Salaries in Mexico are Latin America’s lowest
Among the main goals of the North American Free Trade Agreement was to build a middle class in Mexico that has the economic power necessary to consume goods imported from its two NAFTA partners, the US and Canada. In reality, however, and in certain instances, depressed salaries in Mexico have been a competitive advantage in practice.
The Trump Administration would like to see salaries in Mexico rise in order to achieve its objective to reduce the number of US-based firms that cross the country’s southern border. Low salaries in Mexico, which many of the country’s economic policymakers attest make the whole North American Free Trade Agreement region more competitive, is among the primary reasons that many businesses find investing in Mexico to be an intelligent strategic decision. However, according to Trump this is one reason why the United States has a substantial, US $64 billion trade imbalance with its southern neighbor.
While salaries in Mexico have on average increased 424% across the breadth of the Mexican economy since the treaty took effect, this upward movement has not been enough to build a level playing field for Canadian and American laborers. In the Mexican productive sector, wages have had a real decline of almost fifteen percent during the last decade, while the salaries of US manufacturing workers have risen at an average rate of just below nineteen percent. Taking this data into account there are 5 reasons that U.S. President Donald Trump wants to see salaries in Mexico rise.
Manufacturing Salaries in Mexico: Very Low
The present US government believes that Mexico’s low manufacturing salaries are the primary reason why many of the country’s private sector decision makers are opting to move jobs to Mexico.
United States Department of Labor information demonstrates that at the end of 2016, manufacturing job salaries reached an average of US $20.44 an hour, while Canada’s average maximum manufacturing wage was recorded as being US $18.7. The result is that in 2016 Mexican manufacturing wage represented only 26.6% of the United States’ and 23 percent of the Canadian.
Minimum Wage: Even lower
When the North American Free Trade Agreement came into effect in the early 1990s, the minimum salary in Mexico was equivalent to about 5 US dollars per day, while in the United States the minimum salary was US $34 for every 8 hours worked. This means that when the free trade pact began, Mexican minimum wage workers earned just fourteen and one-half percent of what US workers earned in dollar terms.
In 2017, the status quo has not changed greatly. Those who earn the minimum wage in Mexico today earn eighty pesos per day. This means that their income rises to only US $4.46 a day. This shows a 9.3% reduction since 1994. Currently, a Mexican that earns this salary in Mexico collects only 7.7% of what an American worker earns in dollar terms. The minimum wage in the US has stood at US $7.25 since 2009. This represents US $58 for an 8-hour workday.
A Limited Wage Recovery
Although the Mexican minimum daily salary has risen significantly, primarily because of yearly adjustments (from 15.27 Mexican pesos a day to 80.4 pesos), this nominal growth has not been sufficient to match those of Canada and the United States because of Mexico’s depreciation of its national currency. Due to the fact that salaries in Mexico have not grown as quickly as those in the United States and Canada, for a vast percentage of the population, living standards have not improved greatly since 1994. The Trump administration sees a higher standard of living in Mexico as an important factor to lessen undocumented immigration to the United States.
The Lowest Wages in Latin America
Mexico’s minimum wage is not only low when compared to those of its North American Free Trade Agreement trading partners, but is also reduced in when compared to workers’ wages in the other Latin American nations. For example, Mexico’s minimum wage is forty-four percent of that of Brazil and is only twenty-seven percent of what laborers in Argentina earn. As a point of a comparison with a country outside of Latin America, Mexico’s minimum wage is only sixteen percent of Spain’s.
Although it is generally agreed that low wages are a limitation on its workers, it can be said that the country is “cheap” to reside in compared to other countries. The purchasing power in Mexico is higher than in some Latin American nations due to the reduced prices of several products. Although this is the case, the Trump administration points out that low wages in Mexico prevent its citizens from buying US imports, therefore, creating a greater trade imbalance between the two countries.
The Tecma Group of Companies provides a continuing series of articles on subjects such Salaries in Mexico on its blog at http://tecma.com