Labor and Wage Rate Trends Impacting Mexico’s Maquiladoras in 2012

Mexico will continue to attract increasing levels of Direct Foreign Investment (FDI) during 2012 by continuing to maintain a stable wage rate structure for the country’s manufacturing sector. The primary source of employment for the majority of Mexico’s manufacturing labor force will remain the maquiladora industry. 

    The widely used term, “maquiladora plants”, continue to populate Mexico’s northern state and the more densely populated cities of Mexico’s interior. The primary source for this FDI during 2012 will continue to be U.S.-based companies serving the automotive, aviation, consumer electronics, capital goods and medical industries. 

    In Mexico, the global recession and the narco-related surge in violence together had a dramatically negative impact on overall employment, particularly acute along the ever-popular Border region. With a recovery taking hold in 2012, the current trends are for companies in invest in longer-term retention of their remaining employees.

    The primary focus is on investing in people through skill training and talent development – that is, offering employees opportunities for development and growth. At the same time, there is a growing trend toward longer-term incentives, with companies creating new retention programs (primarily cash-based), to combat turnover. Also, the trend of not offering expatriate employees any form of high-risk benefits may change in the years ahead to help retain certain categories of senior managerial employees. 

      Successful foreign employers operating in Mexico use all reward levers available and recognize that cash compensation is not the only way to encourage employee engagement. Mexico continues to be a family-oriented culture where incentives are most effective when geared toward supporting the employee’s familial responsibilities. 

    Many are creating career paths that include training in the U.S. to provide corporate development opportunities. Further enhancements include employing special project opportunities that elevate an employee’s corporate visibility and develop new skills that enhance employment security. Fine-tuning the company performance management program, through manager training and technology, is proving effective in enhancing statistical processes and analytics. Finally, implementing an employee communication plan will help to minimize distractions and increase productivity. 

       Mexico has traditionally relied upon a centralized structure whereby the federal government sets a certain minimum wage that remains in effect for an entire calendar year. Employers then “burden” or “load-up” the federal minimum base wage with a wide variety of incentives and bonus additions that create the actual gross wage paid to the entry level employee. 

Mexico's Federal Base Minimum Wage

The federal base minimum scale rose from 2011 to 2012 by 4.1 per cent. 

    The federal minimum wage is further used as an index for many other costs across Mexican society, to include: service fees, property taxes, tariffs, traffic fines (state offenses use Zone B, Federales use Zone A) and minimum fees needed to show for immigration purposes. This is the way it affects most of the foreigners living in Mexico. 

    Starting January 1, 2012, the minimum daily wage for Geographic Zone A will be 62.33 pesos, Zone B will be 60.57 pesos and Zone C will be 59.08 pesos.    

    Geographic Zone A is comprised of the Distrito Federal and its Area Metropolitana, the states of Baja California and Baja California Sur, the cities de Acapulco, Guerrero; Ciudad Juárez, Chihuahua; Nogales, Sonora; Matamoros, Tamaulipas and Coatzacoalcos, Veracruz, among others. 

    Geographic Zone B is comprised of Guadalajara, Jalisco; Monterrey, Nuevo León; Hermosillo, Sonora; Tampico, Tamaulipas; Poza Rica de Hidalgo, Veracruz.  

    Geographic Zone C is comprised of the states of Aguascalientes, Campeche, Coahuila, Colima, Chiapas, Durango, Guanajuato, Hidalgo, Michoacán, Morelos, Nayarit, Oaxaca, Puebla, Querétaro, Quintana Roo, San Luis Potosí, Sinaloa, Tabasco, Tlaxcala, Yucatán and Zacatecas.  

    Annual salary increases have been relatively flat for the last two years and the same is anticipated for 2012. Employers will focus on a total rewards theme of skill building, career development, work/life balance and variable compensation. The most common practice used by U.S. employers to retain high-potential employees is positioning them above the midpoint of the base salary structure. In addition, many find that proportioning international assignments and providing accelerated career plans are common company practices.

Entry Level Hourly Wage - 2012


One Example of Manufacturing in Mexico

Our strategic partner Alan Russell, of TECMA, sat down with El Paso Inc. to talk about Mexico vs China, vintage biplanes, weathering the recession, and why business opportunities in Juárez still trump security concerns.

Q: You’ve said that those who survived the last two years are going to see the greatest opportunities of their lives in the next five years. How will those opportunities materialize?

...with the recovery of the economy, with the advantages of Mexico over the other low-cost options such as China, the attitude of the public and businesses to stay in North America to protect intellectual property rights, as well as the many advantages of being here, I see Mexico as a launching pad.

The North American Trade Agreement provides favorable conditions between the United States, Mexico and Canada, which gives us an advantage over China when it comes to tariffs. The minimum wage is also up in China because of world pressure.

We have 8-million square feet of empty manufacturing space in Juárez, and some say that's terrible, but look at the opportunities we have to fill that space. It's there and it's ready. Our industry laid off 60,000 to 80,000 people; all those people are ready to get back to work.

Q: What's it like working in Juárez?

There are more patrols and more evidence of security. So far there have been no documented cases of any expatriate being kidnapped or killed. The data tells us it’s a safe place to conduct business, but there are definitely times of the day and places where you shouldn’t be if you’re working in the maquiladora.

The data also shows us that the casualties that we see are for the most part hits, not random shootings. That’s not what the environment is like at all. You cross over the border and there’s something short of two million people going about their daily business and conducting life as if absolutely nothing is going on. 

Now all of us know someone that has been a victim of violence, whether it’s a carjacking or had loved ones killed. Like I said, the data is there and we don’t want to ignore it. But it’s not a failed state. It’s a much different environment. This war is not about ideals, religion or any historic grudges from years past, this is purely economics.

Click here to read the full Q & A with Alan Russell, President/CEO, TECMA