Background on the Colombian Salary Increase
The Colombian government has announced the new minimum wage for 2026, which marks the third consecutive year it has been set by decree rather than consensus in the Concertation Commission. The executive branch decreed a 23% increase, the highest single-term adjustment in recent history. Consequently, the minimum wage will rise from $1,423,500 to $1,750,905 (approximately $467 USD).
Additionally, the transportation allowance will be set at $249,095, making the total minimum wage $2 million (approximately $539.6 USD). This proposal by President Gustavo Petro to establish a living wage of $2 million has ignited debate among business leaders, economic analysts, and lawyers.
Experts’ Concerns Over the Impact on Businesses
Camilo Cuervo, a partner at Holland & Knight, warns that the government-decreed increase is “substantially high” compared to inflation. He explains that the new base salary, set at $1,750,905, nearly quintuples inflation, which could further strain the already limited formal labor market in Colombia.
Cuervo highlights that sectors with high labor intensity, such as private security, face a critical situation. Many companies, he says, “literally do not know how to pay the January payroll.” He anticipates that this adjustment will immediately translate into higher service costs, particularly for security and surveillance.
The impact will also extend to mass consumption businesses like restaurants, pizzerias, and retail stores where labor costs can account for 60% to 70% of total expenses. Cuervo estimates that the salary increase could result in price hikes of 15% to 20% within the formal economy.
Potential Adverse Effects
From Cuervo’s perspective, the measure will have immediate negative consequences on inflation, informality, and employment. In this scenario, he warns that businesses will face only two options: raising prices or cutting costs, potentially leading to layoffs and increased informal employment. Cuervo describes the decision as populist, stating that it will create “more problems than it aims to solve,” while pressuring inflation and directly affecting workers, especially in rural areas and low-productivity sectors.
Comparison with Proposed Adjustments
It’s worth noting that the figure exceeds both the proposal by business leaders, who advocated for a 7.2% adjustment in tripartite discussions, and the request by unions, which reached 16% during negotiations.
The Colombian National Employers Association has cautioned that the government’s unilateral decision bypassed established tripartite dialogue mechanisms in the Constitution and labor legislation.
Key Questions and Answers
- What is the new minimum wage in Colombia for 2026? The new minimum wage is set at $1,750,905 (approximately $467 USD).
- How did the government decide on this increase? The Colombian government decided on this significant 23% increase by decree, bypassing the tripartite dialogue mechanism established in the Constitution and labor legislation.
- What are the concerns of experts and business leaders? Experts, including Camilo Cuervo, warn that the substantial increase could strain the formal labor market and significantly elevate business costs, particularly in sectors with high labor intensity.
- What are the potential adverse effects of this decision? Cuervo anticipates that the measure could negatively impact inflation, informality, and employment, potentially leading to layoffs and increased informal work.
- How does this new minimum wage compare to previous proposals? The government’s decision exceeds both the 7.2% adjustment proposed by business leaders and the 16% increase requested by unions.
