Higher wages could dent Mexico's competitiveness: bank

Source: Xinhua| 2019-04-18 12:06:19|Editor: Shi Yinglun
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MEXICO CITY, April 17 (Xinhua) -- Higher wages could reduce Mexico's competitive edge unless they are properly applied, the Bank of America Merrill Lynch (BofAML) said here on Wednesday.

The bank's economist for Mexico and Canada, Carlos Capistran, warned raising wages could be risky after legislators approved labor reforms required by the recently negotiated U.S.-Mexico-Canada Agreement (USMCA).

Mexico's low wages have long been one of the country's main advantages over its North American trade partners, leading to low production costs and allowing the country to become an "industrial power," Capistran wrote in a report.

"Higher wages could undermine that advantage and also put pressure on inflation, especially inflation in services, which has recently remained stubbornly above the central bank's 3-percent target despite a slowdown in economic activity," said Capistran.

"If higher wages reflect gains in productivity, these risks are reduced," he added.

Labor reforms approved by the Chamber of Deputies on Thursday aim to bring the country's wages in line with an International Labor Organization agreement, as well as the USMCA.

But the changes have been brought about "hastily," noted the economist, because U.S. House Speaker Nancy Pelosi said U.S. legislators should not ratify the USMCA until Mexico passes labor reforms.

The USMCA, a modernized version of the 1994 North American Free Trade Agreement (NAFTA), was signed in November following more than a year of talks, and must now be approved by each country's congress before taking effect.