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Cablegate: Colombia's Minimum Wage Increased 6.4%

VZCZCXYZ0008
RR RUEHWEB

DE RUEHBO #0035 0031742
ZNR UUUUU ZZH
R 031742Z JAN 08
FM AMEMBASSY BOGOTA
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 0764
INFO RUEHLP/AMEMBASSY LA PAZ JAN CARACAS 9744
RUEHPE/AMEMBASSY LIMA 5764
RUEHZP/AMEMBASSY PANAMA 1053
RUEHQT/AMEMBASSY QUITO 6467

UNCLAS BOGOTA 000035

SIPDIS

SIPDIS

WHA/EPSC FOR PMAIER; TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN ELAB PGOV CO
SUBJECT: COLOMBIA'S MINIMUM WAGE INCREASED 6.4%

REF: BOGOTA 2

1. SUMMARY: Effective January 1, 2008, nearly two million
Colombian workers earning the national minimum wage will
receive a 6.4 percent raise. President Uribe announced the
increase after annual talks between labor unions and
employers to set the new wage broke down. Although the wage
increase exceeds inflation and the 2007 hike, legally
mandated increases in certain public services in 2008 risk
offsetting some of the salary benefit for low-income
Colombians. END SUMMARY.

GOC Announcement Breaks Labor-Private Sector Deadlock
--------------------------------------------- --------

2. After more than two months of negotiations between the
government, labor unions and private sector representatives
failed to reach agreement on the amount of the wage increase,
President Uribe issued a decree December 27 announcing the
increase of the monthly minimum wage to 461,500 Colombian
Pesos (approximately USD 230) from 433,700 (approximately USD
216). The increase for falls below the 10.5 percent increase
labor unions had demanded, but exceeded the 6 percent
increase advocated by the private sector. The announcement
represented the fifth time in the last eight years that the
government has had to set the new minimum wage rate by decree
following impasses in negotiations between the unions and
private sector.

3. The labor confederations which participated in the
negotiations represent about 797,000 workers, or almost 11
percent of Colombia's 7.4 million formal sector workforce.
The new minimum wage applies to both public and private
sector workers in the formal economy, but will not directly
affect the over 10 million Colombians who work in the
informal economy. The Ministry of Social Protection
estimates that over 1.9 million Colombian workers earn the
minimum wage and stand to benefit from the annual increase.
The government also raised the transportation allowance that
employers owe workers by 8.3 percent to 55,000 Colombian
Pesos (approximately USD 27).

Higher Wages, but Also Higher Cost of Living
--------------------------------------------

4. While the wage and transportation allowance raise exceeded
the final 2007 inflation rate of 5.7 percent and 2008 target
of 4.5 percent, Colombian law mandates annual price increases
of numerous public services based on the previous year's
final inflation rate. Such costs, including the obligatory
automobile insurance (SOAT), public school tuition, notarial
fees, transit tolls, and public hospital fees, tend to
disproportionately impact low-income Colombians, thereby
offsetting some of the benefit of the salary increase.

5. Labor union leaders publicly criticized the 2008 wage
increase as inadequate. The unions claim that the minimum
wage falls short of covering the average family's monthly
cost of living, which they estimate exceeds 900,000 Colombian
Pesos (approximately USD 450). Private sector
representatives countered that one most consider the
additional compensation mandated by law -- including social
security and other benefits -- which add 70% to the total to
the base wage rate and are part of the wage increase package.


6. Prominent local economic analyst Mauricio Cardenas
commended the GOC's decision to set a wage increase closer to
the overall inflation rate in order to control costs and
preserve competitiveness. Cardenas told econoff that he
considered the moderate increase prudent in light of an
expected gradual slowdown in Colombia's economy in 2008
(reftel).
Nichols

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