The bid for the minimum wage is one of the issues that generates the most expectations every year, and entering the final stretch of 2022, there are already several eyes that are attentive for when the Coordination Commission for Salary and Labor Policies, led by the Ministry of Labor, summon the guilds and unions.
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The reason, the increase expected for next year will be, at least, about 12%. This if we take into account that the formula to define the increase takes into account the annual inflation data. However, if it is very high, experts point out that it could have a negative effect on inflation in 2023 and also on formal employment.
Last week, the National Administrative Department of Statistics (Dane) released the annualized data for September, which was 11.44%, and the forecast that the market has for the end of the year is around 11.2%, according to the latest Expectations Survey of the Banco de la República.
a vicious circle
Although the minimum wage is set above inflation so that households do not lose their purchasing power due to rising prices, it has an effect through consumption, as well as through the indexation of some rates that end up having an impact, again, on the growth of prices.
“The scenario is complicated, we are at quite high levels of inflation, which we have not seen for more than 20 years. If we stick to the theory with ‘inflation + productivity’, the minimum wage is defined, but with the background of last year’s increase, and with the approach of the new government, it is quite likely that we will have an increase greater than that, in the order of 15%, or there are even analysts who speak of an increase of 20%”, assured Anwar Rodríguez, the vice president of the economic studies center Anif.
According to the economist, an increase of this magnituded “will generate more fuel for the fire of inflation next year”, in a scenario in which demand is expected to remain strong. “And if we add to that more household disposable income, reducing inflation will be much more complex,” he said.
It is worth remembering that after the pandemic, last year an increase of 10.07% was defined for the minimum wage, which was left at $1,000,000 plus $117,172 of transportation subsidy.
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Effect on employment
Many studies have sought relationships between increases in the minimum wage and the generation of formal employment, due to the salary costs that employers must assume when hiring.
“The discussion this year will be strong, inflation will end the year close to 12%, and indeed we expect a salary increase above this in real terms. These increases in the minimum wage have an effect on the creation of formal employment,” assured Juana Téllez, chief economist at BBVA Research for Colombia.
From the entity, in fact, it is expected that in 2023 the creation of jobs will be lower, but in addition, this will be concentrated above all in informal employment. “It is a great concern, because the minimum wage is going to increase the cost of the labor factor compared to the capital factor. So: we do have a concern that it affects the demand for work. Coupled with the slowdown in the economy, industrialists and merchants are going to think more about hiring formally, and more if the salary is more expensive,” said Téllez.
The discussion about the effects of the minimum, therefore, is related to several elements. Hence, Roberto Angulo, founding partner of the Inclusion firm, assures that “using the minimum wage as a redistributive policy with the levels of poverty and informality that we have is wrong.”
According to the expert, it is not the poor who benefit from an increase in the minimum wage, precisely because they are in an informal market where they earn much less than the minimum.
“On the other hand, we could have an impact on inflation, as some empirical studies have shown,” added Angulo. “Economists are divided on the impact that an increase in the minimum wage could have on inflation, but what is clear is that it is not a redistributive mechanism that reduces poverty, because it is an agreement from which the poor are excluded,” he said. the.
Laura Lucia Becerra Elejalde
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