Annual Salary Minimum Negotiations and Poverty Reduction Strategy
As each year comes to a close, the negotiation for determining the minimum wage for 2026 is upon us. The governments of the 4T have employed a strategy that combines increases in the minimum wage with greater channeling of social support through programs and cash handouts to alleviate poverty. According to the latest INEGI measurements, 15 million people have surpassed the poverty line based on income, and 13 million have escaped multidimensional poverty. However, the ability to maintain this strategy in the near future and observe similar results in poverty reduction is at its limit.
Redistribution vs. Economic Growth: A Sustainable Solution
While this redistributive model (minimum wage + social programs) is effective in the short term for relieving the income of those with the least, it does not generate wealth. The formula gradually erodes and is unsustainable in the long run. Only economic growth creates wealth through increased social mobility opportunities, such as more formal employment, healthcare, and education.
Productivity as a Key Determinant for Sustainable Growth
Increasing general productivity, both labor and land & capital (factorial productivity), is fundamental for generating greater economic growth. The relationship between wages and productivity is a crucial determinant for growth. Economic theory suggests that, for equilibrium, real wages can increase up to the level of productivity. If wages rise beyond productivity, it results in higher labor costs and inflation.
The Absence of Productivity in Minimum Wage Negotiations
When determining the minimum wage, analyzing productivity is essential. However, discussions about productivity have been absent in minimum wage negotiations. Mexico has been characterized as a low-productivity economy for at least two or three decades, according to international classifications. Using competitiveness as a proxy for productivity, let’s examine a global competitiveness ranking.
Mexico’s Competitiveness Ranking
The International Institute for Management Development (IMD), one of the world’s leading business schools based in Lausanne, Switzerland, has published a competitiveness ranking for 69 countries since over 35 years ago. The ranking considers four factors: economic performance, government efficiency, business efficiency, and infrastructure quality. In its 2025 ranking, the top five most competitive economies are: Switzerland, Singapore, Hong Kong, Denmark, and the United Arab Emirates. Mexico ranks a distant 55th, with Chile at 42nd and Colombia at 54th.
Unrealistic Productivity Growth Expectations
Recent statements from Sheinbaum and the Labor Secretariat suggest a 12% increase in the minimum wage for 2026. With an expected inflation rate of 4%, this would imply an 8% productivity growth, a figure clearly detached from reality. As long as the government does not prioritize addressing productivity, Mexico’s economy will continue to stagnate in competitiveness and experience very low growth, a chronic issue.
Key Questions and Answers
- What is the current strategy to reduce poverty in Mexico? The governments of the 4T have employed a strategy that combines increases in the minimum wage with greater channeling of social support through programs and cash handouts.
- Why is economic growth crucial for sustainable poverty reduction? Economic growth creates wealth through increased social mobility opportunities, such as more formal employment, healthcare, and education.
- How does productivity relate to the minimum wage negotiations? Analyzing productivity is essential when determining the minimum wage, as real wages should ideally increase up to the level of productivity.
- Why is Mexico’s competitiveness ranking concerning? Mexico ranks 55th in the IMD’s global competitiveness ranking, indicating low productivity and stagnant economic growth.
- What are the proposed changes to the minimum wage for 2026? Recent statements suggest a 12% increase in the minimum wage for 2026, which would imply an unrealistic 8% productivity growth.
