Description of the intervention

From 1986 to 2012, minimum wage setting in Mexico was based on the classification of

development of each municipality. On November 26, 2012 the Council of Representa-

tives of CONASAMI agreed to change the configuration of the minimum wage zones,

incorporating Zone B into Zone A.9

The main argument for this decision was that since 1988 the municipalities that be-

longed to Zone B had experienced a development process that had led them to similar

economic conditions to those observed in Zone A.10 _{In addition, this overhaul represented}

an important step towards reaching a unique minimum wage level in Mexico.11

This intervention in the minimum wage zones for the Mexican labour market is used

as the source of identification to evaluate the minimum wage impact on wages, the distri-

bution of earnings, employment and informality. Using the term of Angrist and Pischke

(2008), these observational data (not generated by a randomized trial) are going to be

utilized to “approximate a real experiment”.

A fundamental characteristic of the intervention is that it was implemented without

any anticipation from the labour market, so it is not necessary to model any anticipated

responses. The meetings between Federal Government, CONASAMI, employers organ-

isations, and workers representatives were just covered in press as the usual meetings

to agree the nominal increase for 2013 (which usually is in accordance to the observed

inflation rate). One day after the announcement, the legislation it came into force (27

November 2012).

Figure 1.5 describes the pattern of the monthly minimum wages for the three different

zones. In monetary terms, the increase observed in the former Zone B was $53.00 MXN,

which represents a rise of 2.9% in nominal terms. According to ENOE and with data for

2012Q3, which is the immediate quarter before the policy change, 55 municipalities with

9_{Appendix 1.A lists the states and the municipalities included in each wage zone.}

10_{Source: National Official Bulletin (Diario Oficial de la Federaci´øn). November 26 2012. Accessed} on March 3, 2015.

http://www.conasami.gob.mx/pdf/resoluciones/CNSM11261.pdf

11_{In fact, a subsequent minimum wage increase took place on 20 March 2015. The Ministry of Labour} announced that an agreement was reached among Federal Government, CONASAMI, employers associa- tions and workers representatives to have a unique national minimum wage value. The increase for Zone B was divided into two parts; a half of the increment was put into effect in April and the other half in October 2015. Source: Ministry of Labour.

approximately 11.54 million inhabitants (9.7% of the total population in Mexico) were

potentially affected by this intervention.

Figure 1.5

Monthly minimum wage by zones (current Mexican pesos, 2010-2014)

Panel (a) of Figure 1.6 shows the geographical distribution of the minimum wage zones

valid until November 27, 2012. It makes evident that the zones’ classification was not done

in a regional basis. For example, all the municipalities in 21 out of 32 states belonged to

Zone C. But, there are also cases where one single state can have municipalities classified in

the three different wages zones, as Sonora in the northwest, and Tamaulipas and Veracruz

in the west of Mexico. Panel (b) describes the distribution of the active labour market

population among the three wage zones for 2012Q3, which corresponds to the last period

under this three zones classification. More than 5.3 million of individuals of the former

Zone B (10.2% of the labour force), were incorporated into Zone A. Zone C remained

unchanged.

With respect to the treated Zone B, it is important to mention that a considerable

proportion of its total population, 71.1%, was concentrated in two cities. Approximately

lion of inhabitants lived in the Metropolitan Zone of Monterrey, these two metropolitan

areas account for 13 of the 55 municipalities in the zone. The rest of Zone B includes

municipalities in the states of Sonora, Jalisco and Veracruz.12

Figure 1.6

Minimum wage zones (1986-2012)

(a) Geographical Distribution

MW Zone Population %

Zone A 11,811,875 22.75

Zone B 5,300,422 10.21

Zone C 34,814,753 67.05

TOTAL 51,927,050

(b) Active Labour Market Population by wage zones (2012Q3)

Source: Own elaboration with data retrieved from CONASAMI and ENOE. See Apeendix 1.A for the full list of states and municipalities by wage zone.

Expansion factors used for population statistics.

With respect to the distribution of the minimum wage segment of the workforce —

understood as those waged workers with earnings equal or lower than the minimum wage

value— across the wage zones, around 426,000 workers were employed in the former Zone

B in 2012Q3, which represents 6.1% of the minimum wage workers. Meanwhile, 13.9% and

78.0% of the minimum wage workers were employed in Zone A and Zone C, respectively.

The fact that the former Zone C had a bigger proportion of the minimum wage workers

is explained by the own design of the wage zones. This zone covers those municipalities

with lower levels of economic development, including all the rural areas.

12_{The data for the population in each metropolitan area was obtained from CONAPO. Every five} years CONAPO publishes an inform of the urban ambit in Mexico, including the population for each metropolitan area. The last available report corresponds to 2010. In order to make the information comparable, the data used for the total population in the wage zone B from ENOE correspond to the last quarter of 2010.