Mexico’s Ban on Outsourcing Revealed Massive Profit-Sharing Evasion

ByMexico Solidarity

This article by Carlos Bojórquez Robles originally appeared at MSN on November 7, 2025.

For more than a decade, Mexico experienced a quiet boom in labor outsourcing. What began as a mechanism to streamline processes and reduce administrative costs became, in many cases, a strategy to evade employer responsibilities. A new study by the Bank of Mexico (Banxico) and the University of Zurich demonstrates that, before the 2021 reform, a considerable number of Mexican companies used outsourcing to avoid paying out Employee Profit Sharing, a Constitutional obligation that requires allocating 10% of annual profits to workers.

“Establishments that outsourced virtually their entire workforce reported costs and sales, but not a single directly hired worker,” explains authors Agustina Colonna and Lorenzo Aldeco Leo.

The analysis, based on data from INEGI (Mexican National Institute of Statistics and Geography) and IMSS (Mexican Institute of Social Security) shows that 20% of manufacturing establishments in the country, equivalent to 66% of those using outsourcing, subcontracted practically their entire workforce.

Collectively, these represented almost 90% of all subcontracted workers, confirming that the practice was concentrated in large, highly productive companies and corporations.

“The largest and most productive establishments were the most likely to subcontract 100% of their workforce,” the researchers explain, noting that these firms found it more profitable to avoid profit sharing than to pay higher wages.

Effects of the Reform

The reform to the Federal Labour Law, approved in April 2021 and implemented in July of that year, prohibited the subcontracting of personnel for essential business activities. According to the study, this measure forced thousands of firms to rehire their employees under their own employer registration.

“After the reform, establishments that had subcontracted rehired their workers and began complying with profit-sharing payments, with no evidence of effects on total employment,” the document states. In other words, companies absorbed their workers, paid more in benefits, but did not reduce their workforce.

Firms did offset part of the increased cost with a moderate adjustment: “They partially compensated for the increase in profit-sharing through lower wage growth,” the authors explain. Despite this, the total compensation per worker increased by approximately 3%.

The study also confirms that, after the reform, workers received a higher average income, considering both salary and profit sharing, and without a widespread loss of formal jobs.

Lack of Awareness, a “Business Advantage”

One of the most revealing findings of the document is the level of misinformation among workers regarding profit sharing. According to surveys conducted by the researchers, a quarter of employees were completely unaware of the concept or how this benefit was calculated.

“Workers did not value profit sharing because they didn’t even know it existed or how it was calculated,” the report emphasizes. This lack of information, they argue, allowed companies to take advantage of an additional benefit: paying less without employees perceiving the loss.

“These kinds of information gaps,” the authors add, “explain why many workers did not consider the true value of profit sharing when deciding where to work, and why companies found it profitable to avoid profit sharing before 2021.”

The Impact & Lesson of a Controversial Reform

The outsourcing reform was one of the most controversial of AMLO’s six year presidential term. Business leaders and industry associations warned of a potential increase in informality and job losses. However, empirical evidence shows the opposite: formal employment remained stable, and workers’ total income increased.

According to the authors, the legal change “corrected a distortion that directly affected income distribution and equity in the labour market.”

In their conclusions, they maintain that “the regulation of outsourcing, although controversial, did produce tangible benefits for previously subcontracted workers,” by increasing their overall income without jeopardizing their job security.

In short, the study provides evidence that eliminating abusive outsourcing not only closed a door to tax and labour evasion but also increased workers’ real compensation. The reform, the document states, exposed a “widespread, legal, but profoundly unequal practice in the distribution of economic benefits.”

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