The phrase “the elephant in the room” is a metaphor used to describe obvious truths that everyone recognizes but no one wants to mention or discuss. I’ve been thinking about this recently in connection with the political and legislative debate that started on May 1st about reducing the workweek in Mexico from 48 to 40 hours. As the public conversation evolves, many aspects are being discussed, but there’s one that, in my view, remains largely unexplored — and might just be the elephant in the room: Overtime.
The Big Picture
Mexico is the country in the OECD where people work the most hours: 2,266
hours per year, which is about 46 hours per week once you take out holidays and vacation time. Yet we also have the lowest GDP per hour worked among OECD countries — $94.83 per hour. (For comparison, South Korea works about 1,900 hours per year and has a GDP per hour of $121.26.) Mexico is also the OECD country where overtime pay is the most expensive — in fact, it’s the only country where overtime is paid at double the normal rate, while the global average is around 1.3 times. Paying overtime at double or even triple rates has turned into a perverse incentive, where productivity and profitability are often overlooked.
Flaws from the Start
This perverse incentive has produced bad outcomes: In Mexico, only 3% of
actual overtime hours are paid. Does this mean long workdays aren’t
happening? No — it means overtime pay is being dodged through various
more or less legal strategies.
Rethinking Work, Productivity, and the Reduction of the Workweek
The upcoming — and perhaps lengthy — reform to shorten the workweek should also look at overtime pay, and at the role of labor inspections to ensure fair and consistent payment. It should also include incentives for employers that focus on productivity. A shorter workweek does not automatically mean better quality of life or higher incomes; that’s why reducing work hours needs a more holistic analysis. For example, we should consider how city infrastructure can help make commuting times from work to home more efficient.
Finally, the government should also restore its own moral authority as an
employer and plan to apply the same reforms to public-sector workers as to
those in the private sector.
The article was prepared by Jorge Sales Boyoli from our Mexican member firm Sales Boyoli
Do you have questions on this topic or any other employment related question? He would be happy to advise you and support you in all questions that arise.
