Increase does not close the gap between income and the cost of the basket

The wage readjustment to improve the population’s ability to pay for their basic needs is a positive but insufficient measure, according to economists, since it does not close the gap that exists between income and the cost of the basic basket, which condemns most of the families to live in a permanent deficit to cover their elementary expenses.

The economist Henri Hebrard, when analyzing the recently announced 19% increase in the minimum wages of non-sectorized private companies, points out that the gap between the different minimum wages and the different baskets is still large, despite the fact that, since the 2012 to date, adjustments to the minimum wage have always far exceeded the rate of inflation measured by the Central Bank.

He explained that, according to BCRD data, the baskets of the two lowest quintiles, which represent 40% of households and close to 50% of the population, cost RD$25,928.04 and RD$25,928.04 at the end of February of this year. $33,803.96, and the new minimum wage averages are barely enough to cover 72.1% and 55.3% in each case.

He stated that the first salary increase that fell to the current government administration was carried out in two games and two dates: one in August 2021 (20%) and another in January 2022 (4%). He said that, on those dates, the Consumer Price Index (CPI) was at 109.17 (07-2021) and 113.26 (12-2021) and that at the end of February of this year it was at 123.04, which he said reflects that since the date of the first adjustment made by this government an inflation of 12.70% has accumulated, while since the date of the second adjustment an inflation of 8.63% has accumulated.

He argued that taking into account that the new average minimum wage (which serves as the basis for social security contributions) will be RD$18,701.90 in April of this year, it increased 19.88% compared to 2021 (RD$15,600), or 15% compared to the quotable salary of February 2023 (RD$16,262.50). “This adjustment clearly exceeds the general inflation measured by the Central Bank (19.88% vs. 12.70%),” Hebrard pointed out.

He added that it is interesting to compare with those in force when the last salary adjustment of the previous administration was made, in July 2019, when the basket of quintile 1 was RD$19,966.08, and the average minimum wage was RD$13,482.00, so it was barely 68.6% of the basket of the poorest households was covered. In quintile 2, the basket average was RD$26,162.81, and the salary was RD$13,482.00, with which only 51.5% of this basket was purchased.

“This shows that, although the gap is still large, it has been gradually narrowing,” said the expert in economic matters.

Hebrard pointed out that this reality shows that in order to close the gap between wages and the cost of living more quickly, it will be necessary to program, for the short and medium term, initiatives that seek to reduce the cost of the basket of goods and services, especially in regarding the price of food; and continue to increase the income of workers.

structural reforms

The vice president of the Regional Center for Sustainable Economic Strategies (CREES), Miguel Collado Di Franco, agreed that accumulated inflation since the last salary increase was 12.7% and that the 19% increase covers accumulated inflation since the last increase. , however, pointed out that wages should not be increased to cover price increases

“When wages are increased without the corresponding increase in productivity, what they do is increase costs in the economy, in addition to discouraging the hiring of formal employees, especially the youngest,” explained the economist and vice president of CREES.

He said that raising wages without taking into account the productivity levels of each company, what it does is create distortions such as informality, youth unemployment, increased consumer costs and loss of competitiveness.

He explained that a series of structural reforms that CREES has been proposing for years should be implemented to improve the business climate and have more formal, more productive enterprises, and therefore, better wages can be paid.

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