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    Minimum wage for 2018, the same discussion every year

On December 15th past, the negotiation cycle was closed in which the parties agreed on the salary adjustment for 2018. The three parties, i.e. employers, workers unions and the government carried out the procedure adjusted to a protocolized routine of submitting information and taking positions.

The fourth round of sessions left a very detached result, an offer of 5.1% from the employers and a 9% demand from the workers. As a consequence, the time for any additional negotiation will expire and the government will establish the adjustment by a decree on December 28th.

At first, the employers had an offer of between 4.5% and 4.7%, a very distant proposal from that of the workers of between 9% and 12%. The government has not yet made a statement and will probably not with the purpose of maintaining its role of referee in a negotiation among private parties, although its real reason is not to commit due to the effect it will have on public worker salaries.

It is a negotiation between private parties which determines the income of 86% of close to 10 million Colombian workers for which the Substantive Labor Code applies, including housekeeping services and others with monthly incomes under to two monthly minimum legal wages.

What is agreed or decided has implications in other areas of the economy with a bearing on inflation rates. It is the basis to adjust public prices such as rates and fines, rates for public utilities, transportation, social security rates, leases and real estate transactions, public notaries, etc. It also is a reference for readjusting salaries and payments for people with greater incomes. It has no influence on independent worker incomes, which are approximately another 10 million people, although the information is used to adjust the prices of goods and services they offer.

Caused inflation, a reference point

This negotiation has a predefined entry point, the caused inflation rate. A ruling of the Colombian Constitutional Court states minimum wage cannot be adjusted below the inflation rate and should regain the purchasing power lost during the year.

Under these conditions, the lower limit is currently at 4.1%, which is the equivalent of the CPI for the last 12 months (December 2016 and November 2017). Whatever the decision may be, it will be made public before the end of the year, although the inflation for December is not known, it is presumed it has the same behavior for the same month of last year.

Theoretically, there is no upper limit. However, it is expected that the minimum wage adjustment to be governed by the growth expectations of the economy and the contribution of productive factors such as land, capital, and work. An economy with slow growth (2% in the last quarter and an expectancy of closing the year with a possible 1.6%) is not the most optimistic scenario for a greater adjustment.

For now, official information provided by the government shows a labor productivity of 0.44%. The sum of the CPI (4.1%) plus labor productivity (0.44%) is 4.54%, the same which was the basis for proposal from the employers which was between 4.5% and 4.7%.

It is expected that a third component to be added as a redistributive factor, directed at improving the purchasing capability of workers and reduce the income inequality of the country. This factor is ambiguous and ends up being a discretional component used by the government to provide governance to its participation in the Commission.

By including this, more political than economic factor, they expect the adjustment will be above 4.54%. The employers already raised the proposal to 5.1% and the gap will go to the ultimate limit proposed by the workers, which now is at 9%.

Protocollary adjustment

The Colombian experience shows that since 1984, when the salary differential between urban and rural differential was eliminated, there have been 33 years in which the minimum wage adjustment has been declared in a protocollary manner, with some of the following results:

  • The purchasing power of minimum wage workers increased 22.3%, at an average of 0.67% per year.
  • The real adjustment has been equal to CPI + 0.42, in other words, to regain the losses due to inflation plus an addition of 0.42 which supposes recognized labor productivity.
  • As of this century, with one digit inflation, the adjustment has been CPI + 1.17, including the political and discretional factor.
  • Only in 2009, during the Democratic Security administration, the adjustment was exactly the past inflation without any additional elements.
  • The greatest adjustment of all was in 2014, with 1.94% inflation, equivalent to CPI + 2.56.

Given the current low growth and controlled inflation circumstances, the unbridgeable distance between workers and employers and the traditional silence of the government, they foresee several informal meetings without any promising results of which the conclusion will be the impossibility of not being able to harmonize an adjustment.

Once more the government will issue a decree which is expected not to fall below the final employer offer of 5.1% or CPI + 1, and use the discretional capacity for an additional factor.