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, the 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. In this post, we will define the new minimum wage in Mexico for 2023, address concerns around it, and help manufacturers understand what to expect around Mexico’s manufacturing labor wages.
Mexico's minimum wage in 2022 vs. 2023
The National Minimum Wage Commission (CONASAMI) agreed to increase the general daily minimum wage as of January 1, 2023, by 20% to $207.44 MXP. This was a significant increase from the 2022 level of $172.87 MXP. Along the Northern Border Zone—a 2,000-mile swath of northern Mexico that stretches roughly 15 miles from the U.S. border—the minimum wage increase of 20% raised the minimum wage at the border to $312.41 MXP. This economic free zone includes 43 cities across six states and the entire state of Baja, California.
Why is Mexico’s Minimum Wage Increasing?
The 20% increase in the minimum wage in Mexico is in line with President Andres Manuel Lopez Obrador’s goal of reversing a decades-long slide in Mexican workers’ purchasing power. 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 remains stable, according to the Mexican central bank Banxico, suggesting a sustainable trajectory for wage growth.
What Do the Minimum Wage Increases Mean for Manufacturing in Mexico?
It's important to note that the competitive manufacturing wages in Mexico are not equivalent to the minimum wage. On the contrary, skilled workers in the manufacturing industry earn significantly more than the minimum wage due to the complex nature of their tasks. For instance, an unskilled direct laborer in Mexico can earn an average hourly wage of approximately USD $4.18. However, a CNC machinist who requires specialized training and expertise may earn an hourly wage of around USD $8.16.
Although minimum wage increases may force manufacturers to adjust pay for some positions to remain competitive, most will benefit from the increased economic investment in the local area. Additionally, minimum wage increases provide manufacturers with a flexible timeline for implementing regular incremental increases, fostering a stable economic environment that benefits both businesses and employees. Therefore, it's essential for manufacturers to understand the difference between minimum wage and competitive manufacturing wages to make informed decisions and remain competitive in the market.
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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