador also recognized that increasing wages too quickly would hurt business.

His overall goal is to increase wages at a level that can recover lost purchasing power, thus enabling sustainable growth and a higher quality of life for the average Mexican.

“We have unbeatable conditions for growth and wellbeing. . . We’re going to pacify the country, we’re going to solve the serious problem of violence and insecurity. . . We’re going to be the happiest Mexicans and have a society that benefits the next generations. I’m aware that a lot still needs to be done,” said President López Obrador.

Business Analysis:

Raising Minimum Wage in Mexico

Cutting Interest Rates –

In a recent report, Carlos Capistrán advocated this minimum wage increase will inhibit the central bank’s ability to cut the interest rates even further. The Bank of México will only be able to reduce their rates by half a point to 7% in the coming year.

However, Bloomberg recently noted that this would still leave Mexico with one of the highest real interest rates in the world. That means that they would the ration between borrowing costs minus the rate of inflation would still be high.

However, the Chief Mexican economist for the Bank of America noted that raising the minimum wage will prevent this core inflation from slowing further—despite a weak economy.

Businesses Join in the Commitment –

Recently, 100 Mexican companies announced that they would be joining in the effort to raise the minimum monthly salary to $6,500 MXN a month. This equates to $344 USD a month. This increase would represent an increase of 73% higher than the minimum wage.

Currently, if you multiply the mandatory minimum wage of $123.22 MXN by 30 days, you come to a mandatory national monthly wage of $3,696.60 MXN a month. Therefore, the commitment from businesses to increase the wages to $6,500 MXN a month would be a shining beacon of home for much of Mexico’s poor.

How Will This Affect You?

Raising Minimum Wage in Mexico

For the American expat, they can expect crime to decrease. This is perhaps the greatest gift for the American expat. When the population suffers, crime increases as people struggle to make ends meet. However, a stronger economy brings with it social stability.

However, the price of your temporary or permanent visa’s qualifying amounts are legally based on the minimum earnings of the average Mexican. In other words, the price of your visa is based on the minimum wage.

Since the minimum wage is increasing by 20%, then you can expect your temporary or permanent visa in Mexico to increase by 20% also. If you are on the lowest end of the economic spectrum for expats in Mexico, then this increase could represent a financial hardship.

*For more information on this price increase, click here.

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