economy and politics

What would happen to employment if the minimum wage went up a lot?

minimum salary

He increase in the minimum wage in Colombia It is one of the points that many people at the national level have sued the Government for decades, This is due to the unfavorable living conditions that a large part of the population lives.

Increasing the minimum wage, however, is not a pragmatic task, since various factors have to be taken into account, including: the effects that these have for companies that, after all, are great generators of employment.

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This aspect, at least in Colombia, is manifested in that this amount is obtained by a greater number of workersdespite the fact that in other countries of the world, and even in the region, they are higher, according to an analysis of Sergio Rivera, Master in Economics from the Universidad del Rosario and PhD student in Economics at the University of Maryland.

The expert, who participated in the Economy and Development Seminar organized by the National Planning Departmentassures in said space that “The individual amount of the minimum wage in Colombia is not high, but given the number of people who earn a similar salary –which in the country is lower than the average salary– variations in this affect many more workers than in a developed country and, therefore, have a substantial impact on the labor costs of companies, due to their inclination to solve their productivity problems through wages and not by introducing innovations in technological processes“.

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According to data from National Administrative Department of Statistics (Dane)it is estimated that more than 3.4 million people receive a legal monthly minimum wage in force in the country. This represents 15.7% of the economically active population in Colombia.

Minimum salary.


The expert also argued that the minimum wage has a high cost in the country, which slows down the growth of companies and has an effect on the entire economy, to the extent that it causes job losses. This situation mainly affects smaller businesses.

(Household spending in the country registered a 4% drop in June).

According to the results of his study, The change in the minimum wage reduces employment growth whether the model is estimated conditionally (over time) or unconditionally.

Among the results of the analysis is that a 1% increase in the minimum wage in Colombia can have an impact on the loss of 2,800 jobs in a matter of a year, with which if this increase were maintained in a range of 15 years, 42,000 jobs would be lost.

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Another of the effects that he found of said variation in the industry is related to the hiring of labor as these changes in the minimum wage appear. “The results show significant long-run minimum wage elasticities in labor demand, which means that the minimum wage puts pressure on the substitution of skilled workers for unskilled workers.Rivera explained.

Although these factors affect the entire productive sector, smaller companies are the most exposed to the adverse negative effects of possible increases in the minimum wage.

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In addition, the sectors that generate more employment are more sensitive to variations in the minimum wage and own prices, which reveals the presence of diversity within manufacturing, according to the expert.


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