Minimum wage changes depending on inflation statistics prove problematic
During the final weeks of 2013, the Honduran federal government and private sector businesses came to an agreement on minimum wages for the following three years. In 2014, the minimum wage was to be 7.5 percent and 8 percent in 2015 and 2016. However, under this arrangement, these rates were not permanent, but rather subject to inflation. The minimum salary rates would be revised if inflation exceeded 8 percent or fell below 4 percent. While the law appears simple enough and rather concrete, issues are bound to arise if official inflation rates differ from the black market rates. Should minimum wages be revised according to where the Central Bank’s inflation rates fall or according to the black market’s inflation numbers?
According to the Central Bank of Honduras, inflation for 2015 averaged at 3.2 percent. Since this rate is below the 4 percent mark, it would appear the government is required to adjust the minimum wage. Meanwhile, the black market inflation rate for 2015 is above 4 percent and below 8 percent, which would mean the administration should leave the minimum salary untouched.
President pushes for minimum wage increases despite private sector opposition
Honduran President Hernandez followed the Central Bank statistics rather than black market numbers, thus demanding minimum salaries change for 2016. His proposal mandates minimum wages increase by 5.5 percent to 8 percent depending on the economic activity of the business and the number of its employees. The minimum wage increase went into effect on 1 January 2016. The decision has been quite controversial in Honduras.
Private sector businesses are banning together against the minimum wage increase. They believe the Central Bank of Honduras’ data on inflation rates is inaccurate, and inflation was actually between 4-8 percent during 2015, meaning minimum salaries for 2016 were not allowed to be changed. Many companies oppose minimum wage increases so strongly that they plan to decrease the salaries of their employees as part of a greater effort to retaliate against Hernandez’s decision. While unions also question the Central Bank’s inflation statistics , they are also against the minimum wage decreases their companies are implementing in retribution
Confederación Unitaria de Trabajadores de Honduras (CUTH) Secretary José Luis Baquedano stated, “We don’t believe the Central Bank of Honduras’ data on inflation. The cost of living has not decreased, but rather it has increased. There are some businesses asking for a decrease in the minimum salary percent increase for 2016, but if they attempt to do so, we won’t allow it.” Labor Minister Carlos Madero also opposes the minimum wage increases. In fact, he interprets the 2013 agreement to mean, if inflation increases above 8 percent or decreases below 4 percent, the minimum wages rates should be reevaluated, though not necessarily modified.
On 1 January 2016, Hernandez’s minimum wage increases went into effect. Hernandez continued to receive backlash from the private sector, despite his efforts to convince companies comply with the changes.
Controversy represents a larger issue beyond a minimum wage debate
While the increases in minimum salaries in Honduras may be permanent, at least for the rest of 2016, the incident brings up a larger issue likely to be debated over and over again: how does one interpret laws that depend on inflation rates? Inflation rates matter. Accurate ones, rather. There are a plethora of economic policies implemented in Honduras, as well as throughout the rest of Latin America, based on inflation rates.
Consider Bolivia in 1985. Acknowledging extreme hyperinflation rates led the government to raise the price of gasoline, quickly bringing prices back down to normal. In 2000, Ecuador implemented dollarization after recognizing soaring inflation rates. As a more recent example, growing inflation rates that struck Argentina led the Kirschner administration to expand its price control program.
If a huge dissonance between a country’s black market inflation rates and official statistics exists, how are governments able to implement appropriate economic policies accurately reflecting the country’s economy? This proved problematic for Honduras, whose minimum wage rates were dependent on inflation statistics, and will continue to be a challenge future administrations will need to address.