Monday, August 8

Analysis of the labor market for the minimum wage

The labor market is a concern shared by all Panamanian society, from the government, which regulates labor relations; to civil society, which anxiously awaits a revitalization in the supply of jobs, including private companies, which advocates an economic recovery to boost job creation.

All the actors are aware of what happens on the labor market due to the important impact it has on the economic fabric through the activation of consumption.

Within this context, the National Institute of Statistics and Census (Inec) has thrown a new unemployment figure of 11.3% at the end of October this year, a figure that seems to convey a feeling of improvement compared to the previous one that was close to 14% and the previous year amounted to 18%.

Based on these numbers, a large number of job seekers have rejoined the job market, outlining the beginning of an economic recovery.

On the other hand, the panorama is even more complex when we consider that the Ministry of Labor and Labor Development (Mitradel) is preparing to issue new regulations on the minimum wage, having already listened to the antagonistic positions of the employers ‘and workers’ unions.

The decision deserves a thorough analysis, on the one hand it is true that inflation progressively reduces the purchasing power of families, the Consumer’s price index (CPI) has increased 3.4% according to the Inec, which directly affects the quality of life of the Panamanian family and their purchasing power; but on the other hand, it is no less true that financial conditions are not given for companies to assume an increase given the economic recession, the fall in GDP to 2020 It was -17%, it seems difficult think about an increase in the minimum wage after major global catastrophes such as the world wars or the financial crisis of 2008; economically comparable events with the current situation, generated by the coronavirus pandemic (COVID-19).

As we can see, the decision has strong social and economic elements, in addition, the public expectation is a direct stimulation to the hiring market that according to figures from ManpowerGroup It has oscillated between -5% and 0% during this year, revealing a cautious dynamic on the part of employers and complex for job seekers.

As a reference, neighboring countries how Dominican Republic, Argentina, Colombia and Mexico They have made increases in the minimum wage during the pandemic years, however, it is important to note that in Colombia it came hand in hand with a tax hike that generated a major social outbreak and in Mexico with a labor reform that left thousands of workers unemployed or in informality.

In Panama We have about 222,000 unemployed and using previous experiences, an aggressive increase can immediately mean a decrease in the workforce and impact again the unemployment indicator on the rise, already in Latin America We have 9 million new unemployed in the last two years, so the regulation needs to be considered based on a cost-benefit analysis.

In contrast, not increasing could also be read as a favor to private companies, generating social discomfort; after all, the figures speak of an increase of 14.9% in the Gross domestic product (GDP) to September, but is it really reliable to compare ourselves against 2020 GDP?

The unemployment problem has deep roots and cannot be blamed entirely on the COVID-19 crisis, according to the latest research from ManpowerGroup about Talent Shortage in Panama, About 55% of employers find it difficult to fill the positions they open, which warns of a disconnect between the supply and demand of talent.

Four great forces they have turned the world of work: Demographics bringing more availability of workers and in fact internationalizing work through remote employment, technology digitizing relationships with consumers as well as automating processes, individual choice because workers now care more than ever about the brand employer under which they provide services and, finally, the sophistication of clients who increasingly have more complex and specific demands for companies, a reality that invites the working sector to reinvent itself since job profiles are being reinvented more and more, after all according to figures from World Economic Forum (WEF, for its acronym in English), in the next five years 5 million jobs will disappear, but 97 million new ones will be generated just because of technology.

Regardless of the decision to be made in relation to the minimum wage, it is certain that some of the parties will not be satisfied, the case of each one is solid, but the paradoxes are also given; Panama has the highest minimum wage in Latin America but, according to figures from the International Labor Organization (ILO) the lowest average hours worked per week in all Central America (56 million weekly), consequently the situation is not only socioeconomic but also destined to positively or negatively impact competitiveness versus our Central American peers.

Ariel Ayala Navarro
Business manager