Mexico's Labor Reform Misses the Mark

In its first crack at proving critics wrong, the PRI ended up siding with its old benefactors and left an already poorly designed reform even more flawed. Is this what Mexicans should look forward to regarding the PRI's structural reform agenda?
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Compared to the drama, the tears, and the grandiosity seen during the golden era of presidentialism, Mexico's state of the union addresses have become a rather low-key event these days. This year's would have been little different had it not been for president Felipe Calderón's surprising last-minute bombshell: an ambitious proposal to reform Mexico's antiquated labor laws. With much anticipation hinging on the incoming government's vaunted structural reform agenda, Calderon's labor market bill not only pre-empted the PRI's own plans for labor market reform but its outcome could very well end up serving as a sneak preview of what to expect in the next six years.

Sadly, the future does not look to bright as the bill's debate over the past few weeks stands as stark evidence of the difficulty -- and unwillingness -- to challenge the country's entrenched interests, in this case the unions.

Flawed from the start

The labor reform bill, as originally proposed, would have added greater flexibility to hiring and firing while at the same time, forced unions to adopt more transparent and democratic practices. The importance of the latter is almost undisputable: Mexico's overly powerful unions are a cesspool of corruption and opacity, with little or no accountability to their members, much less to the public or the government. Influential enough throughout most of the 20th century, they have become even more so since the end of single-party PRI rule in 2000, so much that their support can easily tilt the balance of an election. In 2006, for example, the 2.5 million-strong SNTE teachers union ditched its traditional alliance with the PRI and supported Calderón. However, the price of this support was steep: the education sector was largely untouched during his term, despite desperate need of modernization.

In contrast, the arguments for flexibility are far less straightforward. What most Mexicans know all too well is they have the worst of all worlds: a labor market too rigid to make businesses operate efficiently but also extremely precarious for the workers themselves. Official data show that only around 14 million workers in Mexico are formally employed and are permanently registered in the social security system (IMSS), whereas a similar number work in the informal sector and over 30 million are formally employed but lack social security. Despite a seemingly low official unemployment rate (4-5%), the OECD claims that Mexico has the third largest percentage of Neets (young men and women neither in employment nor in education, a term referred locally as Ninis) among its members, many which could potentially succumb to the allure of criminality. A recent study by a UNAM economist, Ciro Murayama, went so far as to claim that by 2020 nine out of ten new jobs in the country would be defined as precarious if current labor trends persist.

The labor market is also far from being homogenous. For example, pampered union workers from the education sector and the oil industry are usually able to secure a life-long job (regardless of aptitude since many positions are actually bought or inherited rather than competed for), a guaranteed pension pot, and early retirement. In contrast, a maquila worker can be hired on a freelance contract with no benefits and fired practically at will. With the latter increasingly being more representative of the average Mexican's employment condition it is no surprise then that jobs have been voters' main concern in the past two elections (Calderón himself ran as the "jobs president" back in 2006). Should the reform pass in its current state, it will hardly be a step forward in diffusing the country's rising social tensions.

Showing its true colors

Perhaps the only true brilliance of the labor bill is that it puts the ball squarely on the PRI's court, as it gets to be debated by the recently inaugurated legislature dominated by the PRI and its allies. As such, it may give us an early answer to the big question left lingering since the electoral campaign: whether Enrique Peña Nieto and this new generation of PRI leaders would break the mold of the old guard, and finally dare to face up to Mexico's strongly entrenched interest groups (in the case the unions).

For those who have been caught up with the optimism of the PRI's structural reform rhetoric, the past week must have been sorely disappointing. True to itself, the PRI made no attempts whatsoever to hide its alliance with the unions, stating from the start that they would not accept any reform that would compromise "union autonomy." In fact, the commission that presided over the bill's initial debate was led none other by PRI deputy Carlos Acevedo Olmos, who is also the head of one of Mexico's largest unions, the CTM. Such a blatant disregard of an obvious conflict of interest would be unthinkable in any serious democracy; it would be akin to having the CEO of an investment bank preside over financial reform. The result of the commission's work was that practically none of the proposals which would have affected the unions was accepted, and even some which pertained to flexibility were watered down (a last minute PAN-PRD effort to put these proposals back in is possible, but don't count on it).

Is this what Mexicans should look forward to regarding the PRI's structural reform agenda? Sadly, it appears so. In its first crack at proving critics wrong, the PRI ended up siding with its old benefactors and left an already poorly designed reform even more flawed. Granted, not all items on the agenda may face such powerful opponents (energy comes to mind), but the prospects for others are hardly encouraging if the PRI continues to choose the road of appeasement -- one which in Mexico is nothing but a weak euphemism for a tradition of clientelism as old as the country itself.

Rodrigo Aguilera is an editor at the Economist Intelligence Unit.

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