[Politics] Minimum wage: the starting points of the bid for the 2023 increase

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With inflation already running at 11.44 percent per year until September 2022, the start of the bid for the increase in the minimum wage for 2023 is approaching, 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 Commission for the Coordination of Wage and Labor Policies, led by the Ministry of Labor, convenes the guilds and unions.

The reason is that the increase expected for next year will be, at least, about 12 percent. This if we take into account that the formula to define the increase takes into account the annual inflation data.

(You might be interested: How much does the minimum wage impact on the dynamics of the economy?)

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.

After the latest data from Dane, the forecast that the market has for the end of the year is around 11.2 percent, according to the latest Survey of Expectations of the Bank of the Republic.

(Also read: Rates and inflation, concerns about the minimum wage)

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 fairly 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 percent, or there are even analysts who speak of an increase of 20%”, assured Anwar Rodríguez, the vice president of the center of economic studies Anif.

According to the economist, an increase of this magnitude "will generate more fuel for the fire of next year's inflation", in a scenario in which demand is expected to remain strong. "And if we add more household disposable income to that, reducing inflation will be much more complex," he said.

It is worth remembering that, after the pandemic, last year an increase of 10.07 percent was defined for the minimum wage, with which it was left at 1,000,000 pesos plus 117,172 pesos of transportation subsidy.

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 percent and indeed we expect a wage increase above this in real terms. These increases in the minimum wage have an effect on the creation of formal employment," he 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 that, in addition, this will be concentrated above all in informal employment. "It is a big 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. Together with the slowdown in the economy, industrialists and merchants they 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," Angulo added. "Economists are divided on the impact that an increase in the minimum wage could have on inflation, but what is It is clear that it is not a redistributive mechanism that reduces poverty, because it is an agreement from which the poor are excluded," he said.

https://www.eltiempo.com/economia/sectores/salario-minimo-los-puntos-de-arranque-para-la-negociacion-para-2022-709245