The minimum wage in Colombia will rise 10.07% next year to hit 1 million Colombian pesos (COP) per month (approximately USD 250) — the largest increase seen this century.
With inflation taken into account, minimum wage earners will see their spending power increase 4.77%, representing the greatest real terms rise in four decades, according to La Republica.
Transport subsidies will be set at 117,172 COP (approximately USD 30), representing a similar percentage rise to the minimum wage in Colombia. Anyone earning up to twice the minimum salary in Colombia is eligible for transport subsidies, which must be provided by the employer. Transport subsidies are treated separately from salaries, as they are excluded from tax calculations.
The historic rise was confirmed on December 14, a day after President Ivan Duque had suggested the rise could reach 10.07% and insisted he had backing from the business community for such an increase.
“This did not happen overnight. I have been doing this analysis for several months with the Ministry of Finance, with the Ministry of Labor. I have been having meetings with businessmen for more than three months,” Duque was quoted as saying by El Tiempo.
According to the most recently available figures from DANE, the Colombian statistics agency, in 2020 Colombia’s workforce totaled 20.1 million people, of which 10.1 million earned a minimum salary or less.
That included 4.1 million earning the minimum salary, while 6.1 million earned less than half of the minimum salary, which in 2020 stood at 877,803 COP (approximately US $219).
Approximately 48.5% of the workforce works in the informal sector, according to a recent study from Colombia’s EAFIT University – a rise of 1.3% on the previous year following a general pattern of decline over the previous decade.
Minimum Wage in Colombia remains below regional average
While the hike in the minimum wage in Colombia is an historic one, it still remains below the average for South America, which is around US 267 per month. Although, with the transport allowance taken into account, people earning minimum wage in Colombia will receive more than that figure.
Uruguay has South America’s highest minimum wage, which in 2022 will be set at 22,245 Uruguayan pesos (approximately US $503) per month. Meanwhile, Chile has the continent’s second highest minimum wage, where it was set at 337,000 Chilean pesos (approximately US$400) in May 2021.
The lowest is found in Brazil, where the minimum wage will rise to 1,210 Brazilian reais (approximately US $213) in 2022. That falls slightly below the minimum wage in Peru, which sits at 930 Peruvian soles (approximately US $229.50).
Note that Venezuela has been excluded from this comparison, owing to the difficulty of analysis based on currency conversions in the context of the country’s massive inflation due to ongoing political and economic turmoil.
The Caribbean nations of Guyana and Suriname and French overseas territory of French Guiana have also been excluded.
However, while the new minimum wage in Colombia will be below the regional average, when the comparison takes into account gross national income (GNI) – a figure based on gross domestic product (GDP) per capita that is used as a key indicator of prosperity – the spending power of minimum wage earners in Colombia is comparable to those in the likes of Argentina, Chile, and Uruguay, where the minimum wage is higher.
Colombia a prime destination for investment & tech talent source
For many investors, the rise in the minimum wage in Colombia will not have a major effect because their operations are based around skilled or highly-qualified employees who earn significantly more – such as IT workers or local executives.
Even for those in sectors that use minimum wage labor, the country remains an enticing destination for investment.
Colombia is one of the most popular destinations in Latin America for foreign direct investment (FDI), with US $13.99 billion of inflows entering the country in 2019, according to World Bank figures.
That represented 4.5% of gross domestic product (GDP) – with FDI as a percentage of GDP following a fluctuating but generally upward trajectory over recent decade, highlighting the growth of foreign investment in the country.
While Colombia’s economy experienced significant turmoil due to the COVID-19 pandemic, the World Bank has predicted that it would register GDP growth of 7.1% by the end of 2021 – recovering the losses from the previous year.
Colombia is famed for its coffee production and agricultural output, however its number one export product by value is petroleum oil. It is also one of the major sources of emeralds and has significant deposits of other precious gems and metals. Cut flowers, fruits, and nuts, are also major goods for the export market.
Colombia is also increasingly being recognized as a source of tech talent, with outsourcing in Bogota an increasingly popular option among companies seeking IT workers, while second-largest city Medellin has been named as one of Latin America’s new ´Silicon Valleys.’
Biz Latin Hub can assist you doing in business in Colombia
At Biz Latin Hub, we have the people in place to assist you in entering the market and doing business in Colombia.
We help clients bridge the cultural and linguistic gap when expanding into new markets within Latin America and the Caribbean, providing tailored packages of integrated back-office services to suit every need.
Our portfolio includes company formation, accounting & taxation, due diligence, legal services, and hiring & PEO, among others.
Whether you are planning to launch a manufacturing operation using workers on minimum wage in Colombia or need to hire a team of highly skilled IT developers, we can help you every step of the way.
We also have teams in 15 other markets in Latin America and the Caribbean, so we are ideally placed to support multi-jurisdiction market entries and operations.
Contact us today to discuss how we can support you.
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