Take the lead

Annual minimum wage negotiations began this week. The government, unions and businessmen, meeting at the salary policy negotiation table, will have to make special balances of the social and economic situation of a country still convalescing from the pandemic. For this reason, this time it is not a question of the traditional tug of war with excessive proposals from all the actors.

Hopefully a consensus could be reached after a weighted analysis not only of the main variables, such as the rise in the cost of living or the increase in productivity, but also of others such as the positive impact that this adjustment may have on the economic reactivation via the increase in the demand for goods and services, associated with higher income or the worrying decline in the quality of life of multiple sectors of the population.

In addition, this negotiation takes us in the middle of the electoral debate. I think I have heard proposals from most sectors and candidates and so far, to my surprise, none of a populist nature.

I believe that this time all the conditions are in place for the increase that is finally established to be less timid. Let’s see: inflation is already 5.84% for the popular strata and 4.99% for the middle class. The most worrying thing is the inflation level of 15.34% for food, including beef (30.62%), poultry (26.11%), oils (45.78%) and fresh fruits (21.98%).

Another factor to be analyzed is productivity, which already reaches levels of 3%. On the side of the recovery of employment, another of the main concerns, there are still 665,000 to reach pre-school levels. But the most positive data, the economy growing in the third quarter at 13.2%.

Even with these data in hand, increasing the minimum wage by 10% could be seen in some sectors as high, especially when compared with the increases in recent years, especially in 2021, which was 3.5 %. But inflation in 2020 was 1.61 and the economy showed no signs of reactivation. The main concern of adopting an increase of this nature has to do with discouraging the creation of more jobs, which is undoubtedly one of the primary objectives of a country’s economic and industrial policy. But this threat has been called into question by the 2021 Nobel laureate in economics, David Card, who has challenged this hypothesis with his award-winning works. Today we know that job creation or destruction is not directly associated with the amount of the minimum wage.

A 10% increase in the current minimum, which is 908,526 pesos, would bring the principal amount of the salary closer to one million pesos. At this point, I think it is not worth getting more entangled with percentages and decimals, how important it would be to send a good message by increasing the minimum wage to one million pesos. To this amount, of course, the transport or connectivity subsidy would have to be added.

It is also necessary to consider in the discussion that a very high increase, such as the one that the labor unions will surely be about to demand, will generate inflationary pressures that, in the long run, will affect people with lower incomes more, as has already been indicated. And since there are some candidates to launch their proposals, we will also have to be careful to reject populisms, wherever they come from.

A greater increase in the minimum wage would create a virtuous circle, since families with money in their pockets consume more, which in turn would motivate entrepreneurs to increase the supply of products and services and, therefore, to require more labor and hopefully formal jobs.

The reality is that the loss of purchasing power of citizens, that is, the risk that the salary increase will not be able to compensate for the increases in the current cost of living, would not be convenient for anyone.

The government has to be bold, proceed without shyness and take the lead trying to build consensus around a proposal like the one indicated. But if this is not possible, impose it with the authority and the assurance that it will contribute to alleviating the situation of millions of families and also to the long-awaited economic reactivation.


(Read all the columns of Germán Vargas Lleras in EL TIEMPO, here).

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Take the lead