# **2. Wage subsidy program**

The Mexican government announced the wage subsidy program on January 7, 2009 and it was officially launched on January 30, 2009. The program was operated by the Ministry of Economy ( _Secretaría de Economía_ ) as Part B of the Program for the Development of High Technology Industries ( _Programa para el Desarrollo de las Industrias de Alta Tecnología_ ‐ PRODIAT) and lasted until August 2009.<sup>2</sup> It provided subsidies to firms in eligible industries who kept employees on their payroll and agreed on reduced work schedules with them instead of firing these employees. Under this arrangement, workers would temporarily receive less salary, but they would keep their job. At the same time, firms had to pay lower salaries and they later received a payment from the government corresponding to a proportion of these salaries (described in more detail below).

To receive a subsidy, firms were not allowed to fire more than one‐third of their workforce as a percentage of the drop in sales they had experienced during the economic crisis, e.g. if sales dropped by 30%, they could not fire more than 10% of their workforce. The program applied to permanent employees who were registered with IMSS. The Ministry of Economy used data from IMSS, together with audited statements of sales, to verify that firms met the restrictions on firing. The operating rules stated that payments would only be made after the necessary information on employees and sales for the subsidy period was available, i.e. after the end of this period. Firms also had to be current on their federal tax and social security payments to be eligible for the subsidies.

Firms applied for the subsidies for one or more two‐month periods (e.g. January, February 2009 or February, March 2009). The original operating rules specified that applications had to be submitted by the end of the second month, e.g. February 28, 2009 for the January, February period, and firms had to file written documents with a council specifying the reduced work schedule agreements they had reached with their employees ( _Secretaría de Gobernación_ 2009, Annexes E and F). These conditions were relaxed in the modified operating rules from April 10, 2009. The new rules stated that firms could submit applications referring to a two‐month period at any time during the life of the program and agreements with workers had to made internally, but not filed with a council.

The size of the subsidy corresponded to 110 pesos (US$6.95) per worker for each day in the applicable two‐month period (typically 60 days), multiplied by a) the firm’s percentage drop in sales, b) the percentage of workers retained, and c) the number of workers receiving between 1 and 10 minimum wages, or 75% of the workforce (whichever was greater).<sup>3</sup> For example, a firm that experienced a 30% drop in sales, retained 90% of their workforce, and had 100 eligible workers received 110 x 60 x 0.3 x 0.9 x 100 = 178,200 pesos. The maximum value of the subsidy that each firm could receive was set at 5,100 2 Part A provides matching grants for up to 70% of the cost for projects related to technology transfer that address market failures, including training, consulting, licensing, and patents, for any firms or organizations that engage in high technology activities. PRODIAT did not disburse any of these matching grants in 2009 and only disbursed 2 matching grants with a total value of 3.9 million pesos (US$250,000) in 2010 and 8 matching grants with a total value of 9.8 million pesos (US$680,000) in 2011.

3 Throughout the paper, I use an exchange rate of 15.82 pesos per US Dollar.

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