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The minimum salary (MS) can be a useful tool to prevent a strong employer with significant negotiation power from setting wages below the productivity levels of his workers. However, if the minimum salary is set at a high level, paradoxically, it may be detrimental for the population that should be favored.
Currently, the minimum salary level in Peru is high for micro and small businesses, which are unable of complying with it given their low productivity levels. This represents a serious obstacle to the creation of formal employment and thus excludes millions of workers from basic labor benefits. The methodology applied for updating its value worsens this situation because it does not take into account the MS value at the time, or the significant differences in productivity levels in businesses, according to business size economic sector, or geographical area.
If these problems are not corrected, the MS debate will continue to be dominated by political discourses and will remain disassociated from the reality of micro and small businesses in Peru.
APOYO Consultoría recommends two changes to the current methodology applied for updating the MS. First, the MS should be updated considering business size differences: micro and small business on one hand, and medium and large-scale businesses on the other hand. Second, when updating the MS, the salary levels observed in the two abovementioned segments, should be taken into account. Thus, MS raises would only be considered when the MS is lower than 50% of the average salary in each market segment.
The implementation of these changes would allow for an improved minimum salary policy in Peru, and as a result such policy would cease to be an obstacle preventing millions of workers from basic labor rights.