The increase in the minimum wage in Honduras is the result of a process that involves government and private enterprise meetings. The two groups discuss the various proposals and ultimately come to an agreement on a salary increase ranging from 5.32% to 8.00% per year for the next two years. The increase will be retroactive and start from January 1 but can be deferred for payments in April, May, or June.
Non-compliance rates of minimum wage
The non-compliance rates of minimum wages in Honduras are much higher than those of most high-income countries. The reasons for this are complex, but there are some lessons learned. This study focuses on the reasons why minimum wages are not being fully implemented in Honduras. In addition to the high rate of non-compliance, low levels of compliance may lead to significant policy differences.
Most developing countries have implemented some sort of minimum wage policy. But determining if it works requires a detailed understanding of the consequences of these policies. For Honduras, we used 13 household surveys from 2005 to 2012 and estimated the effects of a 60 percent increase and changes in the number of minimum wage categories. The results show that higher minimum wages reduce covered employment while increasing uncovered employment.
Non-compliance rates are highly variable. In 2011 and 2012, the APS asked respondents to report how many hours they spent working and training. These hours are not necessarily consistent, and the resulting hourly rate is significantly lower than the actual number of hours worked. Nonetheless, non-compliance rates vary considerably between high and low-income countries. Non-compliance rates may vary from high-income countries to low-income countries, depending on the type of work performed.
The non-compliance rate of Honduras’ minimum wage has been relatively stable since 2009 but has steadily increased since then. Among young people, the non-compliance rate was 3.5%-4% until 2009 but increased steadily to 8.5% between 2010 and 2015. Apprentices and workers not included in the NMWAR have higher non-compliance rates than other categories.
Impact of increase in the minimum wage on job losses
There is no clear answer to the question: of how an increase in the minimum wage will affect job losses in Honduras. The current debate lacks a concrete response to the causes of this crisis, which are poverty, violence, and lack of decent work opportunities. In order to solve the Honduran crisis, the u.s. government must reorient its migration, trade, and foreign policies to address these underlying issues.
Wage/salaried employees will benefit from the increase in the minimum wage. While wage/salaried workers comprise less than half of the overall population, two-thirds of these workers earn wages that are above the minimum wage law. Moreover, the minimum wage is only enforced in large, medium-sized firms; self-employed individuals are exempt from the law. In Honduras, the impact on job losses will depend on the occupations in which these workers work.
The IMF has concluded its 2001 Article IV consultation with Honduras and has published IMF Country Report 06/35. During the 2000s, Honduras had sluggish economic growth, and the global economic crisis affected most Honduran labor markets adversely. By 2012, Hondura’s labor market did not regain its pre-crisis levels. The authors of this chapter also analyze the distributional impacts of minimum wages in Honduras.
While the economy of Honduras has been slow to recover, there are signs that the country is slowly recovering. Honduran social security records show that the number of wage/salary workers has decreased slightly since 2008.
Impact of increase in the minimum wage on household per capita income
The recent IMF report on the country’s performance in 2001 concludes that the increase in the minimum wage has led to improvements in poverty and inequality. However, the country has still remained one of the poorest in the Western Hemisphere, with more than half of the population living in extreme poverty. Although poverty in the country has declined over the past decade, poverty and inequality have increased since 2014, with rural areas experiencing sharper increases than urban areas. In fact, rural inequality in Honduras has increased dramatically, from a 0.431 Gini index in 2014 to a 0.486 Gini index in 2019, the fourth highest in the region.
During the Great Recession, Honduras’ unemployment rate increased dramatically, increasing from 2.3 percent in 2005 to 4.4 percent in 2012. The number of people in the labor force barely changed between 2001 and 2011, indicating that there were fewer jobs available. The increase in the minimum wage, coupled with the international crisis, increased unemployment rates. As a result, the increase in the minimum wage has largely exacerbated the disemployment rate.
Despite this, despite the increase in the minimum wage, the composition of Honduras’ workforce has changed. While the share of wage/salaried workers in Honduras’s labor force fell, two-thirds of wage/salaried households received wages above the minimum law. However, despite the increased wage, the minimum wage remains lax in the country, with the exception of the self-employed and small-scale firms. By 2010, the GDP began to recover, but labor earnings declined significantly. Over the next decade, these wages failed to keep pace with inflation.
This research was conducted using data from a number of sources. Information on minimum wages was collected through interviews with Honduran Ministry of Labor and Social Security staff, as well as from a report by the Secretaria de Trabajo y Seguridad Social (2003). Some sources cite these sources, but we have not verified their accuracy. We also used an estimated 25,000 graduates from Honduras’ National Institute of Professional Training, which revealed that 21% of graduates were employed in the industry.
Economic recovery after the international crisis of 2008
After the global economic crisis of 2008, Honduras’ economy underwent a period of slow recovery. The country lost foreign direct investment and exports during the recession, and its GDP per capita declined by about 4.4 percent. The Honduran economy did not fully recover by 2012, and the poverty rate rose substantially. Despite the slow recovery, Honduras’ economy was able to respond to the recession, with a low debt service cost and expansionary fiscal policy.
Unemployment, which was already high before the international financial crisis, decreased in 2011, but it rebounded to a pre-crisis rate of about 4.4 percent by 2020. While the unemployment rate remained high after the coup, the number of employed people did not increase. The minimum wage was enforced in medium and large companies, but not for the self-employed. While GDP recovered after the international economic crisis in 2008, unemployment remained high for some time. While the GDP recovered slowly over the following years, labor earnings did not recover until 2011. The increase in the minimum wage, combined with the global economic crisis, made the unemployment rate even higher.
The United States withdrew large amounts of loans and investments to Honduras following the international financial crisis. The World Bank, EU, and U.S. withdrew $470 million in loans and transfers. In addition to the lack of international financial assistance, Venezuela ceased to supply Honduras with fuel. Moreover, the United States withdrew $32.7 million in foreign aid in 2009.
Impact of increase in the minimum wage on child labor
The increase in the minimum wage is a powerful tool for poverty reduction, but it does not help all workers in the same way. In some developing countries, the minimum wage only improves the living conditions of the most fortunate workers. For those living in poverty, an increase in the minimum wage may not bring much relief at all, and it might even deepen the poverty of the poorest. However, the increase in the minimum wage does not necessarily mean that poverty levels will decline, nor does it necessarily reduce child labor.
The recent inauguration of Honduras’ first woman president, Xiomara Castro, has given hope for the country’s future. She was elected on a platform for ending inequalities and tackling migration. Her presidency will play a crucial role in addressing the problem of migration to the United States. A minimum wage of $7.60 per hour may be an unrealistic expectation for many workers, but in Honduras, it is an unreachable goal for a country that is prone to poverty and violence.
In addition to child labor, the poor economic situation of Honduras also affects the living standards of children. While children living in rural areas are less likely to be affected by the economic crisis, children in urban areas suffer the most from poverty. Children live in barrios marginales, the poorest neighborhoods on the fringes of urban areas. Children are forced to work to make ends meet, and nearly 50 percent of families live in poverty and receive no state allowances.
The minimum wage in Honduras is the first step to ending child labor. The government of Honduras has made it a point to increase it, and the minimum wage will help make it possible. In addition, an increase in the minimum wage in Honduras will reduce poverty for the poorest families in the country. But, despite this increase, child labor is still prevalent, and the government should not tolerate it.