Tax Guru – Ker$tetter Letter

Short Sighted Thinking

I have to admit a feeling of smug poetic justice when I read this article in last week’s Wall Street Journal describing how expensive it is for US companies to downsize their Mexican workforces. After NAFTA was passed, as Ross Perot had prophesized, US jobs were sucked down below the border. US companies built and expanded manufacturing plants galore and were able to hire workers down there for a small fraction of what they would cost up here in the States.

Either the companies didn’t do enough research, or were so optimistic that they never expected to have to ever reduce the size of their workforces; because they seemed to have ignored or been caught off guard by the Mexican rules for laying employees off. They forgot one of the basic elements of both war and business; have an exit strategy.

These companies are having to spend over a billion dollars in severance pay because Mexican law requires that each laid-off employee receive three months’ salary plus 20 days’ pay for each year of employment.

Maybe next time employers will think the entire process through before they move jobs to areas of supposedly cheaper labor.

KMK