Increase in the Minimum Vital Remuneration does not destroy employment, affirms the Nobel Prize in Economics

The institutionalization of the adjustment of the Minimum Vital Remuneration (RMV) in Peru is just around the corner, but the business sector is reluctant to endorse this increase, alleging that the universe of beneficiaries is limited to the bare formal population and will feed unemployment.

David Card, one of the three winners of the Nobel Economics in 2021, has been blunt with the reluctance of employers.

“An increase in the minimum wage does not destroy employment (…) and does not create or destroy value, it only redistributes it,” he told El País in a global reading, but not unrelated to our situation.

clarifying fears

Card acknowledges that one of the negative effects, in the long run, would be a decline in investment and a worsening of employment prospects, but this does not contrast with the increase in market power of large companies in the last 30 years, therefore, raising the RMV can counteract economic distortions.

And, regarding the effect on employment, consider “inconsistent” that they protest the rise in the minimum wage and that they complain about not having people to work, for which the companies reflect that they do not want to raise wages.

For his part, the worker Javier Mujica points out that raising the RMV will dynamize the domestic market –as already seen with the release of AFP funds and benefits– thanks to the game of supply and demand, which will be capitalized in more jobs.

Inflation far from normalizing

After a year in which Peruvian inflation reached its highest level in almost three decades, Mujica considers it more than necessary to help workers so as not to continue undermining their purchasing power.

And the pressure on prices is not expected to normalize in the immediate future. Already in February it was at 8.65%.

For example, Credicorp It is expected to continue to rise due to the avian flu outbreak and lower food supplies in the north due to heavy rains, although the Central Reserve Bank of Peru (BCRP) considers that it will return to the target range – from 1% to 3% – in the fourth quarter of this year.

Political will (but in favor of companies)

Mujica recalls that we are still behind in the political dialogue to raise the RMV annually, as other Latin American countries do.

On the contrary, in recent years the modification of wages has responded to crises in government palaceas a mere drowning slap from the presidents on duty.

The lawyer assures that the obstruction comes from the side of the businessmen and the Government of Dina Boluarte does not put an improvement in basic wages on the agenda, despite the fact that in the National Labor Council (CNT) lies a proposal that raises the annual evaluation reviewing inflation and average productivity.

“There is political will to listen to the business sector. The State must settle the refusal of employers. Peru must be brought up to ILO standards and give workers, who generate wealth, what they deserve.”he told The Republic.

Another proposal to raise the RMV

Pending debate in Congress on PL 1737/2021-CRwith which it is sought that the update of the RMV be analyzed every two years and compulsorily approved by the National Labor Council (CNT) and the Ministry of Economy and Finance (MEF).

“Companies, and SMEs especially, need predictability to function. No more political and populist use of the minimum wage”he said at the time Alejandro Cavero (Avanza País), author of this text.

reactions

Javier Mujica, labor lawyer:

“There is a will to pay attention to the business sector. The State must settle the refusal of employers (…) It cannot be that they lose purchasing power.”

David Card, Nobel Prize in Economics:

“They anticipate that they will have to pay higher wages and that if they don’t cut jobs they will have fewer benefits (…) It doesn’t create or destroy value, it just redistributes.”