Andrés Manuel López Obrador (AMLO), Mexico’s president since 2018, has promised to, once again, raise the daily minimum wage by 20%.

While this year’s minimum wage is $123.22 pesos (£4.58) and in the northern territories $185.56 pesos (£6.89); an 16% increase from 2019, the upcoming 20% increase will now bring the minimum wage to $141.7 pesos (£5.26) and $222.67 (£8.27) respectively. 

These efforts from the leftist government aim to diminish the wage gap in the Latin American country, where it is estimated that half the country’s population lives impoverished despite its recent success in attracting foreign direct investment in the electronic and automotive sectors.

While investment and Mexico’s exports market has certainly taken a turn for the better, national wages have remained staggeringly low compared to those of other Organization for Economic Cooperation and Development (OECD) countries and global standards. This said, low and static wages have allowed Mexico to remain competitive with China in labor-intensive work; however suppressive it may be to the internal market. 

As of mid-2019, the Mexican government registered up to 10 million labourers earning less than the daily minimum wage. Thus, implying that the new economic policy, although it will not ameliorate the country’s overall living standards, will positively impact millions of Mexican families.

Unfortunately, in areas such as the southern states, the problem will remain critical due to Mexico’s remarkable levels of employment in the informal sector. At least 56% of the Mexican workforce is recruited in informal jobs with no official legal or economic regulation. For example, in Chiapas, currently the poorest state in the country, nearly 73% of the labour force work in the grey economy

According to economists at JPMorgan, the income policy will potentially lead to the creation of economic disparities and further polarity. Other experts believe these strategies to fight poverty will put a strain on salaries in the formal economy through an economic repercussion known as “the lighthouse effect”. A challenging and incalculable effect that tends to induce financial inflation.

Although most of Mexico’s central bank (Banxico) members remain uncertain about the upcoming changes, board member, Gerardo Esquivel, deemed the López Obrador’s intentions fundamentally just. The government’s economic decisions have also been backed up by Gustavo de Hoyos, head of Coparmex, one of Mexico’s biggest business councils. As he mentions in a video posted on his Twitter account, he considers this to be very beneficial for the country, businesses and workers. In Hoyos’ words, this will be the “biggest increase in real terms since 1988.”