Aspects about Unemployment and the Minimum Wage in Colombia.
International Organizations and Risk Rating Agencies consider that Colombia, unlike other countries in the region, has maintained a remarkable macroeconomic balance for more than 10 years and refers to results and weighted management in aspects such as inflation, interest rate, fiscal deficit, flexible exchange rate and country risk. Among the economic challenges are the reduction of the current account deficit, unemployment and inequality.
In this note, some aspects of unemployment and related to the minimum wage salary will be examined. The unemployment rate in Colombia, which stood at 10.2% as of september this year, is twice the average of the OECD countries (5.2%) and higher than the Latin American region of 8%.
In fact, according to the OECD, for France, the rate was 8.5%, in the case of Chile, the rate reached 6.9%, in Finland it registered a rate of 6.7% and in Luxembourg 5.4%. In the euro area, the unemployment rate also remained stable in that month, at 7.5%. In Italy (9.9%) it was high and in Portugal (6.6%).
In Colombia, for five consecutive years from 2.013 to 2.017 the unemployment rate was maintained by one digit and from last year it rose above 10%. This reduction was explained by the growth rates of the economy and by the effects of the tax reform of 2.012 that eliminated some parafiscal from the payrolls such as contributions to the SENA and the ICBF, which became assumed by the National Budget of the Nation instead of entrepreneurs. That measure eased their payroll costs. Subsequently, the lower growth rates of the economy and this year the lack of labor absorption by the productive sector explain the increase in unemployment.
As the research centers and official sources affirm, informality is high, 50% or 60% of the working population, according to various calculations, about 12 million workers are informal. Of these a total of 9.9 million (44% of total workers) earn an income below the minimum wage.
In this regard, some research centers, and state entities ensure that the increase in the minimum wage salary in december cannot be high since as mentioned before there is an informal population with incomes are below the minimum wage salary and would be harmed since if the Increase is large; the difference is increased with their income and also the cost for employers is increased by hiring more workers who are in the informal sector for their companies. A high increase in the minimum wage in december would produce more unemployment instead of generating more jobs.
This does not mean that the minimum wage salary is enough to cover the basket and basic services, obviously it is not enough to cover education, housing, transportation and food of a family unit. But what is being emphasized is that although the legal minimum wage is not enough, it is also very true that there is a great deal of informality and a large number of workers with incomes below the minimum who aspire to be hired in the formal company and who are seen harmed with high increases in the minimum.
The negotiation of the minimum wage salary will only benefit 1.7 million workers, according to official figures, which are those that earn minimum wage. They remain outside, as already mentioned, almost 10 million workers who do not reach the minimum, also other informal workers and public and private workers who earn more than a minimum wage, for which the agreed increase does not apply in the minimum wage negotiations. In fact, workers with more than one minimum wage if they are from the public sector, increases by inflation and if they are from the private sector, it depends on employment contracts with companies, but generally it is also by inflation (although sometimes it is lower).
The increase in the minimum wage in Colombia has been inflation plus productivity and many times more than that, which is higher than increases in wages above the minimum, which is just inflation as mentioned before. This impact so that the minimum wage to average salary ratio is higher in Colombia (0.89) than in other countries in the region (Mexico 0.4, Chile 0.71) and even in countries such as the United States (0.34) where the minimum wage to average salary ratio is lower. For these figures it is stated that in Colombia the minimum wage remained high and it is not because it is sufficient to cover the minimum needs, which it is not, but because it is high in relation to the average salary, even more so if consider the population that earns less income than the minimum, as mentioned before. This population may cover fewer basic needs than the minimum wage.
To meet the goals of the Development Plan, recently reiterated by official sources to reach the year 2.022 with an unemployment target of 7.9%, it is necessary to reduce the population without work from 2.5 to 1.9 million, for which without the commitment Private sector of creating jobs is unlikely. Some Senators, in addition to experts and analysts, propose to put into discussion the reduction of income tax to companies and / or the exemption of the VAT on the reinvestment of assets, or condition them to the companies' monitored commitment to job creation. This will be examined in the Tax Reform debates next week.
