40 hours

All rulers with a statist philosophy that believes the government can plan the country's economic activity have one thing in common: they believe that prices are irrelevant or that they can be exogenously determined at the level they consider "fair" and that incentives don't matter. In both cases, they make a mistake that results in a lower level of well-being for the population.

First, "fair" prices don't exist; the "fairest" price for consumers is zero, while the "fairest" price for producers would be infinite. What statists ignore is that prices have two primary functions. The first is to reflect the relative scarcity of production goods; that is, they serve to send signals about how to allocate them. The second function is to balance markets, matching the quantity demanded with the quantity supplied (demand and supply are never equal; they are different functions; don't be ridiculous).

Exogenously setting prices results first in an inefficient allocation of resources, with the resulting welfare costs, and second, prevents the quantities demanded and supplied from equalizing. If prices are set above equilibrium (wages, guaranteed prices), they generate excess supply, while if they are set below equilibrium (price ceilings), they generate excess demand. In both cases, there is a loss of social welfare.

On the other hand, incentives do matter. If they are not aligned with the desired objective (they are perverse incentives), they will generate a suboptimal or even opposite outcome. If prices are exogenously set at a level other than the equilibrium level, incentives are not generated to achieve the allocation of scarce resources that allows for the maximization of social welfare.

President Sheinbaum's latest idea is that by 2030, Mexican workers will only work 40 hours a week. This sounds good, since Mexican workers work on average many more hours per year (2,220) than Americans (1,892), French (1,565), Canadians (1,644), Israelis (1,820), Japanese (1,903), Germans (1,783), English (1,866), and many others. But she's forgetting a small detail: in developed countries, people work fewer hours because, oh surprise, they're developed. Furthermore, the president's proposal to reduce the work week in Mexico doesn't consider wages or productivity, much less the institutional arrangements of the labor market, particularly with regard to social security.

When hiring workers, firms consider their overall cost and their productivity when combined with physical capital, given a given production technology. The firm compares the cost of labor with its productivity—that is, how much it contributes to revenue and profit.

The comprehensive cost is composed of several elements: the gross salary to be paid per hour/day/week, contributions to the social security system (IMSS, Afore, Infonavit), vacations, bonuses, training, potential maternity/paternity leave, potential profit sharing, benefits within the company if any (dining rooms, uniforms, transportation, etc.) and union dues, if applicable.

Now let's look at the latest INEGI (National Institute of Statistics and Census) Employment and Occupation Survey. According to this survey, in March of this year, out of a total population of 102.9 million people aged 15 years and over, 61.1 million were part of the EAP (economically active population), to which must be added the 5.1 million who are not economically active but are available to enter the labor market. Of those part of the EAP, 59.7 million were employed.

On the other hand, of the total number of employed individuals, 54.4% (32.5 million) were in an informal situation, meaning they did not have access to the social security system. Furthermore, of the total number of employed individuals, 29.1% (17.4 million) worked in the informal sector of the economy in informal companies with very low productivity and, obviously, no social security.

Several factors explain these two high levels of informality, including regulatory barriers to market entry and exit, differentiated tax treatment, and, most notably, the system of employer contributions to the social security system, which act as an implicit tax on formal employment.

Reducing the weekly work week from 48 to 40 hours without increasing productivity and without modifying the social security system necessarily implies higher labor costs. The result of this measure would be that several companies and their workers would migrate to the informal sector, which in turn would translate into lower productivity and, very significantly, a loss for workers who would no longer have access to social security or other benefits.

This would be a case of a measure with perverse incentives whose result would be the opposite of what was desired, with an additional effect: it would further reduce the economic growth rate. If we want to reduce the working day, we must first generate the right incentives aligned with the goal of economic growth and development, something the government is failing to do.