Mexico City — Mexico’s National Minimum Wage Commission (Conasami) President, Luis Munguía, has emphasized a need to set limits on the minimum wage hikes in Mexico during the next six-year presidential term, in order to prevent adverse economic effects, potentially in the shape of layoffs or price hikes. In an interview with Bloomberg Línea, Munguía proposed a more moderated approach to future wage hikes.
He clarified, however, that the 2024 wage increase that was recently approved by businesses, unions, and the federal government, and which will reach 40% of workers insured by the Mexican Social Security Institute (IMSS), should not to trigger higher inflation.
A 20% raise in the minimum wage was agreed upon for the final year of President Andrés Manuel López Obrador’s (AMLO) term, raising the salary floor from 207.44 pesos to 248.93 pesos per day. The hike came on top of a cumulative double-digit raise observed throughout the first five years of the AMLO presidency: 16.2% in 2019, 20% in 2020, 15% in 2021, 22% in 2022, and 20% in 2023.
Munguía pointed out that these cumulative increases led to a 110% recovery in the minimum wage’s purchasing power from 2018 to 2024. However, he emphasized that the 20% raise for 2024 is likely the last of such magnitude for several years to come.
“I believe it’s difficult for us to continue seeing that kind of growth. I don’t think it will reach 20% in the coming years. The recommendation would be that it doesn’t increase any further.”
Luis Munguía, president of Conasami
Munguía emphasized that setting the minimum wage too high could lead to adverse consequences, such as potential layoffs or price hikes by employers, ultimately undermining the intended positive impact. In the case of Mexico’s minimum wage, there was leeway for substantial increases during AMLO’s tenure due to its initial low level, he argued.
As of 2024, the minimum wage will be 1.73 times the Income Poverty Line established by the National Council for the Evaluation of Social Development Policy (Coneval), indicating the possibility of further increases in the future.
The objective is to reach the Poverty Line by 2025 and 2026, a goal endorsed by the Business Coordinating Council (CCE). However, Munguía noted that achieving this goal will span a change in government, creating uncertainty about the continuity of a recovery in purchasing power.
“Honestly, I believe it’s difficult for us to continue seeing that kind of growth. I don’t think it will be 20% in the coming years. Nor will it suddenly drop to single-digit increases. I think it’s a combination of political factors, but also, the business sector is willing to reach the goal of the Wellbeing Line. They need increases between 7% and 10% each year.”
Luis Munguía, president of Conasami
Minimum wage is not inflationary, Munguía says
Munguía also dismissed the idea that the minimum wage hike would significantly impact inflation. To gauge the impact on inflation, he clarified that they analyzed the costs borne by companies due to the wage increase, monitoring how their prices responded throughout the year in relation to the rise in labor expenses.
For 2023, Conasami calculated that for every one percentage point increase in labor costs, the inflation or the price set by the company increased by 0.27 percentage points. In essence, a one percentage point increase translated to a 0.27% rise.
Regarding 2024, the estimate indicates that with the 20% minimum wage hike and the associated 2.1% rise in labor costs, the impact of the minimum wage hike on inflation would be 0.5 percentage points throughout the year, with the most significant impact anticipated in January and February.
“If next year’s inflation, for example, is projected to be 4%, then 0.5 percentage points of that increase could be attributed to the minimum wage. 0.5 points are very small compared to a 20% increase, which is the gain for those earning the minimum wage and the average salary. We don’t see it as a negative aspect.”
Luis Munguía, president of Conasami
According to Conasami, the new minimum wage should directly benefit over 8.9 million formally employed individuals, representing 40% of the total insured workers under IMSS. The 2024 wage increase has a larger beneficiary pool compared to 2023, which was estimated to impact 6.4 million workers.
“There are more beneficiaries because the minimum wage continues to rise and increasingly covers the wages of various workers”, Munguía said.