I have been watching closely the developing wage dispute between wage earners and Lexmark in Cd. Juárez. Wage disputes are difficult in that they usually involve issues beyond hourly rates. What makes discussing the Lexmark wage dispute even more difficult is that it is difficult to compare apples to apples when it comes to wage differentials between US workers and Mexican workers. There are two distinct laws in place and two distinct economies. In addition, there is the notion of poverty. The issue of poverty goes beyond the issue of minimum hourly wages. A higher hourly wage does not necessarily equate to greater access to healthcare or education. Mexico defines poverty as income and social deprivation. Higher wage does not necessarily result in greater quality of life because access to other social rights may not increase along with the wages. For example, does a higher wage result in better education, better access to healthcare, basic services or better housing?
As you can see it is rather difficult to compare wages between the United States and Mexican workers because there are many dimensions that need to be considered. Today’s blog is not about whether the Lexmark workers deserve higher wages or whether Lexmark should not have fired them. Rather, what I would like to do today is focus on a comparison that I am seeing on social media that I believe distorts the facts because the comparisons do not accurately represent the multi-dimensional aspects of the wage disparity between Mexico and the United States. The problem is far too complex to address in one post so today I am focusing on attempting to do a comparison of wages between Texas in the United States and Chihuahua in Mexico. I picked these two states in order to make the comparison as efficient as possible and because both states sit in the middle of the Lexmark controversy. In addition, I am using El Paso as the US city and Cd. Juárez as the Mexican city because, not only do they sit across the border from each other but also because the Lexmark labor dispute is in Juárez.
I am going to limit my comparison to average take home wages and access to basic housing and meals. I realize that access to health and education are also important factors but to include them would make this post unreadably long to most readers. In addition, defining quality of life is difficult because quality of life is defined by different perspectives. Some would argue that quality of life means access to cell phone while others would argue that quality of life means having three daily meals. It would be an unending debate as to what constitutes a good quality of life.
To keep it readable I will focus on the minimum average salary a worker would earn in each jurisdiction and how much access to food and housing that wage would give them. For food, I am going to use a McDonald’s standard combo meal. I realize that McDonald’s isn’t a proper meal but the use of McDonald’s, because of its presence in both countries and consistency in food, it gives us an opportunity to compare apples to apples in wage disparity.
In terms of housing, I have decided to use a three-bedroom apartment or home for pricing housing. I chose the three-bedroom unit because it is the most prevalent rental property available in the classifieds for both cities.
To keep the comparison as equal as possible I will keep the US currency as the US dollar and the Mexican currency as the Mexican Peso. Although I will provide the Peso to Dollar equivalency for your convenience, the monetary figures I will quote will be in their respective currencies. I believe that converting Pesos to Dollars, when doing wage comparisons, is misleading because Mexican consumers do not buy food or pay for housing in Dollars. Although I understand that Mexican consumer products are affected by currency fluctuations, in today’s post, I am focusing on the minimum wage earners that would not be affected as much by the currency fluctuations when paying for basic food stuffs and housing. There are price controls in Mexico on some of the basics. Keeping the respective currencies allows us to compare the food and housing costs in terms of the percentage each takes from the respective wage earners. In my opinion, this gives us the fairest way to compare wage differentials between both cities/countries.
In regards to the average annual salary, I took the average number of hours worked by minimum wage employees as reported by their respective governments. This figure is important because not all employees work 40-hour weeks, especially in the United States, so we need to account for the average hours worked by the average employee in each country.
Cd. Juárez, Chihuahua, México
Mexico has three minimum wage zones. Cd. Juárez is in Zone A. In addition to the daily wage, Mexican workers are entitled to a Christmas bonus each year that is generally equivalent to 15 days of the base wage.
I have not included other benefits that employers are required to make for their employees in Mexico in order to keep the calculations simple. However, it is important to note that Mexican law requires that employers, such as maquiladoras, include contributions to employees for medical benefits, or IMSS (on average 28% of the employee’s salary is paid by the employer, employees making minimum wage are not required to make contributions to IMSS), a retirement savings account (about 2% of the salary including benefits), Infonavit (a housing credit equal to about 5% of the wages) and meal and transportation credits for each employee. In addition, Mexican workers are entitled to profit sharing from the company’s profits. These are paid as a bonus each year.
In addition, the minimum wage is calculated on a seven-day work week, although employees only work six days per week, however they divide up the work period. (See the next paragraph for more information on how pay is calculated in Mexico.) In other words, a Mexican minimum wage earner is paid based on a seven-day work week, although working only six days. Mexican workers get a paid day off each week.
Mexico makes the maximum work day to be eight hours per day, seven if it involves night work or seven and half if it includes both day and night work. Workers are prohibited from working seven days in a row. An employee must be given one paid day off after working six days in a row. Many maquiladora workers work shifts of nine hours or more, because under the law they are allowed to voluntarily agree to make arrangements in order to get two days off in a row. The law guarantees one day off a week and limits the work day to eight hours. However, employees can agree with their employers to work the hours they would normally work on Saturday during the week in order to have both Saturday and Sunday off, or two days in a row off.
The minimum wage is $MXN73.04 per day in Zone A. ($4.04 USD at the currency exchange rate of January 4, 2016)
The average maquiladora worker earns $MXN24,540 annually. ($1,415.34 USD at the currency exchange rate of January 4, 2016)
Employees pay an income tax of about 6.4% on annual wages less than $MXN50,524. The first $MXN5,952 is taxed at 1.92%.
Therefore, the income tax deducted from an employee’s check is: $MXN1,303.91 annually.
There are no other mandatory payroll deductions paid for by the employee.
Calculating the average monthly payroll and subtracting the federal income tax leaves the average Mexican minimum wage earner in Cd. Juárez taking home $MXN1,936.34 monthly. ($111.68 USD at the currency exchange rate of January 4, 2016)
However, Mexican law requires that employers pay an employee an additional 15 days of wages in December of each year. Therefore, the monthly take home pay averages to about $MXN2,017.02 ($116.33 USD at the currency exchange rate of January 4, 2016)
Determining the cost for housing in Cd. Juárez is difficult because although the law requires that housing credits be provided to wage earners through Infonavit, the demand is much higher than the availability for housing. That forces many to rent or purchase housing outside of the Infonavit program.
El Paso, Texas, US
$7.25 is the minimum hourly rate in Texas. Texas considers full time worker as those that work at least 30 hours per week.
A Walmart employee makes about $15,576 annually on average each year based on Walmart’s full-time status of 34 hours per week. Because Walmart has a significant presence in the United States, I will use the $15,576 as the average for the calculations.
The United States requires two withholdings for employee paychecks. The first is the income tax and the second is FICA, also known as social security. The current FICA withholding is 6.2% for the employee. That translates into $965.72 for the minimum wage earner.
In addition, the United States taxes income tax on wages earned. For the minimum wage earner, the income tax is $1,557.60 (I am using the married rate) Subtracting the two tax withholdings leaves the employee with a take home pay of $1,087.72 per month. (There is no state income tax in Texas.)
The Cost of Meals
Because McDonalds has a worldwide presence and it maintains a generally equivalent menu in its restaurants I am using it as the basis for comparing the cost of a meal between both countries. Yes, I realize that McDonalds should not be the basis for a sustainable daily meal, however, it gives us an opportunity to compare the two wages. It also stands to reason that food costs from grocery stores, for example, would be less than McDonalds.
A combo McDonalds meal in Cd. Juárez costs about $MXN80.00. ($4.61 USD at the currency exchange rate of January 4, 2016)
In El Paso, the average McDonalds combo meal costs about $6.00.
The Cost for Housing
In Cd. Juárez, three bedroom rentals average from $MXN14,000 to over $MXN20,000. I will use an average of $MXN16,000 for the comparison. ($922.80 USD at the currency exchange rate of January 4, 2016)
In El Paso, a three-bedroom rental averages from $900 to $1,500. I will use the average of $1,200 for comparison.
Assuming two-person wage earners in a family, feeding three family members two meals a day gives is the following daily results:
Daily take home pay: $MXN134.47
Daily rental cost for housing: $MXN533.33
Two meals times three members: $MXN480
Amount needed to make up the shortfall: $MXN878.86 ($50.69 USD at the currency exchange rate of January 4, 2016)
Daily take home pay: $72.51
Daily rental cost for housing: $40
Two meals times three members: $36
Amount needed to make up the shortfall: $3.49
Clearly a Mexican maquiladora minimum wage earner has a significant deficit to make up just to meet the needs for housing and a McDonalds combo meal twice a day for their family. The US worker, also has a deficit but it is only about $3.49 per day.
There are many other factors involved when comparing minimum wages between Mexican and United States workers. Each country has a different set of regulations. There are other necessary items besides food and lodging that a family must pay for. For example, there are health costs that are incompatible between countries. As I wrote earlier it gets even more complicated because Mexican workers receive credits for meals, housing and transportation. Unfortunately including these in the analysis is almost impossible because of deficiencies in the enforcement of the laws and the application of the credits.
There are many more metrics that I should include, however including them would be too time consuming and there are many factors that would lead to debates about how they are applied. Nonetheless, I hope that this simple comparison is helpful to you as the debate about minimum wages continues.
Note: The meal prices were derived from personal reports by individuals in the respective cities on January 2 and 3, 2016. The housing rents were averaged from the classifieds on January 3, 2016.