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Mexico’s Lower House Approves Labor Bill Meant to Boost Jobs

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Sept. 29 (Bloomberg) -- Mexico’s lower house of Congress approved legislation easing the process of hiring and firing workers, signaling that an often fractured legislature may come together to pass future economic overhauls.

The bill was presented Sept. 1 by outgoing President Felipe Calderon and submitted under a new fast-track mechanism. The chamber had 30 days to approve the bill and the Senate has the same period to bring the measure to a final vote.

Mexican law makes it difficult for companies to fire workers and to hire them part-time or on a trial basis, which can lead firms to delay hiring decisions. Supporters say the bill would foster job creation and lure businesses out of the informal sector, where about a third of workers currently labor.

The initiative’s approval “ended a taboo against touching a federal labor law drafted 42 years ago,” lawmaker Juan Bueno Torio of Calderon’s National Action Party said before voting. “It establishes hiring mechanisms that will benefit thousands of young people with the opportunity of obtaining their first jobs.”

The overhaul would allow temporary and trial-basis contracts and hourly wages, while regulating outsourcing and limiting the amount of back-salaries employers must pay if they lose legal disputes with workers. Thousands protested in Mexico City against the initiative in days leading up to the vote, saying it erodes workers’ rights.

Advancing Legislation

While the measure may not have much impact on economic growth, its quick passage shows President-elect Enrique Pena Nieto will be able to negotiate key economic bills through Congress, said Gabriel Casillas, an economist with Grupo Financiero Banorte SAB. A government oversight bill advancing in Congress also shows lawmakers are willing to strike deals, he wrote in a Sept. 27 note.

Revamping labor laws, if combined with Pena Nieto’s plans to boost tax collection and increase private investment in the energy sector, could boost Mexico’s pace of economic growth by 1.5 percentage points, Nomura Latin America strategist Benito Berber said in a Sept. 25 report.

“If a similar discussion to the labor reforms takes place next year, we could herald that Congress will pass” a bill to boost tax collection, Berber wrote.

Pena Nieto takes office Dec. 1 after winning the July 1 election, returning his Institutional Revolutionary Party, or PRI, to power after it ruled for 71 years until 2000.

Diluted Bill

While lawmakers diluted several clauses from the original proposal that would have improved transparency in unions, they kept in place most key measures to increase labor market flexibility, said Gabriel Piza, a labor lawyer at Piza Abogados in Mexico City.

By excising clauses such as external audits of union finances, the PRI has shown that powerful unions linked to its party still have power to sway legislation, said Javier Oliva, a political analyst at Mexico’s National Autonomous University in Mexico City.

“With such powerful groups inside a political party, it’ll be difficult for it to change its agenda,” Oliva said in a telephone interview.

The measure encountered resistance from the Democratic Revolution Party, or PRD, the third largest in the lower house, and allied smaller parties. Legislators seized the congressional podium yesterday, halting discussion over the bill, waving placards and chanting “no to the reform.”

Mexico’s gross domestic product has expanded an average 1.9 percent a year under Calderon, about half the pace of Brazil. Mexico’s growth rate this year and last year has overtaken that of Latin America’s largest economy.

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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