• Donald Trump said last week both Mexico, U.S. need a raise
  • Mexico unions, government are hesitant to increase base pay

While American workers have garnered support for a minimum-wage hike from both the Democratic and Republican presidential candidates, their lower-paid counterparts south of the Rio Grande River are facing much stronger headwinds.

The explanation for Mexican workers’ plight has its roots in the free-trade accord that transformed the nation into a global manufacturing powerhouse, rescuing it from economic chaos two decades ago and insulating it from the commodities bust that still reverberates through emerging markets now. But for all its benefits, the North American Free Trade Agreement has left paradoxes, too, perhaps none more obvious than the labor leader who’s hesitant to raise the minimum wage.

Meet Jose Luis Carazo, the 52-year-old secretary of Mexico’s biggest labor confederation, whose 3 million members range from farm laborers to bankers, university professors to oil workers. Ask Carazo if raising the pay floor is a bad idea and he has plenty of reasons why it probably is: inflation, job cuts, a loss of competitiveness.

“People think we don’t want a better base salary -- of course, I do. But if it puts a factory in trouble, then we’d rather have the jobs,” he said over enchiladas at a posh restaurant on Mexico’s main commercial drag. “We need the jobs more than we need the money.”

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It’s a stark contrast to the dialogue taking place in the U.S., where both presidential candidates have advocated raising the $7.25-per-hour federal minimum wage and reworking trade agreements. In Mexico, the base salary of 73 pesos (about $4) a day is by far the lowest of the so-called OECD nations relative to purchasing power.

That swelling gap forms the foundation of a key gripe of the campaign of Republican Donald Trump, who in a visit to the Latin American nation last week said higher wages were “desperately” needed on both sides of the border. He and his advisors say lower wages have drained blue-collar jobs from the U.S. into Mexico through Nafta.

‘Responsible Mechanism’

Bringing those jobs back to the U.S., however, as Trump has promised to do, won’t be easy. Minimum salaries have remained stubbornly low under President Enrique Pena Nieto, and the board charged with deciding base pay -- Carazo’s one of 11 union members, along with 11 industry representatives and a government official -- has put off making a decision on any nation-wide adjustments far beyond inflation.

The government has eliminated differences in base salary by region and worked to phase out the use of the minimum wage to calculate expenses like fines and pensions, Omar Rodríguez, chief Labor Ministry adviser, said in an emailed response to questions. The administration is seeking “to establish a gradual and responsible mechanism for raising the minimum wage without causing adverse effects like unemployment and inflation.”

JPMorgan Chase & Co. and Barclays Plc dispute that a hike would fuel inflation; they say the benign pace of annual price increases -- 2.65 percent in July -- means a wage hike wouldn’t carry much punch.

While it sounds “counter-intuitive” that Carazo and other labor leaders would echo some of the same talking points usually advanced by the business elite, it’s not all that surprising given the close ties between the government and unions, said Claudio Loser, a former head of the International Monetary Fund’s department for the Western Hemisphere.

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“People are very concerned in terms of keeping the jobs in all of those enterprises that are export-oriented,” said Loser, now a director at advisory firm Centennial Group in Washington.

To hear Carazo tell it, hanging onto those jobs is a chief concern. That makes sense for someone who first took over as head of a local steel union around 1994, the year the Tequila Crisis hit.

To Mexicans, the Tequila Crisis was their Lehman Brothers, only the government couldn’t keep a lid on the contagion. After a sudden peso devaluation in December 1994, foreign investors fled overnight and inflation surged to more than 50 percent the following year.

When workers’ hours at Carazo’s plant were cut by almost half, one of his first tasks as union boss was to persuade his members not to strike. If they did, Carazo told them, things will only get worse. Working part-time was better than not working at all.


After that, Nafta began to bear fruit -- and in a big way.

While increasing demand in border factories for everything from U.S.-bound luxury cars to flat-screen televisions has already led to higher wages and labor shortages in some parts of Mexico, wage growth for most workers -- including the roughly 6.5 million minimum-wage earners -- has remained subdued.

Arnulfo Torres, a 46-year-old bartender working at a Mexico City hotel, is one of them. For the past 29 years, he’s held the same job and earned more or less the same salary: minimum wage, adjusted for inflation, plus tips. It comes out to about $400 a month, he said.

"All costs rise, but the minimum salary stays the same,” Torres said. The unions “just base everything on what the government says.”

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