The recent announcement of President Gustavo Petro with regard to the minimum wage increase of 2025 in Colombia, With an increase of 9.54%has fueled intense debates in economic and labor circles. Although the measure aims to improve the quality of life of employees, especially in the midst of high inflation, the implications extend the implications much further than the immediate perception of its beneficiaries.
Although the minimum wage is designed as an aid to protect employees, damages for those who want to help it the most. In economies such as those of Colombia, where about 55.6% of employees are active in informal marketsA substantial increase in the minimum wage can exclude more people from formal employment. Small companies, which are confronted with higher labor costs, are forced to reduce assumption, resort to informality or even stop activities.
For example, a significant minimum wage increase in South Africa in 2019 led to a contraction of formal employment, in particular in labor-intensive sectors such as agriculture and production. This phenomenon not only limits the opportunities for work, but also worsens inequalities on the labor market.
The inflatory effect and the costs of well -being
The inflatory impact is another critical aspect. As labor costs rise, companies pass on costs to consumers in the form of higher prices, which reduces purchasing power, even for those who do not earn the minimum wage. In Colombia, experts love Carolina Soto, former Co-Director of the Central BankHave already warned that this increase could extend the high interest rates and prevent the inflation reduction, which exists the costs of living for most Colombians.
A historical example is Venezuela, where drastic and frequent minimum wage increases, not accompanied by corresponding productivity gain, contributed to hyperinflation that destroyed the economy and further poor citizens.
Without a minimum wage: the case of Denmark
Some economies have chosen not to determine a statutory minimum wage, depending on alternative mechanisms to regulate the labor market. For example, Denmark lacks a legal minimum wage. Instead, wages are negotiated by collective agreements between employers and trade unions, resulting in competitive wages and favorable employment conditions.
With this model, wages can adapt flexibly according to the skills and productivity of employees, which promotes significant economic efficiency. Moreover, The long -term unemployment rate of Denmark is currently approximately 0.9%Reflection of one of the lowest unemployment levels in Europe and a high quality of life – indicators that support the success of this approach.
However, the absence of a statutory minimum wage requires a robust institutional framework and strong trade unions to effectively represent the interests of employees. This shows that this model is not a universal solution, but an opportunity to structure more efficient labor markets that are tailored to the principles of economic freedom.
Although some claim that the minimum wage is needed to guarantee a decent standard of living, others consider their implementation as an obstacle to economic growth and the creation of jobs. The real solution can be at central place: policy that reduces productivity, reduces informality and encourages individual negotiations between employers and employees.
An innovative example can be the implementation of sector -specific ‘negotiated wages’, whereby every industry determines minimum wages on the basis of its unique conditions. This practice, used in countries such as Germany, balances the protection of employees with the flexibility needed to maintain the competitiveness of the company.
The role of productivity
The relationship between minimum wage and labor productivity is complex and varies in economic contexts. In economies without a legal minimum wage, such as Denmark, wages often reflect the productivity of employees. This approach encourages employers to hire efficiently and employees to develop skills that increase their market value.
Conversely, in systems with a high minimum wage, companies have difficulty retaining less productive employees, especially in sectors with low skills, which may lead to higher structural unemployment. However, a moderate minimum wage can also encourage employees to reach higher productivity levels to justify their employment.
This contrast suggests that productivity is inherently connected to the design of the labor market. The existence or absence of a minimum wage must be evaluated by considering its impact on innovation, investments in the field of human capital and the overall economic efficiency.
To a sustainable future
The minimum wage increase of Colombia, although well -intended, offers a limited solution for deep structural problems such as informality, low productivity and inequality. The country needs an open discussion about alternatives that respect economic freedom and promote general well -being, avoiding the adverse consequences that are historically accompanied by poorly planned wage increases.
Colombia can learn from international experiences and take on innovative solutions that enable employees to thrive in a dynamic, competitive and less regulated market. Only then can the nation build a sustainable path to true prosperity.
Omar Camilo Hernández Mercado is a law student at the Universidad Libre de Colombia, senior coordinator of Students for Freedom In Colombia, and a seminarist in “The Austrian school of Economy” on the International Bases Foundation.