It is now official; the 2022 unified base salary (SBU) will be $425.
Tonight, December 13, 2021, President Guillermo Lasso announced that there would be an increase of $25 over last year. It is the largest salary increase since 2013, when the salary increased by $26. This latest increase will become effective in January 2022.
On November 30th, the Ministry of Labor gave an extension for business and union leaders to try to reach an agreement by December 22, 2021. However, President Lasso advanced the announcement for today.
In his presidential campaign, Guillermo Lasso offered that in his government the salary would reach $500 a month. However, when he offered it, he did not give a deadline to fulfill his promise. Today Lasso said the increase is not done just to fulfill a campaign promise. It is done “out of an absolutely real conviction” that economic recovery “must first reach the workers who make the economy grow.”
“It’s an additional $ 25. In a single year, we make an increase equivalent to the sum of the last four years. It is the highest percentage increase in eight years,” said the President.
Lasso added that his government “has generated in the history of Ecuador the greatest confidence to invest and generate opportunities,” but that this reactivation “must be felt first and foremost in the most humble homes in Ecuador.”
“It must be felt … in their food plates, in the purchases in the pantry, in the utility bills, and in every pocket of every Ecuadorian worker,” he said.
How much the minimum wage could go up, according to experts
Experts said that the increase could be much less than that announced today by Lasso. Economic analyst Víctor Hugo Albán said in November that “technically speaking, the increase must be $5,” referring to the technical elements (such as inflation, among others) that the regulations consider for increases.
However, Albán said that “politically, it could reach up to $10 in 2022,” clarifying that this additional increase would depend on negotiations between employers, employees, and the government.
The reason why Albán said that the increase would not be so high is because in 2021 there was a slight economic recovery, which would make the increase viable. “But it is by no means the growth that was expected, so it cannot be negotiated that way,” he said, referring to the requirement to increase the basic salary by $25 for next year.
In tonight’s announcement, Lasso also made reference to the fact that the Ecuadorian economy has grown in 2021 and that it will also grow in 2022, according to projections by the Ecuadorian Central Bank and the International Monetary Fund (IMF). At the end of November 2021, the Central Bank of Ecuador (ECB) said that by the end of this year the country’s economy would grow by 3.5%. By 2022, the increase could be over 2.54%, according to the Central Bank, and be 3.5%, according to the IMF.
Other increase proposals
On November 23rd, the Unitary Workers’ Front (FUT) proposed that the salary increase be $25 every 6 months. Thus, the FUT said, it would go from $400 – the value it had in 2021 – to $500 in two years. Today Lasso announced an increase of $25 this year but did not confirm whether the increase would be similar in the coming years.
The FUT also proposed that the increase be semiannual; however, this frequency is not possible.
The lawyer José Mejía, an expert in labor law, says that it is not possible to do it every six months because article 117 of the Labor Code speaks of doing it on an annual basis. This part of the law says verbatim, “The State, through the National Salary Council (Conades), will annually establish the unified basic salary or salary for private workers.”
How is the Unified Basic Salary calculated in Ecuador?
It is discussed each year in the National Salaries Council (Conades) made up of a representative of the workers, employers, and the Ministry of Labor. They must reach an agreement to define the value of the next year.
When there is no agreement, it will be the responsibility of the Ministry of Labor to set the new salary. In the 20 years that this system has been used, an agreement has been reached only once: in 2016, when the basic salary went from $366 to $375.
The analysis takes several months. The Conades summons the meetings, they form commissions to discuss different points and for 3 months they analyze everything related to the SBU. At the end of this period, the Council issues a report for the Minister to analyze and make decisions.
The value of the basic salary depends on several factors. Inflation is one of them, but it is not the only one. According to article 126 of the Labor Code, the basic salary must also take into account the “suggestions and motivations of the interested parties.” For this reason, three parties participate in Conades: employers, worker,s and the Ministry.
The same article of the Labor Code says that the basic remuneration must be sufficient to “satisfy normal needs” of the life of the worker and his family, which are established in the Basic Family Basket (CFB). This includes goods and services that are “essential to meet the basic needs of a home,” such as rent, clothing, personal cleaning products, and many others.
Another factor that is taken into account is the economic growth of the country, an indicator of how the national economic situation is. In 2020, as a result of the Covid-19 pandemic, the economy contracted by more than 8%. That is why there was no salary increase in 2021. This year, the economy has recovered slightly, which, according to the president, justifies the increase of $25.
I hope President Lasso starts reducing the ISD 5% capital exit tax . After the airline exemption, I think that tax is still about $4.5 billion of annual revenue, but it’s a killer to foreign investment. I hope he feels confident enough in the economy to take the first step towards eliminating the exit tax over his first term, as he campaigned on.