Basic Unified Salary remains at $400 for 2021 due to negative inflation forecast

Published on December 01, 2020

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The new Unified Basic Salary (SBU) of the Ecuadorian worker for 2021 remains at $400. This was decided by the Ministry of Labor, after the workers and employers did not reach an agreement in the National Labor and Wages Council (CNTS), made last Friday. The announcement was made by the Minister of Labor, Andrés Isch.

The CNTS, made up of representatives of workers and employers, did not reach an agreement on Friday to set the basic salary for 2021. That meant that a formula, established by the Ministry of Labor, had to be applied.

In the meeting, the representatives for the workers originally proposed a salary increase of 20%, $80. Another proposal from the workers was to increase the wage in the sectors with higher productivity during the pandemic.

Their last proposal was a 5% increase, or $20 a month. These ideas were not accepted by the employers, according to Richard Gómez, president of the Central Unitaria de Trabajadores (CUT).

The workers had refused a proposal to keep wages the same for 2021, said Xavier Rosero, representative of the CNTS for the employers.

When a consensus is not reached, the formula is applied, established in the Ministerial Agreement MDT-2020-185, which considers nine factors: percentage of variation of the basic salary, weighting factor of the consumer price index (CPI), productivity factor labor, elasticity of employment, global participation rate, employment in the informal sector, among others.

According to an analysis carried out by Deloitte Consulting, the formula actually comes out to a lower value than the current $400 SBU, but by regulation the salary cannot be reduced.

This is the first time that no increase in salary has occurred. Before, they have been made and it was for 2020 the one that had the lowest increase of $6. Others have been $8, $9, $11 and even $28 in the last decade.

Government will give compensation “bonus”

Isch also announced that while there will be no increase in the SBU for 2021, there will be a bonus of $60 for those who currently work and earn the SBU, and one of $100 for those who lost their job during the pandemic and have not recovered it. These will be one-time bonuses.

“The National Government will guarantee the financing of these amounts and will transfer them through Social Security to the workers’ account,” said Isch.

He also said that the projected annual inflation for 2021 (-1.01%) was used for the salary calculation and the results were negative. If this information did not exist, the formula established in the Ministerial Agreement MDT-2020-185 would have been applied.

“Therefore, according to what the Labor Code establishes, there is no possibility of increasing the basic salary for 2021 and it must remain at $400,” he said.

Gomez from CUT said that he would file a constitutional action. “It has to be progressive and we are going to study with our law firm the possibility of demanding the unconstitutionality of the resolution,” he said.

Gómez refers to the Twenty-fifth Transitory Provision of the Constitution that states: “The annual review of the basic salary will be carried out progressively until the living wage is reached in accordance with the provisions of this Constitution. The basic salary will tend to be equivalent to the cost of the family basket.”

Cristóbal Buendía, the attorney for the Federation of Public and Private Workers (FTPP), who also demanded an $80 increase to the SBU, defended his position of an increase in accordance with the cost of the basic family basket, which in October stood at $710.74 (which should be pointed out is $5.40 less than last year). 

Workers and employers never agree on SBU

This is not the first time that the Ministry of Labor has been forced to determine what he SBU would adjust to in the following year. In fact, over the last decade, with the exception of 2017, the Ministry has decided the SBU every year.

In 2011, the SBU was set at $264, 10% more than the previous period. The calculation of the increase back then was based on only three indices: inflation, productivity and the equity variable.

Last year the SBU went up by 1.52%, or $6, raising the SBU from $394 to $400. This was done by calculating both inflation levels and GDP growth expected for the current year.

With the exception of 2017, when both the workers and the employers agreed on a raise to the SBU of $9, the worker’s and employer’s representatives have usually been very far off in their proposals.

Here are how negotiations played out over the last decade:

Year Employer Proposed Increase Employee Proposed Increase Gov. Formulated Increase Final SBU Cost of Vital Basket Cost of Basic Basket
2011 $10.00 $60.00 $24.00 $264.00 $548.63 $393.40
2012 $10.00 $100.00 $28.00 $292.00 $581.21 $421.07
2013 $11.68 $58.00 $26.00 $318.00 $601.61 $435.47
2014 $17.00 $33.00 $22.00 $340.00 $628.27 $449.54
2015 $13.26 $30.00 $14.00 $354.00 $653.21 $476.44
2016 Failed to meet Failed to meet $12.00 $366.00 $675.93 $487.65
2017 $9.00 Agreement $9.00 Agreement N/A $375.00 $701.93 $503.27
2018 $3.00 $25.00 $11.00 $386.00 $712.03 $502.74
2019 $4.00 $22.00 $8.00 $394.00 $719.88 $503.70
2020 $3.30 $15.00 $6.00 $400.00 $716.14 $508.52
2021 $0.00 $20.00 $0.00 $400.00 $710.74 $500.37
Totals $81.24 $372.00 $151.00

CNTS and new formula

The National Labor and Wages Council (CNTS) is the tripartite body—made up of representatives of the government, employers and workers—of a consultative and technical nature of the Ministry of Labor, which is in charge of social dialogue on labor policies and consensus setting the SBU for each year.

The Constitution, in its article 328, indicates that the remuneration will be fair, with a decent salary that covers at least the basic needs of the worker, as well as those of his family. It is also indicated that the State will set and annually review the SBU established by law, of general and mandatory application.

To fix the variation of the SBU, the CNTS—within the terms established in article 118 of the Labor Code—will call itself to meet on November 20. The second subsection of article 118 of the code determines that in the absence of consensus between employers and workers, it will be the Ministry of Labor who will set an increase percentage, for which it will request an updated projection from the competent entity as of the date of the consumer price index (CPI) for the following year.

The Miniserial Decree No. 2020-185 MDT established that in case of not having an updated projection, this component will be supplied using a formula containing multiple variables including the CPI factor of labor productivity, employment elasticity, overall participation rate, employment in the informal sector, and others.

The MDT-2020-185 agreement specifies that in no case will an SBU be set lower than the current period, even if the result of the projected variation of the CPI or of the formula used by the Ministry of labor is negative.

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