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VW Workers Continue Strike in Mexico - 2001-08-29

In the Mexican city of Puebla, 130 kilometers east of Mexico City, workers at a Volkswagen factory have voted to continue their 11-day-long strike for higher wages. The outcome of the strike could affect Mexico's competitive position in the world labor market.

Union members at the Puebla Volkswagen plant voted late Tuesday to reject a company offer of an 8.5 percent salary increase. The workers have demanded an almost 20 percent increase. The situation is now at a stalemate, with the factory's 10,000 workers idle and the company losing $30 million a day in lost production.

The Volkswagen plant in Puebla has served as a model for Mexican industry. It is the only plant in the world that produces the popular new Volkswagen Beetle, which is sold in 80 countries.

Mexico-based economic analyst David Shields says that while this strike is harmful to the Mexican economy, there is still time for a negotiated settlement. "It is normal to expect this kind of initial give and take and a lot of pressure of one side on the other," he says. "I think, however, the workers will finally have to accept a competitive figure, which in the Mexican market recently has been something like eight to ten percent, probably closer to nine percent for a major industry such as the car industry."

Mr. Shields says workers may do themselves and the country a disservice by demanding a wage increase that reduces Mexico's attraction to foreign investors seeking a low-wage environment. He notes that Mexico has already lost thousands of jobs to China and other Asian nations where wages are much lower.

This is the second strike in two years at the Puebla plant and Volkswagen company directors in Germany have threatened to move their operations to another country. But Mr. Shields does not believe it will come to that. "Volkswagen is a company that has done very well in Mexico and it has had a strong commitment to Puebla and I think it would take a lot of trouble to make Volkswagen directors think very seriously about moving away from Mexico," he says.

Mr. Shields says workers in Mexico have a right to demand higher wages, especially since their overall real earnings, when inflation is factored in, have actually gone down four percent a year since 1973.

However, he says workers must also understand the potential harm that can be done to the country's competitiveness. Volkswagen may stay because of its huge investment in infrastructure in Puebla, but other companies considering Mexico as a place to locate a plant may view the strike as a reason to look elsewhere.