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Minimum wage workers losing buying power

Alexander Porras’ job as a public works technician for San José’s municipal water department provides him with enough income to make a modest living. He earns a little more than the minimum wage for his position, but strangely his living conditions haven’t improved much. He can barely buy the same goods and services he did 13 years ago.

Porras’ case illustrates one of the main challenges of salary policies in Costa Rica: figuring out a way in which each pay raise surpasses inflation rates and actually allows workers to attain greater purchasing power.

However, before even discussing the goal of setting fair salaries that improve workers’ lives, the government faces a more immediate problem – how to get employers to pay what they are supposed to.

Today, 28 percent of private sector workers earn less than the minimum wage established for their occupation. This includes not only less-skilled workers, but also professionals. The findings are a result of a study published by the Institute for Investigations on Economic Sciences at University of Costa Rica (IICE).

Equally troubling, another study by Estado de la Nación (State of the Nation), a Costa Rica-based research group, revealed that 29 percent of all workers in both private and public sector jobs don’t receive a “minimum minimorum,” a term that refers to the base income required for a family to afford the basic food basket. In Costa Rica, that adds up to $440 per month.

In turn, low wages directly impact the country’s social safety net. If all companies had paid their employees the minimum wage in 2008, extreme poverty rates would have decreased by 5 percent, according to the Estado de La Nación report.

Most employees earning less than the minimum wage work for small or informal businesses. They are agricultural laborers and construction workers. Many are young. Some dropped out of school. A disproportionate number are women, the IICE study shows.

But why would an employer risk violating the law to pay workers less? In some cases, business managers are unfamiliar with labor regulations. In other cases, owners may be greedy, or simply unable to afford to pay their employees. Whatever the case, these companies could face tough economic sanctions that total in the millions of colones.

“Many companies do not comply with minimum wages because of ignorance. After a while it becomes clear that middle managers aren’t capable of applying the law correctly,” said Rodrigo Acuña, coordinator of labor inspections at the Labor Ministry.

“On the other hand, some employers just take advantage of a worker’s misery, and those with less education are the main victims. They’re forced to work long shifts under exhausting circumstances,” Acuña said.

Juan Diego Trejos, assistant director at IICE, offered a legal analysis: “In a way, I would say the law encourages minimum wage violations. Usually employers who are caught are not fined unless they continue doing it, and if they ever get fined, workers do not receive any extra compensation to catch up with the money they did not earn.”

The Labor Ministry has launched a marketing campaign appealing to the good faith of employers when it comes to complying with the law. The campaign also encourages employees to file complaints with the ministry, so inspectors can be assigned a case.

However, labor officials admit that detecting and processing violations is difficult. Labor Ministry officials don’t even know how much money they’re spending on the campaign, nor are they able to track its effectiveness. And so far, ministry officials only keep track of the businesses that have corrected their payrolls based on follow-up visits by inspectors.

“The campaign has been successful, but the [Labor Ministry] lacks statistics to compare results with the amount of complaints that were filed,” Acuña said. “The International Labor Organization recommends that one inspector be on duty for every 25,000 workers, which we have implemented. Unfortunately that’s not enough. Auditing salaries is complex and requires a lot.”

Since 1999, basic salaries in Costa Rica are calculated to meet rising inflation. This is meant to keep wages competitive and relieve the burden to employers in times of crisis. Unfortunately, this calculation is also responsible for freezing wages too.

“Twelve years ago, workers, employers and government authorities implemented a model to increase wages based on accrued inflation rates. The system is fair enough when the economy is not growing so well, but when the economy improves and inflation is not that high, wages get stuck,” said Trejos.

Costa Rica’s wage situation is not so different from the rest of Central America, especially Nicaragua and El Salvador, where salaries have had little growth in the past 10 years.

So far, government officials say they are open to discussing new methods for calculating minimum wages in coming months. Meanwhile, Porras, the municipal water department technician, breaks a city street with a heavy jackhammer. He’s come to accept that more money does not mean better opportunities. Nevertheless, he is grateful for not having to go back to his prior job at a textile factory, where he made less money. It was less than minimum wage, he said, but he couldn’t afford to say no.

‘A Lot To Be Done’

For Labor Minister Sandra Piszk, addressing the issue of minimum wages has become a personal crusade. Piszk believes that employers must comply with the law, even if it means shutting down small business that can’t afford to. The Tico Times recently spoke with Piszk.

Excerpts follow:

TT: How long will this campaign continue?

SP: This is an initiative that will last until the end of Laura Chinchilla’s presidential term.

What are the results so far?

In general terms, about 40 percent of all companies inspected for the first time had infringed on the law. After a second visit, 80 percent corrected the problem.


Are you satisfied with these figures?

Yes, we are satisfied, but it is also important to clarify that we still have a lot of work ahead. For instance, we are coordinating the dissemination of our plan through the major private business chambers and associations. We want them to acknowledge the fact that paying minimum wages is an obligation, but also a way to help the Costa Rican economy.


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