Sputnik spoke with workers’ representatives and economists to learn about the possible effects of the minimum wage readjustment announced by Gabriel Boric’s government on the Chilean economy.
The Chilean executive and the Central Unitaria de Trabajadores (CUT) [Workers’ Union] signed last April 17 an agreement for the readjustment of the monthly minimum income.
It will reach a value of $500,000 (US$615) by July 2024.
“Within the commitments of the government program of President Gabriel Boric, it was established to advance towards a minimum wage of 500,000 within his mandate.”
“And what has been done today is to bring forward by one year the fulfillment of that commitment,” said the Minister of Labor and Social Welfare, Jeannette Jara, upon signing the agreement.
The process was brought forward because “we are going through a period of important economic adjustment, with high inflation rates”, and workers must directly bear the loss of purchasing power”, explained Jara.
The executive dispatched to the Chamber of Deputies and Chamber of Deputies the bill that establishes the gradual increase of the minimum wage:
- An increase from $410,000 to $440,000 (US$504 to US$541) on May 1, 2023.
- To $460,000 (US$565) on September 1, 2023.
- Finally, to $500,000 (US$615) on July 1, 2024.
After July 1, 2024, it was agreed to automatically readjust the minimum monthly income according to the Consumer Price Index (CPI) registered between July and December 2024, which will take place in January 2025.
The secretary general of the CUT, Eric Campos, is also president of the Federation of Metro Unions.
In a conversation with Sputnik, he pointed out that the readjustment of the minimum wage is a great advance for Chilean workers.
“It is one of the most important measures and one that is valued by the people in the Government’s public policy.”
“The increase in the minimum wage, particularly last year’s, made it possible to anticipate the inflationary cycle.”
“I would say that this agreement is along the same lines, responsibly and gradually,” Campos expressed.
“IT IS A RISK”
The Convergence of Guilds, small and medium-sized enterprises (SMEs), and Cooperatives of Chile warned that many smaller companies are not in a position to carry out a hike of such magnitude.
If the executive’s bill is approved, the minimum wage would increase by almost 22% in less than two years, more than double the estimated inflation for 2023-2024.
For Campos, the observations made by some of the institutions regarding the impact that the minimum wage readjustment could have “is the permanent rhetoric of the business sector of wanting to take refuge in some actors of the SMEs to justify its non-support to the social advances that the Chilean people may have”.
“The Government, as in 2022, is going to establish a series of subsidies that will allow SMEs to pay those salaries because that also goes hand in hand with productivity itself; the increase in the minimum wage pushes internal consumption”, he added.
The Minister of Finance, Mario Marcel, was also part of the meetings culminating in wage readjustment.
He emphasized the willingness to dialogue and seek agreements during this negotiation process with the CUT.
Marcel explained that a dialogue is being held with the SMEs to support them.
“We are going to contemplate an aid so that they can absorb the cost of the increase in the minimum income, as happened last year”.
Also, in conversation with Sputnik, Doctor in Economics Manuel Perez Trujillo, professor at the Catholic University of the North and director of the master’s program in Public Management and Regional Development, assured that there is uncertainty in the Chilean labor market.
Perez explained that the country has been economically perplexed since the social outburst of 2019.
In addition, it is going through a hyperinflationary period due to internal and external factors.
“The margins of small businesses are quite tight; input costs have gone up quite a lot in the last time. This increase (…) can have a negative impact on the results of these companies, which, logically, if they enter into a loss situation and have the long term, implies a closure.”
“Obviously, this risk would have to be considered nationally. A 22% increase is quite a lot,” he added.
For Peréz, the big problem is that the accumulated inflation during the last 12 months is close to 14%, which has not been controlled.
For the doctor in economics, the readjustment of the minimum wage must be taken with caution because it can generate tensions in companies with worse margins.
“We would have to see how it affects demand: any increase in labor costs that are not related to increases in the marginal productivity of labor, then logically they have a negative impact on demand, not on hiring,” Peréz concluded.
“LIGHTS AND SHADOWS”
During Boric’s government, not only has the minimum wage been readjusted, but also the 40-hour working day was approved, another emblematic initiative of this Administration.
However, the bill underwent several modifications during its passage through Parliament, criticized by organizations that accused it of being “a victory for big business” that “opens the door to ultra-flexibility”.
For Campos, this government has been one of “lights and shadows”.
The CUT leader explained that regarding labor, progress had been made in working less and earning more.
“That is important, especially in a society like the Chilean one, where workers earn little, have low salaries, where the rate of profit is very high concerning salaries.”
“However, it is also of shadow because there has been slow progress in the discussion of the pension reform, and we regret the rejection of the tax reform very much”, he added.
“There is a debt expressed very strongly on October 18, 2019 [date of the beginning of the social outburst]: it is that people demand more social rights.”
“We have to finance it with tax reform, but it is also urgent that we solve the problem of pensions.”
“In these cases, the government has sent the promised reforms.”
“However, it does not have a majority in Parliament and must negotiate with the right wing, and the bills end up disfigured”, concluded Campos.
With information from Sputnik