Wage

Pro | Agains |
* The justification for minimum wage regulation mostly comes from the intention to provide income support to the poor * In the standard neoclassical model, unemploymentincreases if the wage is exogenously raised: the higher the minimum wage, the higher the cost of production and therefore the lower the demand for work. * As Fields (1994) showed, increases in theminimum wage reduce employment in the covered sector * The Colombian law defines the minimum wage as the right of a worker to earn * The increase is usually closer to what the business leaderspropose, although a few points higher just for the government to save face * To this, the business leaders respond that the workers’ demands are simply unfeasible. A 10% rise in labor costs would meanthat they would have to lay off some people * For 2009, Colombia’s minimum wage was about COP496,000 per month (US$247). In addition to that, employers must pay their employees a subsidy fortransportation of 59,300 pesos (US$ 29). That is the money that the worker receives in cash every payday. Backstage, however, employers are required by law to pay 12% of the salary to the worker’s retirementfund, 8.5% for his healthcare, 10.4% towards a severance pay fund (known in Colombia as cesantía), 9% for other welfare benefits and funds that go to two state agencies (this pay is called cobrosparafiscales), and the list goes on. As a result, one worker in Colombia ends up costing 872,000 pesos (US$ 435) in total, although the employee only sees a fraction of that sum. * By increasing the priceof labor, the minimum wage ends up benefitting the few who earn it, at the expense of the rest of the workers who are made unemployable due to the high price tag the government has put on theirskills. * This means that it is relatively more expensive to hire people in Colombia than in any of the other South American nations. * So yes, the minimum wage in Colombia is too high for the size...