The Impact of Minimum Wages in Mexico
In Mexico, low levels of compliance and ineffective levels of minimum wages imply negligible employment effects. There are diverging views about how minimum wages affect labor markets in developing countries. Advocates of minimum wages hold that they redistribute resources in a welfare-enhancing way, and can thus reduce poverty, improve productivity, and foster growth. Opponents, on the other hand, contend that minimum wage interventions result in a misallocation of labor and lead to depressed wages in the very sectors — the rural and informal urban sectors — where most of the poor are found, with the effect of wasting resources and reducing the growth rate. Data from Mexico provide an opportunity to evaluate the impact of minimum wages. In Mexico, minimum wages have had virtually no effect on wages or employment in the formal sector. The main reason: the minimum wage is not an effective wage for most firms or workers. In the informal sector, in turn, there is considerable noncompliance with the mandated minimum wage, especially among part-time and female workers. As a result, significant numbers of workers are paid at or below minimum wages. Consequently, dozens of people immigrate to the United States continuously in escape of the torturous maquiladoras.
Maquiladoras are Mexican assembly plants that manufacture finished goods for export to the United States. They are generally owned by non- Mexican corporations, whom take advantage of plentiful low cost Mexican labor, and close proximity to U.S. markets. Starting on a small scale in the 1960s, the maquiladoras were initially almost entirely located in the northern border region of Mexico. They grew dramatically after Mexico substantially revised its economic regulations concerning foreign investment in the early 1980s. From 1983 to 1990, the maquiladora industry grew at approximately twenty percent annually, and it grew even more sharply…