Minimum Wage in Mexico Is Set to Rise a Paltry 10% Anthony Harrup - WSJ.com
go to original December 31, 2016

The southern state of Guerrero is a state in Mexico where inequality is a way of life. (CCTV America)

Mexico’s minimum wage will rise almost 10% on Sunday, in a jolt to the system meant to stoke the poorest workers’ buying power, which has been eroded by recessions and past bouts of high inflation.

But the prospect of higher earnings is doing little to dent pessimism among consumers, who head into 2017 facing rising fuel costs, higher interest rates and a weakening peso that closed 2016 near record lows against the U.S. dollar.

Labor, government and business leaders on the Minimum Wage Commission agreed to raise the daily minimum wage to 80 Mexican pesos, or about $4, from 73 pesos, a break from a yearslong custom in which annual increases were roughly in line with inflation.

Mexico’s discussions on raising the minimum wage coincide with moves in the U.S., where some 4.4 million workers in 20 states are set to receive increases at the beginning of the year. That has also fueled debate on whether it will make U.S. employers reluctant to hire.

The commission split the increase into two parts: Four pesos a day to restore purchasing power and on top of that 3.9%. Authorities hope the 3.9% will be used as the benchmark for other wage negotiations, avoiding the so-called lighthouse effect where minimum-wage increases fuel demands across the board and threaten an inflationary wage spiral.

“Four pesos is ridiculous in my view,” said 40-year-old Armando Galicia, who works at a convenience store in Mexico City. With bonuses for sales and punctuality, he manages to take home nearly double his minimum basic wage.

Like others, Mr. Galicia expects higher gasoline prices to eat into the increase in wages. “I don’t have a car, but I use public transport. When gasoline goes up, food goes up, everything goes up,” he said.

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