Mexico’s Growing Labor Force’s Impact On Trade | NAPS
July 22, 2015
For American companies considering moving their manufacturing operations abroad, Mexico has seemed to be a logical choice. Its geographic proximity to the United States along with its large labor force make it an attractive alternative to domestic production. As in any multinational arrangement, however, there are difficulties in complying with local laws. Federal labor law in Mexico can be applied non-uniformly and can be difficult to navigate. Any company wishing to move its operations to Mexico needs to educate itself do its homework before acting.
There are several important Mexico labor statistics to be aware of. Over the course of the 20th century, Mexico’s population ballooned due in part to relatively favorable economic conditions. In 1900, Mexico’s population was only barely above 10 million people; now, it stands at 120 million. During this time, the size of the Mexican labor force has also increased. According to the World Bank, Mexico boasts the world’s 11th-largest work force at around 54 million people. In recent years, Mexico’s labor market has increased between 1-3% per year. In 2000, for example, there were 40 million people in Mexico’s workforce. The future will probably see the availability of workers increase even more as almost 30% of the country’s population is currently under the age of 15.
While Mexico’s economy has grown steadily over the past few decades, as many of 50% of its residents still remain below the poverty line, and Mexico’s GDP per capita stands at only $12,000. Nonetheless, Mexico has historically been a fruitful country for companies to set up shop, and 30% of its labor force is employed in some sort of industrial job. Prominently, three large automobile companies – Ford, General Motors, and Chrysler – have maintained operations in Mexico for over 75 years. Other competitors such as Asian giants Toyota and Honda have opened up manufacturing plants more recently in Mexico. So called “maquiladoras”, which are large factories run by foreign companies to produce goods to export, account for a significant portion of Mexican employment.
Mexico is generally seen as being a jurisdiction that seeks to assure foreign companies of pro-business policies; in 2015, it ranked 39th in the world in the World Bank’s ease of doing business rankings. It also has a long history of workers fighting for certain rights, and in practice, the application of the Mexican federal labor law can be complex and confusing. The most important labor institution in Mexico is the Confederation of Mexican Workers, a blanket organization that comprises many local affiliates and played a major part in organizing large strikes in the 1960s and 1970s in order to fight on behalf of workers for certain rights.
In order to operate in Mexico, a union must do three things. It must have a “registro”, or legal registration, it must have a “titularidad”, which gives it the legal right to negotiate, and it must re-register itself from time to time. While these may seem to be reasonable requirements, they are often used to squash local or independent unions who are not affiliated with the Confederation of Mexican Workers. Thus, it is difficult for the employees of any particular company or manufacturing plant to change the status quo. Even if a newer union satisfies the three necessary requirements, it must stage elections to formally replace the existing union, and such processes can be long and subject to external influence or corruption.
Oftentimes, in an effort to avoid future labor disturbances, a company will enter into a preliminary agreement with a large, nationally recognized union before it sets up operations or even purchases or builds a manufacturing plant. These agreements usually stipulate that the plant be a “closed shop.” In other words, all employees of the plant will be de facto members of the union, and the company agrees not to hire any non-union employees. Representation by larger, national unions usually leads to fewer labor issues than would representation by local unions. And despite the fact that the written letter of the law grants workers the right to strike, these strikes need to be approved by a local government board, which can easily deny workers such a right. Recently, despite intermittent protests from workers in certain industries, outright strikes have become more and more rare.
As in most countries, Mexico’s labor laws delineate many regulations governing employer and employee relationships. The text of these laws tend to be pro-employee, but their application can vary from jurisdiction to jurisdiction. Unless otherwise stated, employment in Mexico is assumed to be indefinite. Shorter term employment is only allowable when the employer can demonstrate that the task at hand is necessarily one that requires only a fixed term of employment. If an employer and employee enter into an agreement for indefinite employment, the employer is granted a 30-day probationary period.
Mexico’s laws also make very clear the limits on hours worked per week and per year. The maximum number of allowable hours per day is 8, for day work (6 a.m. – 8 p.m.), and 7 for night work (8 p.m. – 6 a.m.). The standard work week is set at 6 days, making the highest allowable number of hours worked by an employee 48 hours for day work and 42 hours for night work. While it is not strictly illegal for an employee to surpass these limits, doing so comes with mandatory overtime pay. If an employee exceeds either the daily or weekly allotment of hours, he or she is paid at either a 100% or 200% premium (depending on exactly how far the employee has surpassed the legal limits) for those hours.
There is no federal minimum wage in Mexico. Instead, minimum wage varies by region. However, it tends to be between 60 and 65 Mexican Pesos per hour, which is in the range of 3.80 to 4 United States dollars per hour. All Mexican employees are guaranteed a certain amount of paid vacation days, which is determined by the number of years that the employee has worked for a certain company. For example, new employees are given 6 vacation days while employees having worked for a company for 5 years are granted 14 vacation days. Employers are also required to pay their employees a Christmas bonus that is equal to 15 days of salary. There are a similar number of federal holidays as there are in the United States, with either 8 or 9 days out of a year being designated as such. Employees working on federal holidays are given three times their normal hourly rate.
As in any foreign jurisdiction, there are seemingly endless local statutes with which to comply in Mexico. However, the size and availability of the labor force in Mexico make it an attractive alternative to domestic manufacturing. The lower wage rate in Mexico combined with its geographic proximity to the United States and to major shipping routes make the value it affords foreign companies difficult to beat. However, any company considering moving its operations to Mexico should do its due diligence and make sure it dots its i’s and crosses its t’s. A hastily made decision can lead to an economic loss or a legal predicament. For a company looking to expand its production into Mexico for the first time, it is advisable to retain the services of a foreign employment consulting firm.