Mexico Increases Minimum Wage by 20% in 2024

by King White, on Jan 8, 2024 8:00:00 AM

Upcoming minimum wage increases in Mexico could apply more cost pressure on companies operating in Mexico as well as create challenges during the site selection process. In January 2024, Mexico's wage commission, Conasami, will implement a 20% rise in minimum wages. This decision aligns with President Andrés Manuel López Obrador’s (AMLO) vision of promoting economic equality. The increase boosts the daily minimum pay from 207.44 pesos (US$12) to 248.93 pesos (US$14.22).

Economic implications and concerns

While the wage hike is a step toward reducing poverty, economists express concerns about its potential impact on inflation. Mexico is already grappling with inflation, leading to interest rates soaring above 11%. The worry is that businesses might offset the increased labor costs by raising prices, potentially triggering a price spiral.

Currency strength and comparative economics

The strength of the Mexican peso further complicates the situation. With a 10% appreciation against the US dollar in the past year, partly fueled by high-interest rates and growing remittances, the peso rise could inadvertently affect the wage hike benefits. As imports become cheaper and domestic products less competitive, the impact of the wage increase on the economy and poverty reduction could be dampened.

AMLO’s vision and policy

President AMLO, a staunch supporter of wage increases, inherited a minimum wage of 88 pesos (US$5) per day when he took office in 2018. He has since implemented a policy of yearly minimum wage hikes, aiming to reach nearly US$15 a day by the end of his term in 2024. This policy reflects his commitment to improving the living standards of Mexicans and addressing income inequality.

Looking ahead

The decision to raise the minimum wage in Mexico is a bold step toward tackling poverty and income disparity. However, it comes with its own set of challenges and economic intricacies. As Mexico moves forward, balancing wage increases with economic stability and competitiveness will be crucial. Foreign direct investment and site selection activity could be impacted as the country's value proposition shrinks.




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