Wage pressures may arrest future development in Mexico

Subject

Wages and development in Mexico.

Significance

Mexico's labour costs have been rising since 2015, particularly in some manufacturing activities, and political pressure is increasing for a substantial minimum wage hike. For exporting sectors, the significant peso depreciation has meant a substantial boost in wage competitiveness. However, there are no significant productivity gains that warrant such rises.

Impacts

• A peso appreciation would erode wage competitiveness, even if a strengthening to pre-2014 levels is unlikely.
• Despite political pressures, no out-of-calendar minimum wage increases are likely for the rest of the Pena Nieto administration.
• Real wage increases should not affect on inflation given subdued economic growth.