Labor Protection in Mexico: Recent Reforms and Future Challenges

Labor Protection in Mexico: Recent Reforms and Future Challenges

Jose Ernesto Rangel Delgado (University of Colima, Mexico) and Antonina Ivanova Boncheva (Universidad Autonoma de Baja California Sur, Mexico)
Copyright: © 2018 |Pages: 24
DOI: 10.4018/978-1-5225-4134-9.ch005
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If one looks for a representative emerging economy to examine the different effects of labor reforms, Mexico provides an important case study. In order to boost economic recovery, the government promoted infrastructure spending, transfers to development banks, support to small and medium-sized enterprises, and to the export sector. As usual labor-management relations are uneven in Mexico and union issues can be complex, to reduce the negative consequences related to the sharp increase of unemployment, the government tried to focus more on the generation of employment introducing several measures such as training and temporary jobs to facilitate the withdrawal of savings from the mandatory individual pension accounts, coverage of the medical insurance and maternity benefits for dismissed workers, among others. But, challenges such as the informal economy, minimum wage convenience, flexible labor contracts, entrepreneur vulnerability, and higher education labor market have to be faced.
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Latin American countries performed well both in economic and social terms during the first decade of the twenty-first century (Cornia, 2014). To different extents, they experienced positive economic growth as well as a sharp decline of poverty and inequality (Lopez-Calva and Lustig, 2010). Nonetheless, the arrival of the international crisis and the resulting changes in external conditions severely affected the region (Fernandez-Arias & Montiel, 2010). However, governments have been able to implement countercyclical fiscal policy to cope with the negative consequences of the crisis (Martorano, 2014a).

Not all the Latin American countries achieved the same results. Mexico is an emblematic case and its experience highlights the crucial role played by initial conditions. Indeed, the worsening of fiscal conditions pushed the Mexican government to embark on a process of fiscal consolidation since 2010. As a result, the Mexican economy (growth and employment) recovered slowly and poverty sharply increased.

Mexico was hit by the financial crisis in late 2008 after almost a decade of sustained economic growth. Although the Mexican exports were more diversified by products (in comparison to other Latin American countries), they were more concentrated by destination since exports to the United States accounted for more than 70 per cent of total exports. Thus, the drop of GDP recorded by the United States in 2008 (-0.3 per cent) and 2009 (-3 per cent) negatively hit the Mexican economy.

Beyond this, the international turbulence provoked a reduction in the financial flows from rich economies to the rest of the world. Private portfolio flows (as percentage of GDP) decreased by 1.9 points in Mexico between 2007 and 2008; they went up around 4 points in the following year and sharply declined by more than 6 points from 2009 to 2011.

On the other hand, foreign direct investments (FDI) were much less volatile. Between 2008 and 2009, on average FDI dropped by 1.2 percentage points from 3.3 to 2.1 per cent of GDP and slightly recovered in the following years. Mexico experienced a reduction of FDI by about 0.7 points over the period 2008 and 2009 and an increase by 0.3 points between 2009 and 2010 (CEPF, 2010). Mexico was also affected by the reduction of remittances that dropped from 2.6 in 2007 to 2 per cent of GDP in 2012.

These events generated important consequences. In particular, the unemployment rate rose by almost 2 points up to 5.5 per cent in Mexico (INEGI, 2016). The Mexican economy recorded a negative growth rate in the third quarter of 2008. The crisis reached its peak in Mexico in the first quarter of 2009 and the drop in GDP recorded was larger, though performance remained positive, at low values, from the second half of 2009.

This chapter explores the recent developments in the Mexican labor market and the labor protection normativity during the post-crisis period. The first part explores the impacts of the crisis on Mexican economy and the policy responses of the country to economic and financial effects. The second part assesses the changes in Mexican labor market and labor legislation, such as labor protection, medical insurance, old age unemployment, and labor-management relations. In the third part, we pay attention to the future challenges in Mexican labor markets: Informal economy, minimum wage, flexible labor contracts, vulnerable businesses and decent jobs for higher education graduates. Finally, we present some final reflections.

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