4th Week Mexico's minimum wage - Stingy by any measure

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Mexico’s minimum wage

Stingy by any measure

In the name of curbing inflation, the government is hurting workers

Aug 16th 2014 | MEXICO CITY | From the print edition

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BASILIO GONZALEZ is an unusually well-paid Mexican public servant. The 70-year-old’s total pay this year will be 2.8m pesos ($213,000). That is ironic, considering that for 23 years he has been president of the National Minimum Salary Commission. During that time the minimum wage has dropped by 43% after accounting for inflation, according to the Economic Commission for Latin America and the Caribbean (ECLAC), a part of the United Nations. It varies by region but currently averages 66 pesos a day. At that rate, a recipient would have to work every day for 116 years to earn what Mr Gonzalez will make this year.

Does Mr Gonzalez deserve his generous haul? Judging by the length of his tenure, Mexican authorities appear to think so. Even before he took office, wage suppression had been an essential part of Mexico’s successful anti-inflation drive. Since 1991, annual inflation has fallen from more than 22% to less than 4%.

In this section

• Don’t bank on the banks
• Caught out
• The long arm of the plaintiff
• Hitting up the customer
• Stingy by any measure
• Cyclical stagnation
• Payday mayday
• Aid to the rescue

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Related topics

• Business
• Inflation
• Economic indicators
• Latin American economy
• Economies

But it is Mexico’s poorest who have shouldered a disproportionate share of that effort. The price of the basic basket of goods bought by the poor has risen much faster than the broader measure of inflation over the same period. According to ECLAC’s data, Mexico is the only country in the region where the minimum wage is significantly below the poverty line. That includes much poorer places like Honduras. Big economies like Argentina, Brazil, Chile and Colombia raised their base wages from 2002 to 2011 to between two and three times the breadline. In those countries income equality improved sharply as a result, ECLAC says.

By more global measures, Mexico is also a startling outlier. According to the OECD, a club of rich countries that includes Mexico, it is the only member besides Turkey where the minimum wage fell in dollar terms between 2000 and 2012. Yet Turkey´s minimum wage was $2.80 an hour in 2012, more than four times that of Mexico (60 cents). Those who earn the minimum wage in Mexico get 19% of their country’s average wage. In Chile it is 43%.

It is often argued in Mexico that the minimum wage hardly matters because few earn it. However ECLAC says that 14% of those who receive an income earn even less (perhaps due to cheating employers), and almost 50% earn from one to three times the minimum wage. What is more, increases in the base wage serve as a guide for pay rises in the broader economy. It is little wonder that many Mexicans see little benefit from almost two decades of lower inflation.

Seizing on the issue ahead of mid-term elections next year, opposition politicians on both left and right have in recent weeks proposed raising the minimum wage or putting an increase to a referendum. They have lit a fuse. Domestically the issue has overshadowed President Enrique Pena Nieto’s landmark energy reforms, which he signed into law on August 11th.

But the official response has been tin-eared. Agustin Carstens, the governor of the central bank, says that reforms to improve productivity are a better way to raise wages. On August 12th businessmen and pro-government unions, under the aegis of the labour ministry, met to discuss the matter. They revived the spectre of the distant past when increases in the minimum wage did fuel rampant inflation.

There was some enlightened thinking, such as a proposal to disentangle the minimum wage from a plethora of fees and benefits which are tied to it, from fines for improper waste disposal to pensions and scholarships. But there was little discussion of the academic evidence showing that modest increases in the minimum wage do not necessarily destroy jobs and may in fact decrease inequality, draw more people into the formal workforce and spur productivity.

“No one has given it any more thought. It’s just hereditary thinking from back in the 1980s,” says Jonathan Heath, a private-sector economist. Perhaps that is no surprise, considering that the head of the minimum-wage commission is a holdover from a bygone era.