The announcement of a 10% increase in the Minimum Wage for all sectors in the two existing economic constituencies deserves a fact, not only because it is a reckless promise, but because I think it was not taken into account. to account for the latest results in terms of formal employment generation in Guatemala.
The first thing to point out is that I am very concerned about the entrenched nature of some unfounded ideas in the country. For many years Guatemala has had less than encouraging figures regarding the appearance of new employers, new job creation, and improved salaries; However, since 2020 it is necessary to recalibrate the scale of measuring these indicators in Guatemala, with a post-pandemic reality very different from the one that some analysts always have in mind.
In terms of new employers registered in the IGSS, between 2013 and 2019 there was an increase of 2,258, which equates to an average of 376 new employers per year. Between 2020 and 2024, the number increased by 16,144 employers, which means more than 4,000 new employers per year. In terms of affiliates, the IGSS reported an increase of 128,521 between 2013 and 2019, or equivalent to 21,420 new members per year. However, between 2020 and 2024, this figure increased by 377,420 affiliates, which means an average of 94,355 new members per year. And in terms of salary, between 2021 and 2024 it increased by Q 693 per month, going from Q 4,987 to Q 5,680 per month in that period, figures that are well above the Minimum Wage.
The truth is that it is not wise to take a one-size-fits-all approach to addressing a heterogeneous subject. In other words, any serious consultant would suggest moving away from a uniform measure that seeks to fit an entire country with the same fit.
And do you know who is the big beneficiary in this situation? The numbers show that it was the Government. If the collection target is contrasted with the effective collection reported by SAT between 2021 and 2024 (data from September), the average implementation was 116.09%, which represents Q 46,545 million in additional collection than planned in the preliminary project budget. The most notable items? Well, the four taxes together account for more than 85% of the collection at the SAT (2024 data): the Solidarity Tax (ISO) with 134.4% enforcement, the Income Tax (ISR) with 125.8% enforcement, the Internal VAT with 117.7% enforced, and the VAT on Imports with 108.3% enforced.
Now, these values correspond only to formality, but that does not mean that they can be ruled out. According to official sources (INE and BANGUAT), although only 29.70% of the Employed Population (about 1.96 million Guatemalans) work formally, they are responsible for producing 78.88% of the national GDP. In contrast, the remaining 70.3% of the Employed Population (more or less 4.63 million people) barely produce 21.12% of the national GDP.
I would like to divide my conclusion in this regard into two parts. First of all, in this period of clear growth, the Minimum Wage has increased, but under predictable conditions and with technical support, which has helped the country progress and improve conditions for formal workers. Now, for an informal sector where these measures are not applicable, it is naive to believe that things are changing. If the challenge is to improve employment conditions, the challenge is to get more people into the formal sector, and this is achieved by measures that facilitate hiring instead of hindering it.
And the second part of my conclusion is that much more technical support is needed to support these kinds of promises. Guatemala is far from being “average”, showing significant dispersion whether the available information is disaggregated at a sectoral or territorial level. I wish there were more details to inform this analysis, but the truth is that it is not wise to take a one-size-fits-all approach to a diverse topic. In other words, any serious consultant would suggest moving away from a uniform measure that seeks to fit an entire country with the same fit.
Interview between Time.news Editor and Economic Expert
Editor: Good afternoon, everyone. Welcome to Time.news. Today, I’m thrilled to have with us Dr. Ana Pérez, an esteemed economist focused on labor markets and economic policy in Guatemala. Dr. Pérez, thank you for joining us.
Dr. Pérez: Thank you for having me. It’s a pleasure to be here.
Editor: Let’s dive right in. Recently, there was an announcement about a 10% increase in the minimum wage across all sectors. Many are calling this a reckless move. What are your thoughts on it?
Dr. Pérez: I certainly share those concerns. While raising the minimum wage might sound appealing at first, such a one-size-fits-all approach ignores the complex realities of our economy. It fails to account for the substantial formal employment generation we’ve seen post-pandemic.
Editor: That’s an interesting point. Can you elaborate on the changes in employment figures since 2020?
Dr. Pérez: Absolutely. Between 2013 and 2019, Guatemala saw an average of 376 new employers registered annually. But since 2020, this number skyrocketed to over 4,000 new employers per year! Likewise, while there were only 21,420 new members registered between 2013 and 2019, we’ve welcomed almost 94,400 new affiliates yearly in the last four years. These trends indicate a growing job market.
Editor: That’s a significant shift. How does this increased employment come into play with the proposed wage hike?
Dr. Pérez: Exactly! We’ve seen salaries grow, with increases of over Q 693 a month from 2021 to 2024—well above the current minimum wage. A blanket increase could stifle this momentum and discourage new employers from entering the market.
Editor: So essentially, you’re advocating for a more nuanced approach to wage policy?
Dr. Pérez: Precisely. We can’t address such a heterogeneous issue with a uniform measure. Any serious economist would suggest customizing approaches that fit the diverse economic landscapes within Guatemala.
Editor: That’s a valid perspective. And in terms of government revenue, how has the situation evolved?
Dr. Pérez: Remarkably! The SAT reported an average collection rate of over 116% from 2021 to 2024, outpacing projected targets significantly. Taxes like the Solidarity Tax and Income Tax have even surpassed their targets by impressive margins. It’s clear that this structure is benefiting the government in terms of collection, but we must ask—at what cost to the workforce?
Editor: It seems there’s a concerning imbalance. In your opinion, who ultimately benefits from this situation?
Dr. Pérez: While the government is seeing a windfall in tax revenue, it’s crucial to ask whether this benefits society as a whole. Increased revenues should translate into improved public services or support for the lowest-income workers, not just into government coffers.
Editor: That’s a critical point. As we look ahead, what do you think the government should prioritize to foster sustainable economic growth?
Dr. Pérez: The focus should shift to creating an ecosystem that nurtures businesses of all sizes. Policies that enhance productivity, provide training, and support innovation can yield a more dynamic labor market that can sustain higher wages without forcing cuts or freezing hiring.
Editor: Thank you, Dr. Pérez. Your insights prompt a deeper reflection on how wage policies can be better tailored to our local economic landscape. We appreciate your time.
Dr. Pérez: Thank you for having me. It’s important we continue these discussions.
Editor: And thank you to our audience for tuning in to Time.news. Until next time, stay informed!