Jobs: Where Mexicans Are Feeling the Squeeze

Companies step up layoffs as sales slow and margins narrow

President Vicente Fox is in spin-control mode. Yes, he admits, with the U.S. economy cooling, Mexico is also feeling a chill. "But from there to a crisis, there is really a world of difference," he recently told Mexico's top industrialists.

For a growing number of ordinary Mexicans, however, the crisis has already started. Slowly but surely, layoffs are rising. Top Mexican companies are paring back their workforces to make up for falling sales and tightening margins. The trend began with export industries but is now spreading to sectors that serve the domestic market. Figures from Mexico's Social Security Institute show that the formal economy has shed 373,000 jobs since the end of November, when employment peaked.

SLEW OF CUTBACKS. The last few weeks have brought a steady flow of cutback announcements. Construction giant Empresas ICA has let go of some 4,000 employees since the start of the year and expects to make more cuts to its 19,000 staff. Comercial Mexicana, the country's No. 2 supermarket chain, intends to eliminate 500 positions, mostly through attrition. Media giant Grupo Televisa has fired 750 employees, while rival TV Azteca has axed 400 jobs and may take a swing at as many as 100 more. "We entered the year on a cautious note," says Chief Financial Officer Luis J. Echarte. "It's easy to go ahead and crank it up, but it's hard to cut."

It's a sign of the times that Mexican companies have moved quickly to shed staff. Old-style paternalism has gone by the wayside, as publicly listed companies have become keenly aware that they are under scrutiny from investors, who often applaud layoffs as a sign of efficient management. "Mexican companies are beginning to react more like American companies. This is what they should do--take care of their costs," says Economy Secretary Luis Ernesto Derbez.

Even Fox has been forced to admit that job creation will fall woefully short this year. New data show that gross domestic product actually fell 0.3% in the first quarter compared with the previous one. Thus, the Fox administration has revised its forecast for full-year growth down to between 2.5% and 3%. That means Mexico will generate 400,000 new jobs this year, which is well below the 1.3 million needed to accommodate young people entering the workforce. And while official figures put joblessness at a modest 2.3%, as much as one quarter of the Mexican labor force is underemployed.

RISING PAY PACKETS. One pressing question is when the slowdown in the job market will reverse two years of steady gains in real wages. The benefits of robust GDP growth, productivity increases, and falling inflation were finally trickling down to workers, whose purchasing power had been eroded by two decades of economic mismanagement. For now, pay packets continue to rise. In April, employees at Teléfonos de México received more than a 10.5% wage hike, outstripping this year's 6.5% inflation forecast.

Foreign investment may help put a floor on the job losses. DaimlerChrysler is plowing in $300 million and adding 1,000 jobs at its plant in Toluca, where it manufactures the PT Cruiser. Sanyo is building a $30 million cell-phone battery factory in Monterrey that will eventually employ some 2,000 workers.

Not all multinationals are increasing their payrolls, though. Delphi Automotive Systems Corp., for instance, has reduced its Mexican workforce to 73,000 from 81,000 over the past 11 months, largely through attrition.

The combination of bad news and good news has confounded Mexicans, who are forever bracing for the next economic meltdown. "This is going to be a typical slowdown, which in Mexico is atypical," says Edgar Amador, an economist at the Mexico office of Stone & McCarthy Research Associates. True enough: Companies are laying off simply because demand is slackening, not because the government is blundering into yet another financial crisis. But such distinctions are lost on those pounding the pavement.

By Elisabeth Malkin in Mexico City

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