Santiago, May 17, 2022. l Authorities visit the Villa Santiago 2023 construction site, which will become the epicenter of the next Pan American and Parapan American Games.  Javier Salvo/Aton Chile

Economist Mauricio Tejada for the minimum wage: “The key is to improve productivity”

The specialist in labor economics from the Alberto Hurtado University highlighted the government’s idea of ​​raising it to 500,000 pesos. However, he indicated that there are elements that must be evaluated, such as inflation and a possible world recession.

Tuesday, August 2, 2022 1:18 p.m.

The increase in the minimum wage that came into force this Monday, as well as the idea of ​​raising it to 500 thousand pesos in the coming months, opened the debate regarding the relevance of the measure when the world economy shows signs of fatigue and inflation. as a result of a series of factors, mainly focused on the restart of activities after the restrictions due to the Covid 19 pandemic and the war in Europe.

In fact, nations like Turkey and Argentina project inflation above 70 percent, while all countries try to contain the effects of the increase in the cost of living, including the Federal Reserve of the United States in the face of inflationary pressure not seen since 80’s years.

In this scenario, the economist specialized in labor economics, Mauricio Tejada, points out that the decision of the government of President Gabriel Boric must be seen both in its magnitude and the moment in which it is made.

“When the minimum wage is increased, how much and when is relevant. In this case we are talking about approximately 31 percent of nominal increase. The change is very relevant in magnitude”maintains the academic of the Alberto Hurtado University.

For Tejada, “expectations point to a stagnation of the economy in 2023, including the IMF that projected a zero growth by 2023. On the other hand, the labor market is already showing signs of having put the handbrake on, fewer vacancies and greater employment restrictions.”

For this reason, he affirms that “the magnitude and the moment are not the most adequate” for this increase.

“Given the economic context, a real increase of 19% surely favors those who earn less, but only those who are working. Those who are not doing so may find it more difficult to get a job. It seems to me that this is not the time or the tool”, he estimated.

Tejada adds that “the proposed increase is 31 percent, which with an inflation of more or less 12%, implies a real increase or in purchasing power of 19%. Well relevant. Now, It seems to me that the way to fight against the loss of purchasing power is not the minimum wage but the tools that the Central Bank has”such as through the balance of the interest rate to control the money in circulation on the street.

The specialist adds that “the minimum wage should not be the tool to increase wages, but it should be through increases in productivity. The minimum wage can be useful to mitigate imbalances in the worker-company bargaining power”.

Tejada added that “we have a serious productivity problem, which has stagnated for more than 10 years. Bargaining power imbalances can be mitigated, but they are only part of the gap problem. Productivity seems to me to be more important.”

Regarding this longer-term view, the UAH professor added that “there are several edges in the problem of productivity. One at the company level, where processes can be improved, the tools available to the worker, the incentives to make greater efforts at work and working conditions. At the market level, it is necessary to seek to reduce or mitigate the mismatches in worker skills and company requirements”.

Along with highlighting the need to improve training in technical careers, Mauricio Tejada stresses that “the issue of productivity is multidimensional, but if it is not taken seriously, it will be difficult for us to increase salaries”.

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