Would a salary increase of $25 affect hiring and small companies or would it boost consumption and the economy?

A eventual increase of $25 to the unified basic salary in 2023 would end up benefiting 15% of the employed population, but it would discourage the hiring of more people who do not have a job. The companies most affected and that would have the least possibility of facing this increase would be the small and medium-sized ones. Analysts and representatives of business associations come to this conclusion when analyzing whether or not there is an increase of $25 for the basic salary of 2023.

In this days, the Ministry of Labor must decide on a possible increase, after workers and employers did not reach an agreement in the previous meetings of the National Council of Work and Salaries.

An increase of $25 like last year is considered as an option -and it is the request of the workers-, in line with Guillermo Lasso’s campaign promise to increase the basic salary to $500 until the end of his term. The president had said at that time “what is promised, is fulfilled.” This week, the Minister of Economy and Finance, Pablo Arosemena, assured in an interview in ecuavisa about the possibility of salary increases that “the word of the president is kept”. He considers that this increase does not affect the public sector, since in the vast majority of the servers already earn more than the basic salary, which can be something positive to continue boosting the economy with more investment, production and consumption.

Employers, on the other hand, maintain that if there is an increase, it should be in relation to projected inflation, that is, the 2.7%, which would represent $11.73.

The technical parameters to define the salary have to do with projected inflation, the country’s growth, labor productivity, sustained decrease, formal and informal employment, among others.

In accordance with Vanessa Velásquez, CEO of the legal consultancy Laborlex, beyond the figure, what should be analyzed are the consequences of the rise in companies. “Companies must take this salary increase into account, not only from the monthly increase, but from all the changes and benefits that they represent for the collaborator.” He assures that Ecuador is one of the countries with the highest basic salary in Latin America, but with less flexible labor legislation. In this sense, he wonders if the salary increase is really a benefit for the economic recovery in the country.

Reflect on what “the salary increase has a greater impact on small and medium-sized companies, which must have a general analysis to understand the real cost of this salary increase, that is, it is of absolute importance to know what is the final value to be paid to a worker”. He explains that there are values ​​of tenths, and the high indemnities when untying a worker, which discourages hiring.

The Guayaquil Chamber of Commerce ensures that setting the basic salary should not be a political decision, but be based on economic criteria such as inflation and increased labor productivity. The union asked not to repeat the mistakes of the past, such as the 2022 salary increase that did not present a technical justification.

He explains that in 2021 labor productivity was at its lowest point in the last decade. Additionally, the general price increase expected for 2022 (3.82%) was less than the increase in basic salary (6.25%). In other words, Ecuador did not have the economic conditions for this increase set for 2022. “It is essential for the economy that this year the appropriate decisions are made with respect to the SBU that will govern in 2023.”

For the Chamber, the priority must be to stimulate the creation of adequate employment opportunities for the 7 out of 10 Ecuadorians who today do not have adequate employment.

Diego García, professor at the Private Technical University of Loja (UTPL), He considers that the focus of the debate at the moment is wrong, “we are concerned about regulating a small group of the population when the most important thing is that 70% of the economically active population with inadequate employment or without employment.” “An agreement must be sought with all the actors to encourage employment.” He considers it important to move towards labor flexibility, but without infringing on the rights of workers. Incentives should be sought for companies so that they hire more.

But contrary to what the employer sector projects, from the side of the workers it is assured that the increase of $25 that governs this 2022 did not produce a negative impact, that the macroeconomic indicators, of new jobs and the level of consumption reflect that This increase had a positive impact on the economy. A new rise of the same value is totally viable, according to Cristóbal Buendía, one of the representatives of the worker sector.

Rodrigo Gómez De la Torre, representative of employers in the National Wage Council, He considers that without a labor reform there is no number that can endure. He ensures that the salary increase only benefits 15% of the population with work, but that increase does affect the entire population, because it does not encourage hiring and because with that increase several costs that are calculated with respect to salary rise. He says it can’t be that the debate continue to focus on increasing wages, when most people do not have full employment. And he assures that the effects of the salary increase in the reduction of jobs were seen. In February 2022 there was a historic drop in jobs, attributable to the rise.

It indicates that they have asked the ministry to report as soon as possible on the decision it will make on salary, so that companies can also define what to do with their operations. And that it is important to resume the dialogues on employability and try to make legal decisions in this regard. However, he considers that if the Assembly is not going to give way, the Government do not waste time and proceed rather by reinforcing ministerial agreements. (YO)