The reform to reduce weekly workday to 40 hours without affecting wages can reduce economic growth and formal employment, as well as grow informality and inflationary pressures, a scenario where MSMEs would be the most affected, according to a Banamex analysis.
“The reform will increase labor costs, mainly affecting sectors such as manufactures, trade and services 24/7, where MSME’s could face closures or greater informality without sufficient subsidies,” warned the financial group.
He pointed out that despite the fact that schemes have been raised to mitigate the impacts, such as a gradual implementation of changes and subsidies, the risks of materializing persist
certain adverse effects.
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The Banamex economic analysis area recalled in a document published on Wednesday that Congress analyzes the legislative reform proposal of the Presidency to reduce the day from 48 to 40 hours per week, with an implementation horizon that would end in 2030.
The reform proposes to modify article 123 of the Constitution to guarantee two days of mandatory rest for every five worked, instead of the current scheme of a rest day a week.
The initiative seeks to align Mexico with international standards of the International Labor Organization.
Banamex added that wages would remain unchanged, which would raise the cost per hour worked for companies.
In addition, the limit of extra hours of 12 to five per week would be reduced, with payment from time 41, strengthening incentives for companies to meet the new 40 -hour day.
He stressed that micro, small and medium enterprises represent more than 99% of the total companies in the country, and that generate 40% of GDP and 65% of employment.
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This business sector would be the most vulnerable to the increase in labor costs derived from the reform, which would be reflected in productivity and employment generation.
He pointed out that the design of the subsidies proposed by the Government to mitigate the economic impact on MSMEs have not been detailed, which generates uncertainty about their sufficiency to cover costs, particularly for microenterprises.
“The lack of a clear plan, especially for sectors with high informality rates (such as trade and construction) limits their scope, since informal workers are not protected by the LFT (Federal Labor Law),” Banamex said.
“In addition, it does not explicitly address how to encourage productivity in companies with limited resources, a critical challenge given the historical lag of Mexico in this area,” he added.
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Canacintra and Coparmex, recalled, have warned that subsidies may not cover the total impact of the reform, especially for microenterprises with tight margins, which could face closures or choose to maintain jobs in informality.
He anticipated that if subsidies cover between 30% and 60% of additional labor costs for MSME’s, the cost of these support would be between 150 and 300,000 million pesos or between 0.5% and 1% of GDP.
When analyzing the cases of Chile, France and Spain, Banamex concluded that the international experience suggests that subsidies relieve, but do not eliminate the initial costs.
Calculated a possible reduction of the Mexican economy between 0.3 and a percentage point if there were no new contracts to maintain constant production.
Lee: Private sector warns that the reduction of working hours will shoot 36% the labor cost of the MSMEs
When the reform compliance shift for MSME’s, the unemployment rate could increase between 0.2 and 0.4 percentage points if these economic units reduce hiring.
When considering a cost transfer at prices of around 70%, Banamex estimated an increase in labor costs by 6.5% in case companies decide to maintain their production levels without changes.
He added that these labor costs in turn represent 30% of the total costs of companies, so the cost impact would be 2%, “which we estimate could be reflected in an increase between 0.1 and 0.4 percentage points for inflation in a scheme without gradual or subsidies.”
He said that with a projected economic stagnation for this year, the reform faces a fragile economic environment, which is paid the weakness of public finances that limit the margin to finance subsidies.
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