Friday, October 12, 2012
Mexico’s Labor Reforms Spark Controversy
After about two decades of debate, Mexico’s lower house of Congress passed the first major labor reform since the 1970s. Mexico’s Congress designed these reforms to update Mexico’s labor laws to match the modernization of Mexico’s economy, which has transformed from an agricultural-based economy to a manufacturing and service-based economy. In particular, these reforms make it easier for firms to hire and fire employees, change employee wages from a daily rate to an hourly rate, create new temporary employment plans that require no compensation when they expire, and regulate firms’ outsourcing practices. Despite a clear House majority in favor of these particular reforms (351 votes in favor versus 130 votes against), Mexico’s labor reforms sparked controversy among differing groups.
Proponents—led by two large political parties, the Institutional Revolutionary Party and the National Action Party—argue that the reforms offer a number of benefits. First, Mexico will be more competitive because reforms like hourly wages and ease of hiring/firing will make labor cheaper and more flexible for employers compared to labor in other nations. This will provide incentives for employers to use Mexican labor, thus leading to increased job growth, the second benefit. Mexican President Felipe Calderón estimated that these reforms would create 400,000 new jobs per year and would lower Mexico’s current 5.4% unemployment rate. President Calderón also commented that the improvement of part-time work opportunities, which would arise because of reforms like the new temporary employment plan, gives those that struggle to break into the labor market—particularly women and the youth—a better opportunity to do so. Third, due to Mexico’s potential increased competitiveness and attractiveness to employers, Organisation for Economic Co-operation and Development (OECD) Secretary Angel Gurria predicts that these reforms would increase Mexico’s annual gross domestic product (GDP) by 1%.
Despite these perceived benefits, opponents of Mexico’s new labor reforms—led by the more liberal Party of Democratic Revolution—argue that these reforms attack workers’ rights, lower their wages, and diminish their job security without improving Mexico’s competitiveness. The thrust of these opponents' argument is that Mexico’s labor laws are not the reason for the country’s lack of competitiveness because Mexico’s labor is already inexpensive and attractive compared to other countries with increasing labor costs—such as China. Rather, Mexico’s lack of competitiveness stems from the country’s other problems, which include drug violence, extortion, and freight robbing. Opponents argue that if Congress wants to increase Mexico’s competitiveness, it should focus its efforts on these problems.
Before these labor reforms become law, Mexico’s Senate must pass them in October. Because many Mexican lawmakers perceive this as a mere formality, the reforms as passed by the lower House likely represent the final changes to Mexico’s out-of-date labor laws. Nonetheless, the controversy will continue as the debate as to the efficacy of these changes is yet to be resolved.