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A group of 51 renowned academics and economists, including Eduardo Sarmiento, Jaime Tenjo, Marco Romero, Jorge Iván González, Ricardo Bonilla and former ministers Cecilia López, Clara López Obregón, Amílkar Acosta and Camilo González Posso, in addition to eleven centers of economic thought and socio-labor, sign a letter in which they formulate to President Iván Duque a series of alternative proposals for economic policy, employment and minimum wage.
minimum salary
The experts begin their letter alluding to the lack of agreement regarding the minimum wage adjustment for 2021 and the conformation of the Employment Mission, without the participation of the unions: “We call on the Government to take into account an alternative and comprehensive approach, which includes all dimensions of the problem of the world of work, to tackle the economic crisis, high unemployment, persistent informality, poverty and loss of labor income, which affects, to a greater extent, women and young people ”.
(In context: ‘The new proposal of employers for the minimum wage in 2021’).
Since they consider that the reflection around the minimum salary has been restricted, they propose to broaden the debate and promote a wage increase not limited to CPI and activating detailed monitoring of the effects of the measure, so that new policies can be adopted later.
(You may be interested in: ‘Change the order for the income declaration of persons in 2021’).
They claim that the latest data on poverty indicate that the downward trend was reversed, a situation that could have worsened due to the crisis caused by the pandemic, in particular for the most vulnerable: “It is not convenient to worsen their situation with low increases in salary, because it affects the vital minimum established in the Constitution and depresses household consumption.”
Productivity
Refering to productivity (the other key indicator that is taken into account to calculate the adjustment of the minimum), point out that there is no evidence regarding the premise that a lower salary has a favorable impact on this indicator or on employment. “Low wages – they say – are an incentive not to increase productivity.” They affirm that when wages rise and entrepreneurs have incentives to improve productivity, they can generate a virtuous circle in the economy, in aggregate demand and in employment.
For experts, measurement through total factor productivity (TFP) It is a wrong measure, without sufficient theoretical support, to define the increase in salary, so they ask to put it aside. They suggest adopting measures of average labor productivity: “Different options should be examined (per worker, per hour, by salary amount) and opt for the one used in the main international agencies and other countries, such as average productivity per hour.”
Cost structures
The signatories also refer to the need to review the cost structures of the companies, since they consider that factors such as the high costs of credits or the payment to suppliers deferred in time (which in 2019 reached 96 days) can negatively impact profitability.
“The reflection on the weight that the different costs have would help to understand the incidence of wages on profit. Low wages is not synonymous with greater competitiveness ”. That is why they suggest controlling other costs, such as financial and electrical energy.
Parafiscal
In the letter they also warn that the “progressive reduction of parafiscal “ in recent years it has not resulted in job growth.
“The evaluations of the laws that reduced parafiscality do not show significant effects on the hiring of formal employment, nor on business informality, which ends up favoring profits more than formal employment. The effect of labor formalization was very marginal ”, they stressed.
Demand
Finally, the signatories say that the Economic recovery requires alternative thinking, oriented towards stimulate demand and with it economic activity and employment.
(As well: ‘Chocó and La Guajira, the departments with the highest poverty in the country’).
The recipe of these experts includes “robust increase in the minimum, payroll subsidies to small businesses that generate new employment and an emergency plan for public employment and public works.”
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