Historic labor reform in Mexico

Mexico's lower house of Congress passed a long-awaited labor reform 28th of September, in the biggest effort in decades to provide new dynamism into the country's economy where a third of the labor force is employed informally.

Economists and investors welcomed the widely expected approval of the bill as a step in the right direction, saying it will boost Mexico's competitiveness and contribute to job creation and ultimately, economic growth.

A reconsideration of the current labor laws, which date back to 1970, has been on the table in Mexico for more than two decades, but only now has enough consensus emerged to make the changes with an agreement by the two biggest political parties in Congress, the Institutional Revolutionary Party (PRI), and the National Action Party (PAN).

The 500-member lower house voted 351-130 in favor of the bill, with 10 abstentions. The PRI and PAN, and smaller Green Party voted in favor, while the leftist parties led by the Party of Democratic Revolution, or PRD, opposed it.

New rules proposed by outgoing President Felipe Calderón will make it easier and cheaper for firms to hire and fire, create new types of temporary employment contracts which require no compensation when they expire, contracts involving payment by the hour, and the regulation of outsourcing practices. President Calderón said the labor reform could add 400,000 jobs per year.

Now, the Senate has to pass the reform before late October for it to be signed into law, but that's expected to be a formality that shouldn't bring major changes, lawmakers said.

Mexico's unemployment rate stood at 5.4% in August, but around 29% of the labor force works in the informal economy, such as home-based, unregistered businesses and activities.