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Mexico’s Proposed Labor Reforms: The First Test for the New PRI

October 30, 2012

by Juan Manuel Henao

 

Mexico’s 62nd Congress had just been inaugurated on September 1 when legislators heard from President Felipe Calderón, who sent a labor bill to the Chamber of Deputies for consideration. Under a new fast-track authority, the executive branch can submit legislation to the lower chamber of the legislative branch, after which the lower and upper chambers have 60 days to debate and vote on the president’s initiative.

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Calderón’s labor bill asked members of Congress to modernize Mexico’s 40-year-old labor code, which was enacted at a time when Mexico’s economy and politics were closed; when dependency on international markets and investment was low; and when the Partido Revolucionario Institucional (Institutional Revolutionary Party—PRI) used unions to marshal grassroots support and to line the pockets of elected leaders and union bosses.

The results are ghastly: Mexico’s current labor code makes hiring easy and firing difficult. Disgruntled employees who sue former employers collect damages plus lost salaries during drawn-out court cases that can reach five years in duration. Subcontracting is also difficult, as is holding the boundary between consulting and full-time employment—the latter of which brings in salary and benefits.

Mexico’s antique labor laws have forced many employers to hire less and rely more on informal employment arrangements. The system also discouraged creativity and encouraged the informal sector to grow. (According to the World Bank, 50 to 60 percent of Mexicans work in the informal sector.) The World Economic Forum has also taken note, saying that Mexico’s ability to compete worldwide is constrained by its inflexible labor market.

The informal sector costs Mexico 2 to 4 percentage points in gross domestic product (GDP) according to the nation’s Instituto Nacional de Estadística y Geografía (National Institute of Statistics and Geography—INEGI). It also deters tax collection: the Organization for Economic Development and Cooperation (OECD) places Mexico last on its members list for tax collection at 17 percent of GDP; OECD countries, on average, collect 34 percent of their GDP in taxes.

Put simply: the country’s market policies neglect globalization, innovation and competition.

After a few intense weeks of public protests, the lower chamber debated and passed a labor bill with several key provisions. First, subcontracting and outsourcing work by an employer would be permitted. Second, employers can pay employees hourly rates as long as minimum wage levels are respected. Third, trial periods for new employees are allowed. And fourth, maternity leave is extended to eight weeks.

The measure passed with 351 votes from the PRI, the Partido Acción Nacional (National Action Party—PAN) and the Partido Verde Ecologista de México (Green Party—PVEM). The political Left, made up of the Partido de la Revolución Democrática (Party of the Democratic Revolution—PRD), the Partido del Trabajo (Labor Party—PT) and Movimiento Ciudadano (Citizen Movement—MC), collectively put together 130 votes against the bill because it kept silent on union transparency.

When sent to the Senate, union transparency became the central issue of the debate. The PAN coalesced with the PRD, PT and MC to force union financial and political transparency. The modified bill obligated unions to: publicize bylaws and present all internal rules, regulations and procedures to all its members; provide financial disclosures to its members every six months, detailing how much it received in union dues and how it plans to expend the moneys; and to hold private-ballot elections. In addition, every union would have the responsibility to ensure internal transparency, fairness, democracy, and autonomy.

The bill, now back in the Chamber of Deputies with the Senate’s union transparency amendments, will remain frozen until the PRI decides to hold debate. PRI leader Manilo Beltrones says the president’s fast-track powers are no more because the bill was returned to the lower chamber, meaning the bill can remain there until he decides otherwise.

Indefinite hold is unlikely, however. PRI President-elect Enrique Peña Nieto has supported the bill and is anxious for passage. Peña Nieto believes these reforms will give Mexico a boost with international investors, a flexible employment environment and increased worker parity with its global competitors. Beltrones will likely negotiate an out for the bill, but not until Peña Nieto is inaugurated on December 1 giving the new president a legislative trophy, much like the Iran hostage release during Reagan’s inaugural.

One of the most noteworthy events during final passage of the bill in the Senate was the response of Mexico’s business community. Companies that initially insisted on union transparency paddled back when PRI senators barked at the idea. Business owners immediately understood that inclusion of union transparency measures would hurt the PRI’s traditional sway over unions and eventually endanger passage of other economic growth reforms approved by the lower chamber, which is controlled by the PRI.

Passage of this bill is crucial for Mexico. A nay on this measure means no labor flexibility, no subcontracting, no additional foreign investment, no union transparency, and no new opportunities for a bountiful country. The status quo would continue—condemning more to poverty, and offering more opportunities for organized crime to cement their hold over unemployed youth and weak communities. Indeed, passage of this bill will show the PRI’s newfound ability to listen and negotiate, and to elevate Mexico to further international competitiveness.

Juan Manuel Henao is a contributing blogger to AQ Online. He is a consultant based in Mexico City and former Mexico Country Director for the International Republican Institute (IRI), a Washington DC-based not-for-profit democracy promotion organization.

 

Tags: Enrique Peña Nieto, Felipe Calderon, Labor policy

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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