Innovation in policy-making in city governments: Openings to change minimum wage policy in Mexico City and Los Angeles

Graciela Bensusán (UAM-X) Elizabeth O’Connor (Special Advisor to

the Mexico City Labor Secretary, PhD Candidate at CIDE)

RDW July 2015, Geneva

Table of Contents

I. Introductory section 1. Research Question(s) 2. Theoretical framework

II. The minimum wage initiative in Mexico City1. How did the movement start and what did it accomplish?2. What changed and why? 3. The limitation of the campaign: apparent consensus; few

results4. The Political Game: Mexico City

III. The minimum wage campaign in Los Angeles5. How did the movement start and what did it accomplish?6. Chronology and arguments7. What made this initiative emerge now and why was it

successful?8. The Political Game: Los Angeles

IV. Conclusions: comparative perspective

Research questions

1. Given the lack of action by Federal governments on developing proactive wage policies, due to inertia or opposition, can cities compensate by developing their own minimum wage initiatives?

If so, which factors limit or facilitate the ability of local governments to take such action?

2. How does the political game, including its formal and informal rules, as well as the incentives and preferences of the actors in the game, impact the success of local initiatives?

Conclusions1. State vs Federal 2. Government incentives2. Interplay between grassroots/worker

organizing and policy campaigns.3. Campaign duration. 4. Presence of grassroots and social actors.• 5.1. Investment by grassroots and social

actors.• 5.2. Political weight of grassroots and

social actors6. The incentives of grassroots/social/labor organizations

Research strategy• Comparison of two cases, Mexico City and Los

Angeles, using the analytical framework of the political game in each city (framework developed by IDB and others).

• This framework is rarely used at the local level where the political game may be just as complex, due to

interplay between national and local governments

complex local politics in today’s global cities.

In each city we will look at the main:• federal and local institutions which shape the

game, • leading actors – government/social actors who

play the game, all while examining a key aspect of labor policy: the minimum wage policy.

Similarities between DF y LA•Size, an economy rooted in the service industry, large groups of vulnerable, low wage workers and both have left-leaning city governments operating in a more conservative federal environment.

•In both countries the minimum wage falls far below the officially defined poverty line, increasingly so since the 1970s, despite variations in this line in both countries (GDF, 2014; Luce, 2012).

•Both countries have a decreasing rate of union and collective bargaining coverage, with trade union density at around 10% (though in Los Angeles it is slightly higher at 14.8%), making the minimum wage an even more important tool in addressing problems of poverty and inequality.

Differences between DF and LA•In the United States today, 29 states plus WDC have set their minimum wage above federal levels, plus 21 cities and counties, and President Obama has supported a minimum wage increase (though it was blocked by a Republican Congress).

•In contrast, in Mexico the Federal government has sustained a restrictive minimum wage policy since the 1980s and states do not have the ability to set their own minimum wage rates. Today, the general minimum wage is one national level.

•While in the United States, particularly in Los Angeles and other cities, there have been dynamic campaigns for decent wage levels for decades, in Mexico the effort to address the minimum wage is a recent phenomenon promoted by the local government of Mexico City since May 2014.

•We are interested in observing the political game and the arenas, processes and actors involved in setting wage policy, by examining their incentives and the interactions between different level of state intervention.

•We also hope that the lessons provided by the case of a North American city (LA), with a long history of successful campaigning on labor issues, gives us tools to improve upon the more modest results achieved in Mexico.

Theoretical Framework• The description of the political game framework draws heavily

from IDB authors (Scartascini, Spiller, Stein, & Tommasi, 2011).

• A simplified set of elements within the policy-making process are considered here, including the policy-making arena and its degree of formality, adaptability or rigidity,

especially relevant when considering local vs federal jurisdictions

• We will consider the main players, or actors, in the policy game.

• From a new political economy perspective, all actors in the policy process, including political and non-governmental actors, are assumed to be rational in the sense traditionally attributed to actors in classical economic theory, that is, their behaviors and decisions are based on the preferences, incentives, resources and limitations of each.

The policy-making game in citiesActors in the labor policy sub-system:• The Executive/Local Government, typically the Mayor and

Cabinet. Political incentives: If directly elected, eligible for reelection, a Mayor will have

a different relationship with constituents (private sector, unions or CSOs) than if installed via political party negotiations.

Economic incentives: Metropolitan areas compete within the global economy to attract foreign investment. Its pursuit may restrict policy options locally, particularly around wages (Sassen, 2001).

• The Federal Government Has policy preferences about its major cities, which are important national

economic motors. If is has a different political orientation than of the local government, may be

obstructionist

• Non-State actors Employers and businesses are represented in the political game either

directly or through interlocutors such as chambers of commerce, industry associations and others.

Workers may be represented by organized labor unions. Those who are informal or not unionized may be represented by community or civil society organizations.

Civil society organizations may also represent other interests that touch labor policy, such as concerns for economic development, inequality and other social issues, and so workers may engage in the process in their role as workers or as citizens.

Institutions and Arenas of the policy-making process: How these players interact, by what rules and who dominates the game

Institutions

• National level: relevant institutions may include the nation’s constitution, electoral system or legal code.

• Local level: relevant institutions may include the electoral system, the economic model and the societal norms of clientelism.

Arenas• Special challenge for metropolitan governments: funding sources

and legal jurisdictions may mean that their policy-making process occurs at both the federal and local levels.

• Degree of formality and functionality of official policy-making mechanisms. Do they work? Do citizens express preferences through voting, lobbying around policy matters or in the courts? Or through street protest and extra-offcial means?

Our Hypothesis:

•The rules of the game and the preferences and incentives of the actors playing the game explain the differences in the results, to positive effect in Los Angeles, and to negative effect in Mexico.

Minimum Wage Initiative in Mexico City:

• Was a shift in local labor policy, promoted by the city Executive to improve his public image and earn national presence, without a previous campaign by unions or civil society actors

• Local social policy – the city government’s area of innovation and identity as a progressive government - had reached levels where increased spending was no longer feasible and provided diminishing political results

• In this context, Executive (Mayor) had incentives to change wage policy in the city, advocating a minimum wage increase.

▫ Including, sufficient incentives to assume the cost of likely failure on substance, given legal restrictions on Mexico City government in setting minimum wage policy (in both formal and informal rules of the game).

• Absence of (organized) social actors invested in improving wages. Moreover, presence of unions interested in maintaining the status quo, supportive of federal government’s restrictive wage policy (corporatist legacy).

• Minimum wage ordinance was product of a sustained, organized and broad grassroots campaign.

The Mayor’s 2014 proposal came on the heels of a campaign victory by hotel workers who won a minimum wage increase for their sector after a long campaign and industry negotiations. Organizations responded with a more ambitious proposal, and won.

• Trade unions, community and immigrant rights organizations and others had been organizing and lobbying to improve wages and job quality in LA for over 30 years, investing resources and developing political relationships.

▫ They gradually reshaped the city’s political map and institutions, building power within the policy-making process.

• Therefore, Executive and other political actors had incentives to respond to grassroots demands, resulting in substantial piece of legislation rather than a rhetorical position.

Minimum Wage Initiative in Los Angeles:

Results:Mexico City: Minimum Wage initiative was successful in sparking an

important national debate. Today, nearly universal consensus that wages in Mexico

have not kept pace with productivity and that they are contributing to the nation’s high poverty and slow growth rates.

However, no change for low wage-workers. The political game at the Federal level prevented a change in wage policy.

Los Angeles: Campaign was groundbreaking success. 800,000 minimum

wage workers will see better incomes, as wages rise from US$9.25 to US$15 by 2020.

Also, long term structural change achieved by tying the minimum wage to inflation in the future, and with a new agency created for enforcement, including a role for unions and other social actors in the process.

In comparing case studies of Los Angeles and Mexico City, we make the following observations:

1. State vs Federal Dynamics. Differences between the US and Mexico in terms of centralism and federalism, especially related to wage policies. In the US, while the Federal government has been opposed to raising the minimum wage, state and some local governments could develop their own policies. Not so in Mexico. Also, it was growing local pressure that moved the US Federal government to cautiously address the minimum wage now for the first time since 2007.

2. Government incentives. Both structural and contextual factors were important, as was the role of agency in the design of labor policy in the Mexico City. Government incentives explain why this campaign was more than a slogan (unlike many in Mexico) and was grounded in technical knowledge and designed to appeal to a broad segment of society. However, despite a moderate and gradual proposal, it was unable to overcome the status quo preferences of the Federal government.

3.Interplay between grassroots/worker organizing and policy campaigns.

•In LA, the progression of smaller campaigns shows that organizing activity and policy reforms are mutually reinforcing goals.

•Sometimes organizing the unorganized and the increasing the power of union actors helps open path for policy reforms. Conversely, at other times policy reforms can change the rules of the game, alter the balance of power and opening space for additional organizing.

•In Mexico City, the minimum wage initiative could be a step towards success if used by political and social actors as a first step towards building a larger movement, taking advantage of the space created by the initiative and national debate.

•Are there groups of workers ready to use this to their advantage?

•In LA, unions and social actors were skilled in using smaller but strategic organizing successes as stepping stones to larger policy and structural reforms, and to use modest policy advances to launch additional organizing efforts.

•In Mexico, recognizing this interplay and broader applicability for individual successes will be necessary to gradually change the political game over time.

4. Campaign duration.

• The minimum wage campaign success in LA unfolded over a long timeline, unlike in Mexico.

• Grassroots organizing started in the 1980s with demands and goals that matched the (limited) the power of union and social actors at that time.

Campaigns with modest policy goals lasted an average 2-4 years, some worker organizing campaigns lasted over a decade.

• Single industry or community campaigns were built upon by LA organizations to develop long-term plans for institutional change. Defeats and compromises were absorbed as adjustments to that long-term plan, but not to its abandonment.

5. Presence of grassroots and social actors.

• The minimum wage effort in Mexico City was a political initiative led by political actors, with little engagement from grassroots or union actors.

• The incentives of political actors change frequently, and political actors themselves often change, making them unable to sustain the sort of long-term effort that will lead to lasting policy change.

• In contrast, the Los Angeles campaign stemmed from existence of grassroots and social actors who were independent from the political process, meaning that demands for structural change lasted beyond a particular administration or campaign cycle.

• Moreover, civil society participation and the presence of mobilized organizations are necessary to ensure that policy reforms are enforced.

5.1. Investment by grassroots and social actors.

• The actors supporting the minimum wage proposal were willing to invest time and resources to the campaign.

• Many Raise the Wage coalition activities were funded by trade union allies. Though their members did not directly benefit, creating changes in the prevailing wage standards of the local labor market would improve the climate for collective bargaining.

• These organizations had developed significant strategic skills and mobilizing capacity, for a more effective campaign.

5.2. Political weight of grassroots and social actors.

• The relative political weight established over time of the LA unions and community organizations meant that many political actors in the legislative and executive branches, and even segments of the business community, found their incentives and preferences aligning with minimum wage increase supporters.

• This was assisted by the institution of an electoral system which allows reelection, leading elected political figures to consider the preferences of key organized constituencies.

• In contrast, the electoral system in Mexico has not allowed reelection (though it will be a new factor in the next election in 2018).

6. The incentives of grassroots/social/labor organizations

• A campaign for change needs the presence of actors demanding that change.

• In the US and LA, unions and community organizations are dues-based organizations with elected leaderships, whose power derives from increasing their membership size and delivering benefits to their members (goals which occasionally conflict).

• While political relationships exist, they are not a major source of power, and deriving financial resources from political or employer relationships is illegal. So changing the status quo is often a positive change for them.

• In Mexico and Mexico City, the model of union and social organizations relies heavily on political relationships to secure negotiated agreements and, to an extent, financial support.

• Though some changes in the status quo could increase their membership or improve working conditions for members, a more immediate source of support is usually from political actors or employers. This explains why nearly all unions opposed a minimum wage increase in Mexico and even the independent unions committed few resources or energy to the effort.

• It is notable that this matter of the incentives and motivations of unions is different than the argument that is often presented about a lack of union democracy in Mexico.

• While it is true that unions in the United States are generally more representative and democratic than many Mexican counterparts (with exceptions on both sides), union democracy has historically often supported the status quo in the United States.

• However, today many union leaders, seeing that their ability to maintain power over the long term resides in membership growth (organizing) are challenging status quo views.

• It has been process of internal change, spurred by sources of funding and power that, while difficult, has led to innovation. Such a process has not occurred in Mexico.

Conclusions1. State vs Federal 2. Government incentives2. Interplay between grassroots/worker

organizing and policy campaigns.3. Campaign duration. 4. Presence of grassroots and social actors.• 5.1. Investment by grassroots and social

actors.• 5.2. Political weight of grassroots and

social actors6. The incentives of grassroots/social/labor organizations