Will The Unions Swallow Another Bitter Pill?

Francisco Hernndez Jurez, leader of Mexico's powerful telephone workers union, leans forward in his chair and recalls telling government officials last fall that he was worried about the possibility of a peso devaluation. "They scolded me" for even thinking of it, he says. Now that it has happened, warns Hernndez, if the government doesn't find a way to make up for lost purchasing power, "the union movement will soon make its presence felt."

Support from labor leaders such as Hernndez is crucial to President Ernesto Zedillo Ponce de Len's plan to pull the country out of its crisis. If wages and prices spiral up, Mexico would lose any competitive gains from the devaluation and could slide back to the financial chaos of the 1980s.

HIGH PRICES. For decades, unions have marched in lockstep with the ruling Institutional Revolutionary Party. But now, more aggressive leaders are emerging. They are willing to help boost productivity but want a bigger share in its gains. And Mexico's steps toward more open democracy have made workers more aware of their ability to press demands. "We've reached a stage in which the unions are beginning to think for themselves," says labor lawyer Nestor de Buen.

Leaders such as Hernndez are closely watching price hikes in the wake of the 34% devaluation. By mid-January, prices of basic food products had risen 9%. If the price hikes get out of hand, unions say, they will demand pay boosts.

That would threaten the government-labor-industry pacto, used by Zedillo's predecessor, Carlos Salinas de Gortari, to curb inflation by holding wages down. Last year, nearly 1 out of 5 companies exceeded the pacto's voluntary 7% ceiling on salary hikes, and this year, many more are likely to exceed the limit. Key labor sectors most likely to push for higher pay: teachers, electrical workers, and auto workers.

Mexican workers have good reason to be embittered. Take-home pay for manufacturing employees is 31% below what it was 15 years ago in real terms. The hope was that under Zedillo, who took office on Dec. 1, an expanding economy would at last permit an improvement in salaries.

The devaluation dashed those hopes. Although inflation is expected to be in the 20% range this year, employers and unions again signed off on salary hikes of only 7% under the pacto that Zedillo hammered out after the devaluation. But labor, which in the past had rubber-stamped pacto proposals, hotly debated the wage controls with Cabinet officials in an all-night meeting that delayed Zedillo's announcement of an emergency economic plan. In the end, the combative electrical workers refused to sign.

POWER IN NUMBERS. Indeed, workers are expected to demand a new pacto before midyear. "After so many years of sacrifice, people are angry and bitter," says Harley Shaiken, a specialist on Mexican labor at the University of California at Berkeley. Mexicans are long-suffering, he says, but "there is a limit to what anyone can put up with."

Still, most analysts doubt that Mexico will be paralyzed by strikes. With the economy creating far fewer jobs than needed to employ 1 million new workforce entrants annually, fear of unemployment probably outweighs the pain of wage erosion. Labor laws allow companies to fire striking workers.

But times are changing. "One of the consequences of political opening is that people are learning how to organize and get things done," says Tulane University political scientist Roderic A. Camp.

In drafting future pactos, Mexico's unions are bound to demand a greater say. Zedillo will have to find ways to keep their support in holding down inflation. Otherwise, prospects for recovery from Mexico's crisis may be dim.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE