A recent study by Tradingeconomics.com shows Mexico’s labor force participation rate in 2018 is trending upwards, despite the half-percent decrease from September to August. This is slightly lower than the average 59.82% Mexico held from 2005 to 2018.
source: tradingeconomics.com
The unemployment rate in Mexico has improved as well, from 3.5% to 3.2% in October 2018. FocusEconomics reported that “third-quarter growth exceeded market expectations as across-the-board expansions put the economy back on track in the aftermath of this year’s bruising general election. Leaving behind the economic volatility and political uncertainty that pervaded the first half of the year…”.Furthermore, according to the Central Bank of Mexico, the country is projected to register an economic growth of 2 – 2.6% in 2018.
source: tradingeconomics.com
Considerations for Mexico’s Economic Growth
Some analyst suspect that the current economic improvement is due to heightened productivity among workers, increased immigration into the country and substantial government support for increased employment. Rightfully so, this trend is catching the eye of adroit business owners looking to take advantage of an opportunity. Given the current conditions in Mexico, it is no surprise that many companies, including three of the largest automobile manufacturers in the world, have begun relocating their factories and production lines to the upturning nation.
The North American Free Trade Agreement (NAFTA), which was instituted in 1990 and allows production materials as well as finished goods to travel in and out of Mexico tariff-free, has drawn businesses to Mexican production for over twenty years. Despite this enticement, multinational companies have not established enough of a presence in the nation to enliven its economy. Changes to Mexico’s labor laws have augmented the allure of the benefits of NAFTA, and are succeeding in attracting enough industry to potentially create an economic boon. Fast forward to today, the manufacturing industry is eagerly awaiting the finalization of USMCA (United Stated Mexico Canada Agreement) and the impact this will have moving forward.
The appeal of Mexico’s tax and wage benefits would be moot, however, without a skilled and knowledgeable workforce. Through multiple government programs, all of which support both the employee and employer through increased training and social reform, Mexico has been able to produce a highly productive and technically proficient population of workers. In fact, the labor force in Mexico has improved to such an extent that the country has already poached quite a bit of Asian manufacturing.
What Fuels Mexico’s Labor Force?
source: tradingeconomics.com
Mexico’s manufacturing industry has begun to shift its focus away from rudimentary products, such as shirts, shoes and other clothing items, toward more complex commodities, like automobiles and airplanes. This redirection occurred with government assistance, as Mexico has been making a conscious effort to become a more alluring location for domestic and foreign companies to take root. However, in order for businesses being set up in Mexico to thrive, the country’s labor force must deliver on the promise of increased proficiency and productivity. Fortunately, the government’s pledge to reinvigorate the economy has seen the institution of multiple programs that help workers undergo training and assist with job placement.
Serving as a fundamental pillar of the government’s contributions to increasing skilled labor in Mexico, an emphasis on increased education has been seen in the forms of preparatory college coursework, the establishment of trade schools and the creation of subsidized training seminars. These initiatives, especially in the form of college and trade school curriculum, are focused on grooming Mexico’s next generation of workers to be skilled technically, allowing for more difficult processes to be completed in Mexican factories.
Currently, because the subsidized training programs are geared toward an older population, the focus lies primarily in manufacturing and production, although technical information is being introduced as well. While these programs will help Mexico’s labor force succeed in becoming technically proficient, we are currently seeing overall increases in education and skill level overall skill level within the millennial demographic. Currently, those participating in the Mexican labor workforce, specifically those ages 20-24, with no education is low at 1.79% compared to those 25+ who are at 9.34%. Statistics such as this are motivating to the Mexican government, as they are quickly seeing encouraging results from their endeavor to reinvigorate the economy.
The advancements to date, however, have already convinced Nissan, Audi and Ford to establish production plants in Mexico, with more planned in the future. In fact, the automakers have pledged upward of $10 billion in investments, much of which will be spent on increasing Mexico’s infrastructure, particularly for production. These infrastructural improvements will serve to enhance Mexico’s already burgeoning manufacturing capabilities, and aid in the enrichment of the nation’s economy as well.
Specifics of the Government Employment Plan
The changes in Mexico’s employment plan are predominantly due to the fact that although there has been economic growth and a rise of living standards in the country, there has not been enough growth to reduce poverty levels in any significant manner. The country’s government has acknowledged this discrepancy, and the structural reforms they are imposing are intended to quicken economic growth and enrich the lives of their population. Many of these ambitious reforms are based around workers, but there are key benefits for companies choosing to build or relocate their business in Mexico as well.
Ultimately, Mexico is focused on increasing the productivity and competitiveness of their workforce in order to experience sustainable and balanced economic growth. Education, quality job creation, an improved standard of living and a more diverse community of industry will no doubt accompany the success of these goals. In order to facilitate increasing the productivity and competitiveness of their labor force, Mexico has instituted multiple programs to conduct and oversee job and career training. In 2013, the National Productivity Committee was established, serving the purpose of defining key goals, strategies, and objectives surrounding the desired boost in productivity. The committee is made up of a diverse set of representatives from the business, academic and government sectors, all focused on identifying opportunities for improving productivity levels.
In a March 2018 keynote address by OECD Secretary General, Ángel Gurría, reported that “There has also been major progress in sectors that are strategic for Mexico’s competitiveness and development. The Telecommunications Reform, for example, has promoted the opening of this strategic sector, with impressive results: prices for broadband mobile Internet service have fallen by up to 75%, and the number of subscribers rose by 50 million between 2012 and 2016.”
The government of Mexico has also implemented programs to assist workers in improving their skills and finding employment. Becate, an active employment policy similar to an apprenticeship program developed by the Secretariat of Labor and Social Welfare offers courses aimed at enhancing the knowledge of future workers and facilitating their transition into the labor force. The program begins with training courses designed to teach workers the skills necessary to complete a given job. These training courses are often designed alongside the firms or institutions expanding their operations into Mexico, allowing employers to voice specific needs. These training courses are usually conducted on the job site, providing trainees with hands-on experience as they learn. This practice streamlines the acquisition of necessary knowledge and skills while shortening the duration of the training period. The success rate of these programs is encouraging as well, as more than 80 percent of participants who complete the program are hired on as employees by the company where they were trained.
An online employment portal has also been set up through the Secretariat of Labor and Social Welfare. The website provides career path guidance, legal advice and important statistics regarding the labor market. Individuals seeking employment can visit the website and be assisted in understanding the best ways to proceed in finding employment. Often, these individuals are directed to job fairs that are also sponsored by the government. The purpose of these job fairs is not only to allow those seeking work access to entry points but also to supply a convenient opportunity for employers desiring to fill vacancies in their staff.
Benefits of Mexico’s Current Labor Laws
The major reforms to Mexico’s Federal Labor Law (FLL) took effect on in December of 2012, and include amendments regarding expanded flexibility in hiring, a wider variety of wage payment options and increased discipline for workers charged with harassment. The updated law supplies both businesses and employees with a more stable and efficient working environment, aiding in heightening the productivity of the Mexican workforce.
Employee trial periods and initial training periods are now present in the hiring practices laid out by the Federal Labor Law, increasing an employer’s ability to recruit and hire quality workers. If a term of employment exceeds 180 days, a trial period may be implemented in order for the employer to assess the capability of the employee to complete the tasks they are responsible for during their daily routine. For most employees, this trial period can last up to 30 days, but extensions that lengthen that duration to 180 days may be granted for management employees.
Under the new law, wages can now be paid in a variety of ways, including by check, bank transfer, direct deposit or any other electronic form. Alternative payment methods need prior approval by the employee in order to be implemented, but they will likely supply the employee with greater safety in certain geographic locations.
Tighter anti-harassment provisions written into the new Federal Labor Law now deem sexual harassment and bullying as justifiable causes for termination. Besides being a staple in any culture claiming to promote civil rights, these provisions will help increase the productivity of the labor force by eliminating additional stresses on employees.
Why is Immigration into Mexico Rising?
Many news stories regarding Mexico and immigration focus on the flow of individuals into the United States, but Mexico is actually a large recipient of immigrants from across the globe. Mexico has large numbers of Asian, African, European and South American immigrants, and is home to the largest number of US citizens outside of the United States. Many of the individuals flowing into Mexico do so for economic reasons, as well as the fact that Mexico’s new Migration Law guarantees foreigners will receive the same treatment under Mexican law as Mexican nationals. Because of this, all immigrants, legal or illegal, are granted access to Mexico’s health services and education system.
The new Federal Labor Law has also enticed many educated individuals from other countries to relocate to Mexico. A diverse array of professionals, such as executives, scientists, artists, and professors actually arrive in the country having already secured employment. In addition to career opportunities, prime retirement spots also contribute to the high number of immigrants flowing into Mexico, many of which come from the United States.