Today's La Prensa announces a Christmas present to employers and employees that neither should be too happy about. The increase in minimum wage has gone from $357 to $416 a month, a 16.5% increase starting January 1st. Of course the employed wrongly believe the amount is too little and the employers think any amount is too much. Nobody truly wins, not even the government because public revenues will decrease significantly as a wave of layoffs and firings will surely follow, starting right here in our businesses in Boquete. Not only do we have an increase in minimum wage of about 16.5%, but we have to add the various labor burden which in Panama is about 45%. So, this is a major increase in the cost of doing business that will affect everybody.
Does anyone seriously believe that employers just accept an increase in cost and won't pass it on to the consumer or next level in the supply chain? If a business buys goods and those goods increase from the wholesaler, the business will increase the retail price to reflect that increase in order to maintain a reasonable profit. Most legal businesses operate on a margin that provides a reasonable profit for the investment of time, money and level of risk. If they can manage a 20% gross profit they consider themselves doing well. When the cost of labor is forced to increase by the government with no forced increase in productivity or sales, the business must either increase the cost of goods or cut the number of people who do the work in order to keep profits in line. The government receives greater tax revenues initially until lower employment comes in and places a greater burden on society.
We pay many of our employees a much higher wage than minimum, but this increase will end up costing them too as they will be forced to work harder and longer to make up for the lost man power. They will be paying higher costs of goods and services needed by their families making their paycheck much smaller. Everything from banking fees to utilities will be raising prices this year in order to collect for this increase in wages. Panama will lose a lot of business as they will become less competitive in the world market place. Forced wage increases are inflationary as their is no balance in productivity or sales.
So this morning, just a few days before Christmas, I called our human resources department and ask for a report on what this will cost our various business operations. Here is an overview of what we will do in each one, which will probably apply to most businesses in Panama. Business owners all over the country will be spending their holiday time thinking about who to fire and how much to increase prices.
Construction: About 80% of our construction workers are under the new minimum wage limit. For contractors who are building a home at a fixed price they are really in trouble because their contracts won't allow them to increase the cost of the home. They will have to fire some of their workers and demand an increase in productivity from the others or just lose money on the job. In our case we work on a percentage over actual costs so we just pass this increase on to the home owner. You might say we are lucky, but not really. The increase costs of homes will make people looking for new homes consider other places than Panama, because it will be cheaper. Our construction company will have fewer homes to build in the future so we will have less business and will let workers go or just close entirely.
Heavy Equipment business- Our earth moving equipment has drivers that make well above the minimum, but the companies who service the equipment, supply parts and fuel will surely raise their prices forcing us to raise ours. In the end we can be sure that many operators will go out of business as the amount of overall business decreases, forcing price wars for this type of equipment. Many operators will be forced out of business and those equipment operators will go back to working for minimum wage if they can find a job at all.
Security company: As we have yearly contracts to supply security services at a set price we will be forced to absorb the increase in labor costs for the remainder of the contracts. Then we will increase the next year contract significantly to make up for our losses this year. The various businesses we protect will be forced to increase their prices to compensate for these significant increases.
Hospitality: The hotel employs workers in front desk, housekeeping and maintenance. Our room rates cannot be increased (except for walk-ins) for our wholesalers because the rates were set months ago and advertised internationally. So some of the workers dealing with hotel operations and maintenance will be let go and those left will have to be more productive. Our service level will decrease due to less staff, but people expect lower quality of service in Panama, don't they? Many small operators will be able to raise their room rates, but they will lose overall business to larger operators who provide more amenities for the same price.
Restaurants: Here we can immediately increase our menu prices to cover the costs, but this will probably result in less business overall which will then force us to cut employees. Many small restaurant operators will not be able to bare the loss of customers and will have to close.
Property management; We will have to increase the cost of monthly maintenance fees on property which will force property owners to either pay more or do without property management. As some will surely react by ending their contracts, we will have to let people go in relation to this.
Golf course-As this is very labor intensive operation we will raise course fees and eliminate a few employees. The quality of the course will suffer, but we will stay in business. The higher rates may keep some golfers from playing at all.
Country club: Our members will receive a higher monthly charge and I am sure some will just end their membership, stay home and watch TV. Based on the how many don't renew we will determine the number of workers to let go.
Retail shops- We will increase the selling price of the goods and hope people continue to buy. If not we close it and let the workers find work elsewhere.
Health Spa-This is a business that is labor intensive. They work on minimum wage plus commissions which usually more than doubles their wage. We have to honor their contracts that were put into effect before the increase, but as our base costs have just gone up, we must increase the cost of the goods used and fees paid by the client which will surely result in fewer clients, lower overall income and fewer staff required.
Suck it up!
These are some of the businesses we are involved with and I am sure all of my fellow businessmen are doing exactly the same thing I am. They better be or they will not be in business much longer. In the end we will probably end up letting 15-20% of our work force go over the next few months or as their contracts end. I am sure finding employment elsewhere will be more difficult as other businesses do the same.
Most people and governments fail to realize that their is a finite amount of resources (or money) in the world and it is just flowing around like the ocean currents seeking a place of lowest cost and highest return. When we arbitrarily set prices without respect to market forces we alter that local reality dramatically. Those resources just move to other places of equilibrium. This is just another example of where man thinks he can alter reality to suite his desires and he quickly learns the hard way when he is left with nothing except someone else to blame. Over the next year as unemployment increases and revenues decrease, few will remember this wage increase as the straw that broke the camels back, but in reality this act coupled with higher taxes is exactly the cause.
From La Prensa:
Minimum wage will rise to $ 416
The increases range from $ 30 to $ 95 per month. Employers warn that the decision-effective since January 2010 - raise the cost.
ohigginis arcia jaramillo jaramillo arcia ohigginis[email protected] [email protected]
The Federal Government yesterday approved the executive order establishing the new minimum wage which will come into effect from 1 January 2010.
The measure, which will reach to 250 thousand workers, including their classification into two areas.
For the one-zone formed by Panama, Colon, San Miguelito, David, Santiago, Chitre, Aguadulce, Penonomé, La Chorrera district Arraiján and Bocas del Toro-approved increases between $ 33 and $ 95. In other words, the new minimum wage will go from $ 357 to $ 416.
The rest of the country include the area two, which will increase between $ 31 and $ 95 per month. This means that the minimum wage will go from $ 349 to $ 416.
For both areas, the range varies according to activity and occupation.
As President, Ricardo Martinelli, described the increase as "an act of justice never before seen in the past 50 years," employers and employees are unhappy at the decision.
jaramillo arcia ohigginis
[email protected] [email protected]
Neither employers nor employees liked the new minimum wage decreed by the Government.
The National Business Council (Conep) reacted strongly minutes later to meet the new minimum wage.
Its president, Gaspar Garcia de Paredes, said that the National Government will increase the level of informality in our economy, destroy jobs in the country, reduce the competitiveness of companies who have to fight against imported products or to open up overseas market .
According to Garcia de Paredes, the private sector regrets not having been effective in illustrating the negative consequences that will result in the imposition of high minimum wage.
In this regard, the Commission proposes Conep Tripartite-private enterprise, workers and national government-to discuss a strategy for productivity and competitiveness for the country.
"We have proposed, for many years, started working in Panama with responsibility, in a strategy to increase competitiveness and productivity, so that together we can create more wealth and so all we can aspire to a higher percentage of that we have, "said Garcia de Paredes.
For employers, as costs increase proportionately, there is no change in the positions of competitiveness in the sector. And to this reality, it is expected that the increases caused by higher minimum wages will be reflected in sales prices to consumers, generating inflation.
Another group upset by adjusting the minimum wage was the National Council of Organized Workers (Conato), which expected an increase of $ 650.
Mark Allen, director of Conatus, said the increase fell short of expectations of workers who need better pay to cope with the high cost of living.
Allen acknowledged that it achieved the elimination of zone three, which will ensure an increase in zone one. But he noted that the adjustment should take effect this December, but the government established the new minimum wage will be in force January.
"With the entry into force of the adjustment in January, workers will lose a fortnight and we're right. We also regret that after this dismissals, provided.
It is noteworthy that the last adjustment was made in December 2007 when the increase was $ 25 for small business (fewer than 10 employees) and $ 40 for the large companies (with 10 employees or more).
The announcement of the increase gave the president, Ricardo Martinelli.
The president called on employers and said his government does not want unemployment or inflation, much less poverty, with the implementation of minimum wages. "This is an increase that employers accept fair, not only thinking about their profit margin," he said. According to Martinelli, this is an increased need for the working class, and which reverts to employers with increasing purchasing power of Panamanians.
The president said that with this new setting opens the road to a just wage across the country. The proof of this is that economic activities that have large profits, such as casinos, the electric generation companies and nightclubs, are those that pay more.
Executive yesterday published in the Official Gazette on Executive Order No. 263, through which sets new minimum wage rates across the country. The full document is published in the online edition of prensa.com.
$ 1.06 is the wage paid in the two regions in agricultural activity in the small and large companies.
$2.00 Remuneration is $ 2.00 for workers in the electricity sector, gas and water throughout the country.
$ 1.81 is what is paid in large hospitality companies in the region. Region 2, meanwhile, must repay $ 1.49. Small businesses in the region 1 will pay $ 1.55 and $ 1.29 released region 2
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