Introduction
While the decision to limit the workweek to 40 hours has been welcomed by many, it presents significant challenges. These include raising wage costs, potentially impacting productivity, and hindering the growth of micro and small businesses. The lack of government measures to improve productivity exacerbates the situation.
Productivity and Wage Growth
In the world of economics, it is widely recognized and recommended that wage costs should evolve in line with productivity. While salary increases are desirable, their negative impacts on the economy can arise when not accompanied by increased productivity.
Mexico’s labor productivity indices in 2024 were between 4% and 6% lower than those of 2018. However, real minimum wages increased by 111% from 2019 to 2024, along with other measures like higher pension plan contributions and vacation days. Real labor costs rose by approximately 60%.
The implementation of the 40-hour workweek will be gradual, concluding in 2030. Some business leaders correctly argue that greater productivity should be achieved by then. However, the government’s future plans do not emphasize facilitating the growth of microenterprises (96% of the total), which are less productive due to a lack of division of labor, limited credit access, and insufficient capital accumulation and brand prestige.
Impact on Small Businesses
There is evidence that productivity increases do not always translate into higher wages. Cases of growing wages with declining productivity have only occurred under specific conditions or through decree-based increases, like those for the minimum wage and the 40-hour workweek. This undoubtedly reduces the competitiveness of the productive apparatus.
Adapting to a 40-hour workweek will be challenging for most companies, as nearly 50% of employees currently work more than 40 hours. Businesses will adopt various strategies to address the new regulation, from reducing production to hiring overtime. In the latter case, labor costs for those working more than 40 hours could increase by up to 40%.
The burden will primarily fall on micro and small businesses, which constitute 99% (95.5% micro, up to 10 people; and 3.7% small, up to 50) of the market. These businesses have labor productivity levels that are three and five times lower than medium and large enterprises, respectively. They are also much more labor-intensive (using more labor than capital) – almost five and seven times more than medium and large businesses.
Consequently, it is likely that the 40-hour workweek will be unmanageable for many formal micro and small businesses, further complicating their access to this market segment.
Key Questions and Answers
- What are the main concerns regarding the 40-hour workweek? The primary issues include increased wage costs, potential productivity decline, and hindered growth of micro and small businesses.
- How do wage increases compare to productivity growth? There is evidence that productivity and wage growth do not always move in tandem. Cases of rising wages with declining productivity have occurred under specific conditions or through decree-based increases.
- Which businesses will be most affected by the 40-hour workweek? Micro and small businesses, which constitute 99% of the market, are likely to face significant challenges adapting to this new regulation.
- What strategies will businesses adopt to cope with the 40-hour workweek? Businesses may reduce production, hire overtime workers, or implement other strategies to address the new labor regulations.
