Inflation and the minimum wage cap salary reviews between companies and unions in Mexico

Note published on February 14 in Bloomberg en Línea, Economía [Economy] Section by Zenyazen Flores.

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Inflation and the minimum wage cap salary reviews between companies and unions in Mexico. At the end of January of 2022, the average negotiated increase in contractual wages was of 5.6%, below inflation, according to the STPS.

Inflation, at its highest level in the last two decades and the increase of 22% to the minimum wage for 2022 are capping salary reviews between companies and unions in Mexico, which means that in some cases, salary increases will be below inflation.

Two labor lawyers specializing in collective law, consulted by Bloomberg Línea, said that contractual salary reviews, that is, those that are negotiated under a Collective Bargaining Agreement (CCT), are resulting, at the beginning of this year, in an average of 6%, which is below inflation and below the percentage in which the minimum wage increased.

Figures provided by the Department of Labor and Social Welfare (STPS) show that in 2021 contractual salaries increased 4.6% nominally but, in real terms, the salary negotiated between workers and companies registered a small loss of purchasing power of -0.93%.

The STPS report made at the end of January 2022 shows that the weighted average increase of the negotiated contractual salaries was of 5.6%; a number that, without the effect of inflation, is equivalent to a loss of purchasing power of -1.34%.

The general minimum wage in Mexico amounts to 172.87 pesos per day in 2022, which implies a global increase of 22%.

The amount of the minimum wage was determined based on the minimum wage in force in 2021, which amounted to 141.7 pesos per day, to which 16.9 pesos per day were added through the so-called Independent Amount of Recovery (MIR) and then, a percentage of 9% was added.

In December, when the minimum wage for 2022 was established, the increase of 9% was established, seeking that it be above inflation, which closed last year at 7.36%, with the objective of maintaining the purchasing power of workers.

However, labor lawyers claim that in January and so far in February of 2022, contractual salary reviews are of 6%, in average, that is, below inflation and below the percentage defined in the formula for the increase of the minimum wage.

Alejandro Avilés, president of the Labor Lawyers Association of Mexico City, said that the salary increases agreed between companies and unions are not reaching 9% because the country is going through a complicated economic situation with high inflation and, therefore, in this scenario, reviews will not exceed a 5% direct increase to the salary.

Nevertheless, in public sector institutions, such as universities, the IMSS [Mexican Social Security Institute] or Pemex, salary increases could be even lower than 5%, as the authorities argue that there are budgetary aspects.

What we are seeing is that there are still salary caps in place, the country’s contractual salary policy in Mexico is to establish salary caps; evidently, the government says that those times are over, but the truth of the facts is that caps are in place
— Alejandro Avilés, lawyer

Ricardo Martínez Rojas, founding partner of the De La Vega & Martínez Rojas Firm, pointed out that companies and unions started negotiations this year with the projection of raising wages within a range of 7 to 9%, which correspond to the inflation at the end of 2021 and the increase to the minimum wage, as a percentage.

See more: 2 analysts who correctly predicted the closing figures of inflation in Mexico make an estimate of the trajectory for 2022.

Companies, however, had budgeted increases of between 5 and 6% and, in some cases, the minority, employers did consider increases to the contractual wage of around 8%.

If we look at the data provided by the Department of Labor, companies and unions are trying to maintain the increase at 6% in order to prevent an inflationary spiral. We have found increases of 4% in the Government and, in private sector companies, some of them are above 8%. But 6% continues to be the average
— Ricardo Martínez [Rojas], lawyer.

Rojas said that there are companies that have suggested that their workers increase contractual salaries in two stages, one portion now, at the start of the year, and a second portion of the increase toward the middle of the year; this with the objective of buffering the impact on the country’s inflation.