Did you know that the minimum wage in El Salvador is only $90 lower than the minimum wage in Honduras and Guatemala? Compared to the cost of living in these countries, this small increase does not cover the cost of living in El Salvador. And it’s not reviewed every year. So what’s the solution? How about raising it? Or, at least, making it more affordable for the working population? Here are some tips.
El Salvador’s minimum wage
A new 20% increase in El Salvador’s minimum wage has been approved by the country’s Consejo Nacional de Salario Minimo (Consejo of Labor). The increase will be implemented in August this year, according to Minister of Labor Rolando Castro. The increase will benefit over 522 thousand employees and will be financed by a trust administered by El Salvador’s Banco de Desarrollo. The increase will also help micro, small, and medium enterprises (MSMEs).
There are a number of factors that influence how much an individual is paid. In the informal sector, employers expect workers to work long hours, often seven or eight days a week. Oftentimes, the minimum wage doesn’t cover the costs of transportation or medical care. The low wage in El Salvador is one of the factors contributing to poverty. While the minimum wage is a significant factor in the country’s low unemployment rate, it is not the only factor in the level of income.
The Minimum Wages Act of 2013 stipulated that the country’s minimum wage be revised every two years. But a pandemic halted the next review until 2021. Bukele also ordered new food handouts under the pandemic social program, which will help reduce inflation. These handouts will not affect local or global prices. The minimum wage is still not enough for all Salvadoran workers. So, why not increase it?
It is $90 lower than Guatemala and Honduras
The minimum wage in El Salvador is much lower than those in neighboring Guatemala and Honduras. The government has announced a plan to increase the minimum wage, but this is unlikely to bring in much money unless it also increases other wages. The current left-wing government has stimulated widespread participation in the formulation of public policies, but this plan will likely not do much to alleviate the situation.
While there are differences in minimum wages, one constant is the relationship between productivity and minimum wage. Salvadoran worker produces more than their counterparts in other countries. That means business managers in El Salvador prefer to hire nationals rather than immigrants. In addition, the oligarchy in El Salvador does not like to invest in its own country. However, it has significant investments in neighboring countries such as Honduras and Guatemala.
According to the United Nations, El Salvador’s population was estimated at 6,881,000 in 2005. This placed it 98th out of 193 nations. In 2005, only five percent of Salvadorans were over 65 years old, and thirty-three percent were under 15 years old. El Salvador had 97 males for every 100 females. El Salvador’s government considered the annual population growth rate of the country from 2005-10 as too high. In 2025, the country’s estimated population is expected to increase by another 20%.
It does not cover the cost of living
El Salvador’s minimum wage is so low that it does not cover the cost of living for most people. It is only enough to pay for basic necessities such as food and medicine, and it is far too low to allow workers to live normal life. The government’s goal is to increase the minimum wage to $15.00 per day by 2021, but a massive increase is unlikely before then.
The Central Bank of Guatemala calculates the minimum wage in the country. This is the equivalent of US$211 per month for a textile worker. The minimum wage for maquila labor is $2,581 quetzales per month. This amount does not cover the cost of food, shelter, and other essential needs. That leaves a family of five just over 3,000 quetzales per month to cover the cost of essential goods. That would still leave them only $918 per month to pay for education.
The National Minimum Wage Council is receiving proposals for an increase since last June. Proposals are being submitted by the National Union Federation of Salvadoran Workers (NFS) and the Union of Private Security Company Workers. Some affiliates have also submitted proposals. This makes it difficult to gauge the true impact of an increase on the cost of living. But, in the long run, the minimum wage will eventually cover the cost of basic necessities, which is important for the country’s economy.
It is not reviewed annually
This lack of an annual review of the minimum wage in El Salvador has led to a lack of creativity and is unsustainable. Nearly 50% of non-agricultural jobs in El Salvador are informal, with no minimum wage or maternity leave. This has meant that the poorest people in the country remain in poverty, and the only way to alleviate that is by increasing the minimum wage. However, this won’t be possible until the government takes action to improve the economic situation of the people of El Salvador.
El Salvador’s minimum wage is $300 a month. Although the minimum wage is supposed to be reviewed every three years, a pandemic has prevented this review. Instead, the government has ordered a new food handout as part of its pandemic social program. While this measure may seem like a good idea, it won’t affect local and global prices, despite the minimum wage increase. Nonetheless, it’s worth noting that El Salvador has the lowest minimum wage in Latin America.
The government of El Salvador also implements emergency measures to stabilize the economy. Travel restrictions and a nationwide lockdown were imposed beginning in February 2020. The wording of the decrees created confusion, and the severe penalties for non-compliance only increased the risk of non-compliance. These measures also caused disruption to business operations and made it impossible for manufacturers of essential products to receive formal permission for reopening.
It is only 58 percent of the cost of living
The minimum wage in El Salvador is only 58 percent of the cost of living, making it nearly impossible for many families to survive. This is particularly true of women and young people, whose employment rates are lower than those of men. Less than half of women are employed, compared to 77 percent of men. This difference is most likely due to the high level of inactivity. Unskilled workers also face poor employment outcomes compared to their urban counterparts. The report concludes with policy recommendations to address these challenges.
A common metric for assessing the minimum wage is the ratio of wages to value added. El Salvador has a tax wedge of more than five percent, making it lower than other Latin American countries. This is problematic because it depresses labor demand and raises the cost of labor. In addition, the high tax rate means that people who make less than the minimum wage do not seek a job.
Although the minimum wage in El Salvador is low compared to the cost of living in the country, the low productivity of the private sector is one of the main reasons why many companies are unable to become formal. For example, a small-scale informal entrepreneur with annual sales of US$1,500 would have to pay 116 percent of the cost of business license fees in order to become a legal firm. This would not only put a strain on the informal entrepreneur’s finances but also make it impossible for him to hire a professional to pay taxes and social security contributions.
It is not set annually
While the minimum wage in El Salvador isn’t set annually, it’s determined by a three-person council comprised of government, labor, and private sector representatives. Labor leaders decry the private sector’s representatives as pseudo-leaders. The government’s proposed increase was rejected by the council, and labor representatives voted for a far lesser increase. But that’s not the end of the story. El Salvador’s minimum wage isn’t set annually, making it a challenge for businesses to comply.
In the absence of an annual minimum wage increase, employers can demand their own schedule and hours, without a minimum wage hike. Then, the employer must pay overtime for employees who work past their contracted hours. This is problematic because many informal sector employers expect workers to work until the job is done. In addition, the low minimum wage is one factor that contributes to the country’s poverty rate. But politicians hope to change this by 2021.
While the minimum wage in El Salvador is not set annually, it is reviewed every two years. However, if the government approves the proposed minimum wage increase, it will go through a specialized council composed of some government employees and independent business leaders. In addition to the proposed increase, El Salvador has become one of the first countries in the world to adopt bitcoin as a legal tender. But Bukele’s recent political moves have complicated negotiations on a potential $1 billion financing program.
It is not open to the public
The national minimum wage council is made up of labor representatives of the country’s largest unions. Despite their name, they represent only three percent of the country’s organized labor. A recent popular movement called for an audit of the selection process to ensure that more representative labor representatives are elected. The council’s recent approval of ANEP’s minimum wage proposal serves as a reminder of the persistent efforts of big businesses to influence public policy.
El Salvador has a number of labor laws, but some are not enforced as vigorously as others. El Salvador’s Ministry of Labor is understaffed and has been accused of bias in dealing with government-union conflicts. Although Salvadorans are guaranteed the right to unionize, it has not always been honored. For example, in the 1990s, 72 labor leaders were fired from a government telecommunications firm to keep the company union-free and open to potential buyers. In that case, the Ministry of Labor sided with the government on questionable grounds.
The current minimum wage in El Salvador is only $300 per month. The minimum wage in El Salvador is supposed to be reviewed every three years, but the pandemic interrupted this process. The Nayib Bukele administration has ordered a new social program to combat the soaring costs of living. The government has been urged to increase the minimum wage by 20% by 2021. It is unlikely to occur before then.