Mexico’s congress has passed the most sweeping changes to the country’s labour laws in decades. High levels of cooperation between incoming PRI, the party of president-elect Enrique Peña Nieto, and PAN, the party of outgoing Mexican President Felipe Calderon, ensured the passing of a groundbreaking labour reform bill passed in the Mexican Lower Chamber last week. The new bill will reduce legal responsibilities for companies when firing employees, and create more flexible hiring structures.
Mexico’s economy could end up with “400,000 additional jobs on top of the ones we are currently creating” if the Senate approves the labor market reforms passed by the lower house of Congress, Labor Secretary Rosalinda Velez said, adding that it’s passage is a, “historic event”. The most recent reforms to Mexican labour legislation took place around 40 years ago.
Many consider it a positive step for business (both domestic and foreign), as well as a driver for larger investment in the country. Business analysts have predicted that the approved labour reform could increase the country’s GDP annual growth rate by 1.5%.
Some notable changes:
- the bill stands to introduce considerable flexibility into existing laws. Under the changes, companies would be able to hire workers by the hour, as opposed to them having to pay employees the full daily minimum wage.
- the legislation creates probationary employment periods (as a means to address youth unemployment) whereby companies would be able to hire people for shorter periods to increase flexibility in their workforce, with no restrictions or legal responsibilities in place when letting people go who were employed under these schemes.
- the bill also introduces the loosening of the legal responsibilities that companies have to comply with when firing employees. Previously, fired employees negotiated a ‘severance pay’ from their old company. There was no limit to the level of this payment in law. The new legislation now sets a payment limit of 12 months’ salary for these severance payments.
The legislation retained about 80 percent of the content of the bill proposed by the president, the labor secretary said noted. Some experts expressed disappointment at the decision to leave out proposals that would have introduced greater transparency into union finances.
However, many experts insist that the country’s existing labour regime is antiquated and has done considerable damage to the Mexican economy, presenting roadblocks for creating new companies and for hiring new workers.
Some 28.87 percent of Mexico’s labor force, or nearly 14 million people, is employed in the informal sector, the National Institute of Statistics and Geography, or INEGI, said in a report released last month. The INEGI considers a person to be employed if they are older than 14 and work at least six hours a week in any occupation. Mexico’s official unemployment rate is 5.39 percent, the highest level in the past 11 months. Now, the Senate needs to vote to approve the bill before the end of late October before the reform can be signed into law, a process that should take place in the next few weeks.