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Mexico: Positive Outlook for Labor Reform After Passing the Lower House

On September 29th, after hours of intense debate, the Lower House voted 351 to 130 to approve an edited version of the labor reform bill that was submitted by President Calderon on September 1st. To recall, Calderon introduced the bill under the newly created fast-track option called legislative priority, which meant that the Lower House had to vote on the matter before October 1st. The bill is now in the Senate, where legislators have until November 1st to make their own modifications and vote on the reform.

Overview

Among other measures, the approved bill loosens the legal responsibilities that companies have to comply with when firing employees, creates trial employments periods to address youth unemployment, allows companies to hire employees on an hourly basis and regulates subcontracting and outsourcing, which companies often abuse to evade taxes.

 

The Labor Relations Committee, which was in charge of revising the bill before submitting it to the plenum, eliminated all of the labor union transparency initiatives proposed by Calderon. These included enforcing democratic internal elections for union leadership positions, forcing unions to publish their financial records and allowing the government to break up extended labor union strikes.

Legislative Dynamics

The final vote was decided along party lines. Despite their dissatisfaction with the PRI’s decision to cut the union transparency measures, PAN representatives voted with their PRI and Green Party counterparts to approve the edited version of the bill. The small party PANAL abstained from voting. The PRD and its leftwing allies voted against the bill. The final vote featured one of the Lower House’s highest attendance rates in history – 491 out of 500.

The final voting process revealed deep divisions within the PRD. Despite assurances by the PRD Lower House leader of complete civility, Lopez Obrador loyalists from the PRD and its leftist allies stormed the Lower House podium, forcing leaders from other parties to relocate the vote to the chamber’s balcony.

Analysis

Congress’s decision to forego the bill’s various union transparency measures was seen as a missed opportunity to tackle Mexico’s corrupt union leaders. This was not surprising given that the Committee was dominated by PRI members, many of whom directly represent the interests of some of Mexico’s largest trade unions.

Still, the bill turned out to be more comprehensive than expected in terms of addressing firing rigidities, which were a non-starter in previous attempts to reform labor legislation; it is decidedly more far-reaching than the one that had been redrafted by the PRI at the end of last year. As such, the current bill is an overall positive step for Mexican business and investment climate.

Although projections vary, business analysts predict that the approved labor reform could increase the country’s GDP annual growth rate by as much as 1.5% and could help create an additional 400,000 jobs a year. Some analysts also predict that the bill could increase wages in the long term. Other analysts, however, concur with academics in that the reform’s effects are murkier and harder to delineate.

The fact that the PRI and the PAN cooperated on this effort despite the latter’s misgivings is a good sign for the bill’s future as well as future reforms during the Peña Nieto administration. Similarly, the decision by the PRD leadership to try to oppose the bill peacefully is a positive sign.

Reactions

Reactions to the Lower House’s labor reform were mixed. Representatives from leading business associations applauded the approval of severance pay limits and increased flexibility on the hiring side but expressed strong dissatisfaction with the restrictions on subcontracting as well as the lack of union transparency measures. These groups are paying close attention to the Senate, where legislators may clear up many of the ambiguities regarding subcontracting and outsourcing.

Within the media, there was a sense of lingering dissatisfaction within the PAN and the PRD for letting the PRI get away with the preserving the labor union status quo.

Various economics academics stated that by leaving unions untouched, the approved version of the bill could hurt workers because it does not give them more rights and visibility within their own labor unions. Similarly, some stated that the economic and legal benefits predicted by some business groups are grossly overstated.

Part of the problem is that without other structural reforms aimed at improving the business climate and facilitating capital investment, labor reform itself will do little for quality job creation.

Growing Protests

Mexico’s largest labor unions, which dodged a bullet in the Lower House, expressed displeasure about the bill’s provisions that facilitate non-traditional employment structures. However, these organizations’ leaders did not call for large-scale protests against the bill, most likely so as to not instigate any changes to the Lower House’s decision to leave out union transparency.

Instead, the surging protests outside the Senate building seem to be coming from particular factions within these organizations, which are joining Lopez Obrador’s loyalists to protest the bill. The lack of participation in the protests by Mexico’s largest unions seems to be the main factor preventing opposition forces from organizing a full protest ahead of the Senate vote.

Still, the protesters that are present are trying to disrupt the Senate’s activities. The Senate has already taken appropriate response measures, passing a motion that allows the Senate to work and vote on the bill outside of the Senate’s headquarters so as to avoid disruptions by the protestors.

Calderon Wins

Although labor reform has not yet concluded, the bill’s approval in the Lower House was a key victory for President Calderon and the PAN, which by pushing hard for increased labor union accountability, positioned themselves as the protagonists for labor reform and placed the PRI in the uncomfortable position of defending Mexico’s corrupt union leaders. As a result, labor reform will be regarded a PAN accomplishment and will place more pressure on Peña Nieto and his party to define their position regarding union transparency.

The PRI’s decision to not address unaccountability and corruption within Mexico’s powerful labor unions is a serious disappointment but was not surprising. Peña Nieto needs the support of labor unions in order to pass other major initiatives like fiscal and energy reform.

Lopez Obrador Laying Low

It seems that Lopez Obrador, who is in the process of founding his new political party, has decided to limit his direct involvement regarding labor reform but is maintaining constant pressure through protests carried out by his surrogates. His behavior indicates that he may see labor reform as a lost battle and wants to focus his efforts against a more controversial upcoming bill, such as energy or tax reform. Protesting these future initiatives could allow him to gain public momentum closer to the midterm election.

Outlook

The Senate has taken up discussion of the bill following its approval in the Lower House. Senators will focus on clarifying the bill’s language regarding outsourcing, which is currently overly vague and leaves various loopholes.

Apparently, the PAN and the PRD are not alone in wanting to re-address some of the labor transparency issues that were scratched from the original draft. Many PRI senators are open to the idea of reinserting at least one of the labor union transparency measures. As such, one or two of the original components could possibly be reincorporated, yet the scope would be very limited.

Still, due to the political sensitivity of these issues, PRI members from the Lower House and the Senate would need to come to an agreement before the Senate makes any changes regarding unions. Whatever changes the Senate makes, however, will have to be subsequently approved by the Lower House.

2 Responses to “Mexico: Positive Outlook for Labor Reform After Passing the Lower House”

Al RodriguezNovember 25th, 2012 at 9:11 pm

With a few lucky new university graduates in fields such as law and accounting being offered $300 a month for full time employment, it is no surprising to see corruption and crime to mushroom in the country.

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