ANALYSIS - Mexico's ban on subcontracting aimed to help workers: Is it succeeding?

by Christine Murray | @chrissiemurray | Thomson Reuters Foundation
Thursday, 29 July 2021 06:03 GMT

An employee looks for items in one of the corridors at the new Amazon warehouse during its opening announcement on the outskirts of Mexico City, Mexico July 30, 2019. Picture taken July 30, 2019. REUTERS/Carlos Jasso

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Groundbreaking legislation has banned labor subcontracting in Mexico, but will it push more people into informal jobs?

* About 2.3 million subcontractors already hired directly

* Law hailed as 'significant' step to boost labor rights

* Critics say some workers could yet slip into informality

By Christine Murray

MEXICO CITY, July 29 (Thomson Reuters Foundation) - More than two million Mexicans are already reaping the benefits of a new law that bans labor subcontracting. But while many firms have rushed to comply, some workers are falling through the cracks - with those in smaller companies seen most at risk.

Mexico banned subcontracting to third parties such as staffing agencies except for specialized, non-core roles under the groundbreaking legislation, which seeks to end a practice widely condemned by labor rights activists around the world.

So far, 2.3 million outsourced employees have been hired directly since the law was passed in April, with salaries 12% higher than before, the IMSS social security institute said.

It also gives them benefits like a share of employer profits - a cornerstone of labor law in Latin America's No. 2 economy.

"A lot of people have benefited from this reform," said Mario, 26, who works at a food factory for a multinational company in central Mexico, asking not to give his full name.

"We've been really used to working in whatever conditions we're given."

But despite winning praise from some workers and labor rights advocates, the law prompted concern in the private sector, with business groups warning that an overly restrictive policy would destroy jobs and increase informality.

Government data showed between March 2021 to mid-July formal employment continued to recover from the initial COVID-19 shock, suggesting an increase in hiring has compensated for any job losses linked to the reform so far.

One 45-year-old woman told the Thomson Reuters Foundation she had been laid off as a retail subcontractor for a perfume brand - even as most of her colleagues were hired directly by the department store where they worked.

"I've been left without work, it's not beneficial," she said from the southeastern state of Veracruz, asking not to be named.

"They (the government) see the overall picture, not the individuals," she added.

The latest IMSS figures, released this week, show half the country's estimated 4.6 million subcontractors have been hired directly in the initial three-month transition period.

Lawmakers are expected to debate proposals in the coming days to extend compliance deadlines by at least a month.

'IMPORTANT LESSON'

The law backed by leftist President Andres Manuel Lopez Obrador only allows workers to be hired as subcontractors for certain specialized tasks that are outside a company's main business activity.

Lance Compa, a senior lecturer at Cornell University's School of Industrial and Labor Relations, called the legislation a "very significant" step in seeking to mitigate the problem of precarious work.

"The experience that Mexico can show out of this will be an important lesson for other countries," he said.

Critics, however, say the double whammy of the reform and the economic fallout from COVID-19 could end up pushing more workers into informal jobs without social security.

"Ninety percent of companies are medium, small and micro, that's where there isn't any money," said Hector Marquez, head of the Mexican Association of Human Capital Companies, which represents staffing agencies.

The association's research suggests about 10% of workers who are currently subcontracted could still lose their jobs, he added.

Mexico's Labor Ministry said it was too early to talk about final numbers, but that there was no evidence of formal job destruction. It plans a deeper analysis after the transition.

Two corporate lawyers - from law firms Ritch Mueller and Piza Abogados - said their large and multinational clients were restructuring to hire formerly subcontracted workers, or preparing to use the exceptions for specialized roles.

Warehouse jobs advertised online in recent weeks for Amazon.com Inc's new sites in Monterrey and outside Mexico City are now directly with the company, with higher wages and better benefits than its previously subcontracted jobs.

Amazon said it always complied with applicable legislation.

Large companies are the biggest users of subcontracted staff, according to the government.

But small and medium-sized companies provide most of the country's jobs and are more likely to have delayed compliance until the last minute, said Adriana Garcia, head of economic analysis at think-tank Mexico Como Vamos?.

That means informality could still rise, she added.

"These are decisions that big companies take differently to micro businesses," she said. "(Companies) suffered a lot in the pandemic and they're still suffering."

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(Reporting by Christine Murray; Editing by Helen Popper; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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