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  • Multiples of the Minimum Wage

    March 5th, 2018
    econ
    Colombia has had high inflation for decades, averaging ~14% yearly since the 1950s. Talking to our au pair, who's from Medellin, one way Colombians have adapted to this is by tying many things to the minimum wage. For example, you might have a job that pays "five minimum wages," and whenever the government increases the minimum your employer proportionally increases your pay as well. If you look at presentations of the minimum wage they include a table of multipliers so people know what this means for them:

    Trying to read more about this, I found an article saying:

    De la mano del salario minimo se incrementa, por ejemplo, el costo del Seguro Obligatorio de Accidentes de Transito (Soat), la cuota moderadora en las EPS, las tarifas de las gruas y patios de las oficinas de transito y el aporte a pension de quienes ganan un salario minimo.

    Which I would very rustily translate as:

    When the minimum wage goes up so do, for example, collision insurance (SOAT), health insurance premiums and copays (EPS), traffic fines [?], and pension contributions.

    I'm used to the idea that some things would be tied to measurements of inflation, but attaching the increases instead to something explicitly under government control seems like it gives the government a powerful way to shape the economy. Similar to adjusting interest rates.

    I'd really like to learn more about this system and how it works in practice, but I haven't been able to find anything in English (and my Spanish isn't good enough to see otherwise). For example, I would expect the politics around the decision of how much to raise the wage to be even more complicated than they are here in the US, since it affects so much more of the economy. And how much really is tied to the wage? Is it a few things or mostly everything? Does anyone know more about how this works?

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