Minimum Wage Enters a Cautious Phase: Social Progress, Cost Pressures, and the Challenge of Productivity
In less than a decade, Mexico's minimum wage has shifted from being merely an administrative benchmark to becoming the cornerstone of the country’s labor policy. By 2026, the national base wage is expected to reach around 9,582 pesos a month after a 13% increase, while in the Northern Border Free Zone it already exceeds 440 pesos per day. Economists such as Gerardo Esquivel have emphasized its social impact: improvements in formal wages are linked to poverty reduction and a sustained rise in the purchasing power of low-income households.
Progress, however, is uneven. In the northern border region, where nominal wages have grown the most, the goal of covering two basic baskets of goods has been achieved and even surpassed. This suggests that further increases could yield diminishing returns and greater collateral risks. These include pressure on formal job creation, the potential for price pass-through—especially in the service sector—and compressed profit margins for businesses with low profitability.
Labor productivity remains the main weak spot. Following the post-pandemic recovery, productivity indicators have stalled at around 2018 levels, while informal employment remains above 55% of the working population. Private sector analysts warn that minimum wage hikes have outpaced productivity growth in low value-added segments, which drives up unit costs and makes it harder for workers to remain in the formal economy, especially in microbusinesses with limited access to financing.
This increased cost doesn’t just affect those earning the minimum. Wage compression forces companies to adjust pay for higher-level positions to maintain internal structures, raising total payroll expenses. In firms with tight margins, responses may include layoffs, hiring freezes, or accelerated automation. Investment in capital—ranging from point-of-sale software to machinery—becomes more attractive as the relative cost of labor rises, a dynamic that, without parallel efforts to boost training and technological adoption in small businesses, could widen productivity gaps.
On the price front, the risk is concentrated in services, where core inflation remains above 4.5% and is proving stickier than in goods. If the gap between wages and productivity continues to widen, price pass-through could persist, making it harder for inflation to sustainably converge to its target. In such a scenario, the Bank of Mexico would likely maintain a restrictive monetary stance for a longer period, with implications for credit and investment.
Wage policy will remain at the center of public debate. President Claudia Sheinbaum has reiterated that increases should remain above inflation and bring incomes closer to the equivalent of 2.5 basic baskets, in a tripartite process involving workers, businesses, and the government. Proposals for differentiated increases are gaining ground: civil organizations are calling for larger hikes in lagging regions or sectors, and more moderate adjustments where the goal has already been reached, such as the northern border. IMEF has documented that the impact is highly uneven: low-margin industries—like agriculture, lodging, and food services—feel the effects of adjustments much more strongly than high-productivity or capital-intensive activities.
The composition of employment also matters. According to private sector estimates, more than half of formal workers earn between zero and two minimum wages, so any adjustment to the wage floor has a direct impact on contracts, social security contributions, and the prices of labor-intensive services. Tracking hiring and layoffs at the IMSS has become a kind of thermometer for gauging whether businesses are absorbing wage hikes or resorting to containment strategies, including higher turnover or informality.
The backdrop is a country with investment opportunities stemming from nearshoring, but also bottlenecks that limit productivity: logistics and energy infrastructure still need strengthening, small businesses face complex procedures, and there are serious skills gaps. A medium-term path that combines wage hikes with formalization policies, regulatory simplification, accessible financing, training, and greater investment in energy and transportation could boost productivity and, in turn, anchor minimum wage increases on a more solid foundation.
In short, the minimum wage has been a driver of social progress, but signs of strain suggest a more targeted approach is needed: region- and sector-specific increases, combined with a pro-productivity agenda. What happens in the next wage negotiations, the trajectory of services inflation, formal job creation, and advances in investment and human capital will set the tone for the Mexican economy in 2025 and 2026.
