Structural Change in the Minimum Wage Policy in Mexico

This article studies the historical evolution of the minimum wage policy in Mexico. From 1940 to 2021, the determination of the minimum wage changed from local control to the federal government. This implies a reduction in the number of geographic zones determining a minimum wage over time. We measure the flexibility of the labor market by evaluating the gap between the varying local minimum wages and the median wage across states. For identification, we hypothesized that changes in the regulation of the minimum wage policy explained the nonlinear trend in the Kaitz index, which followed a declining trend consistent with a policy that first set minimum wages above the national median and then adjusted it to be below the median wage. The results provide evidence that unifying minimum wage zones promoted labor flexibility by keeping values of the Kaitz index low, unfortunately resulting in low wages