A recent study co-authored by BIG Lab affiliates Alejandro Estefan, Assistant Professor of Development Economics at the Keough School of Global Affairs, University of Notre Dame, and Joseph Kaboski, David F. and Erin M. Seng Foundation Professor of Economics, University of Notre Dame, sheds light on the significant effects of Mexico's 2021 labor reform. This landmark legislation effectively banned the outsourcing of core workers, compelling businesses to bring these employees directly onto their payrolls. The research by Estefan, Kaboski, and their co-authors reveals a dramatic collapse in outsourcing rates post-reform, coupled with notable increases in worker wages, particularly for those at the lower end of the pay scale. Importantly, the study found that firms largely complied with mandates for social security contributions, benefits, and profit-sharing, without detrimental impacts on overall employment levels or economic output.
The findings from Estefan and Kaboski's work suggest that the reform successfully redistributed bargaining power in the labor market, empowering workers, especially in sectors where firms previously held significant monopsony power. While the study did observe minor drawbacks, such as a slight dip in capital investment and a marginal increase in exits among smaller businesses, the overarching conclusion points to a positive outcome. Their research provides compelling evidence that thoughtfully designed labor market regulations can indeed enhance worker welfare and improve employment conditions without stifling economic activity, offering valuable lessons for other nations considering similar reforms.
Find the full VoxDev blog post here.