What Mexico’s Minimum Wage Increase Means for Manufacturers

December 08, 2021

Skilled yet affordable labor is one of the chief reasons that many manufacturers consider launching a manufacturing operation in Mexico. So, it’s understandable that the recent annual increases to Mexico’s minimum wage could give company leaders pause around this consideration of investing in Mexico. 

In truth, however, this latest minimum wage increase does little to offset the cost and operational benefits of manufacturing in Mexico. It does, however, improve conditions for more than 11 million workers earning minimum wage in Mexico, creating a more robust local economy to support manufacturers.

Wage and labor stability are important considerations for every company considering diversifying its manufacturing base. Below, we define the new minimum wage in Mexico, address concerns around it, and help manufacturers understand what to expect around Mexico’s manufacturing labor wages

Mexico's minimum wage in 2021 vs. 2022

Mexico’s National Minimum Wage Commission (CONASAMI) agreed to increase the general daily minimum wage as of January 1, 2022, by 9% plus $16.90 MXP under the Independent Recuperation Amount (MIR), raising the general minimum wage to $172.87 MXP (approximately $8.25 USD). The increase is meant to raise wages above inflation levels, which is expected at 6% for 2021. This increase comes on the heels of the Dec. 2020 decision to raise the minimum wage for 2021 by 15%. 

In the Free Zone of the Northern Border—a 2,000-mile swath of northern Mexico that stretches roughly 15 miles from the U.S. border—the minimum wage increase of 9%, plus $25.45 MXP under MIR, raised the minimum wage at the border to $260.34 MXP (approximately $12.43 USD). This economic free zone includes 43 cities across six states and the entire state of Baja California. Throughout this economic free zone, Mexico has cut the value-added tax from 16% to 8%, reduced corporate income taxes from 30% to 20% to encourage corporate investment, and made fuel prices the same as in the U.S. to promote tourism. 

The combined MIR and 9% wage increase represents a 22% increase in the daily minimum wage rate, translating to more than $30.00 MXP per day—approximately $1.43 USD per day.

Why is Mexico’s minimum wage so low? 

The 9% increase in the minimum wage in Mexico is significantly lower than preceding wage increases in 2021 (15%), 202 (20%), and 2019 (16%). These steady increases have been part of President Andres Manuel Lopez Obrador’s goal of reversing a decades-long slide in Mexican workers’ purchasing power. However, the much lower increase in 9% offers a hint that foreign direct investors can expect more stable wage increases in the future. 

Critics have expressed apprehension that the steady increases in the minimum wage in Mexico will drive up unemployment or that frequent hikes in the minimum wage will lead to “wage push inflation,” as employers raise the prices of goods and services to balance the increases in wages. However, Mexico’s inflation dropped to a four-year low in 2019 (2.83%), according to INEGI. In addition, Mexican central bank Banxico projects that medium and long-term inflation will remain stable.

How much manufacturing workers make in Mexico

The biggest takeaway for companies manufacturing in Mexico is to remember first and foremost that competitive manufacturing wages are rarely minimum wage, particularly when it comes to more skilled work. While minimum wage increases may cause manufacturers to adjust pay for some positions to remain competitive, most may find they benefit from the greater economic investment in the local area. 

More to the point for manufacturers is the fact that few workers in the manufacturing industry are earning as little as the minimum daily wage for even unskilled labor due to the complexity of typical manufacturing tasks. In Mexico, average hourly manufacturing wages  for an unskilled direct laborer is in the range of USD $2.40 per hour, which might amount to $19.20 per day for an average 8-hour day shift. More skilled direct laborers, such as CNC machinists who require specialty training and skillsets, may make in the range of USD $6.02 per hour. While increases in the minimum wage may push manufacturers to make their pay more competitive, it also allows for a lenient timeline for implementing regularly stepped increases. 

It is important to note as well that the minimum wage in Mexico is not typically calculated per hour. However, data from Tetakawi’s field studies indicate that Mexico’s hourly manufacturing wage is $2.40 to $3.04 per hour. 

Competitive wages in Mexico

Law firm JD Supra advises that employers review and adjust payroll practices to comply with the latest increase. Keep in mind that this increase also has the potential to impact benefits, such as savings funds and food coupons, depending on agreements around those benefits with employees and unions.

Competitive wages are necessary for securing qualified labor anywhere, but most companies manufacturing in Mexico find that even competitive pay is comparatively cost-effective. What’s more, as most corporate executives already recognize, wages are one small—albeit critical—piece of a complete cost analysis. 

If you’re ready to get a complete picture of your potential operational costs in Mexico, Tetakawi can help. Try our online payroll calculator to get a sense of labor costs, or contact Tetakawi for a more complete cost estimation. 

 

 

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