New minimum wages in Nicaragua

Though the minimum wage was increased, the rise in the cost of the basic food basket, new taxes and social security benefits will bring a rise in prices and inflation

Though the minimum wage was increased, the rise in the cost of the basic food basket, new taxes and social security benefits will bring a rise in prices and inflation

As of Sunday, March 1, more than 100,000 workers, mostly from the formal sector, will receive an adjustment in their salary that will be reflected in their paycheck of the first half of March, as established by the Ministry of Labor (Mitrab).

Though the minimum wage was increased, the rise in the cost of the basic food basket, new taxes and social security benefits will bring a rise in prices and inflation

The wage increase will be between 109.84 and 245.81 córdobas, equivalent to a 2.63% increase. The adjustment was agreed for nine of the 10 blocks of economic activities that make up the Minimum Wage table, which is governed by Law 625.

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An eight percent increase was already applied last January to the free zone regimen.

Although constitutionally and the same Law 625 establishes that the minimum wage must benefit all workers so that they can meet their vital basic needs, the truth is that it is generally only paid by companies that are fully registered (complying with all the norms) and to a lesser extent informal sector and black market.

After months of remaining hidden, this month it was revealed that in 2019 the cost of the ‘basic family basket’ had risen more than 700 cordobas, which coincided with the implementation of the tax reform and the discretionary increase of almost 20% in the electricity tariff, as well as the almost consecutive rise in the price of fuels.

In addition to the salary adjustment of 2.63% in the minimum wage, that employers have to adjust their payroll so that workers on March 15 receive a little more money, there are other items that affect workers:

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1. Overtime. From March 1, all workers who earn the minimum wage and work more than eight hours a day, by law, there will be an upwards adjustment to overtime pay.

2. Pay more for INSS. While on the one hand workers will be paid more, they will also see and increase in their contributions to their social security.

3. Increase in income tax. Although most minimum wage workers do not pay income tax (IR), those who earn more than 8,333.33 cordobas monthly will feel a slight increase in the burden of this tax.

The increase will not relieve loss of purchasing power

Economist Luis Murillo insisted that this adjustment in minimum wage will not be able to alleviate the loss of purchasing power and, on the contrary, will bring a rise in prices, not including the increase in other tax burdens.

“This does not improve the purchasing power, rather it affects inflation, it affects devaluation and still that increase means will bring price increases because retailers, in the face of an adjustment, however small, it increases prices,” he said.

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The economist stressed that with the recession, the Nicaraguan pocket has become smaller because there is less work, “less income and more is paid for the basic basket, more is paid for services, the tax burden increased, the worker feels their salary slip through their hands”.

Another point to note is that this adjustment will the only of the year and not as in previous years where two wage adjustments yearly are made.

 

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