Increase in the minimum wage does not mean a better economic situation: expert – El Sol de México

He increase in minimum wage does not mean better financial situation for the working class, since these increases will affect them proportionally in the taxes that must be paid.

This is how the teacher considers it José Luis Vásquez Costaacademic coordinator of the Bachelor’s Degrees in Finance, Accounting and Business Management, of the Ibeoamerican University (UI), who in an interview with El Sol de México said:

“To the do not change or adjust tax tables to the income base “Workers who did not have Income Tax (ISR) withheld because they did not have the necessary amount to pay it, with these increases they will have to do so.”

Besides, will affect workers registered in Social Securitygiven that Increasing the salary also increases the contribution and with this, automatically the retention in the part that belongs to the worker increases, said the academic.

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Teacher Vásquez Costa believes that “the workers will really see a benefit in their pocket.” when the government can contain in the market the prices of the essential products from the basic basket”.

“When the government can guarantee that tortilla or gasoline prices do not increase, then we will really see a benefit in the country’s economy. As long as I cannot control them, in reality the effects that we can see of benefit to the workers will be null,” he stated.

Are salary increases eaten up by taxes?

-Yes, largely taxes. What I propose to workers is that they have to become very careful in the way they make their expenses. Which ones are a priority, where they are going to distribute the largest amount of the salary.

And they will have to be restrictive in other types of expenses and be careful in those that represent elements of vanity, which have no benefit for them.

What will happen from January 1, 2024?

– With the increase in the minimum wage as of January 1, 2024, workers, instead of paying a rate of 6.4 percent in taxes, will be at a rate above 10% and this will be the subsidy to employment is lower and tax withholding is higher.

And what they are going to gain with the increase will not be relevant. Where it will be noticed will be in the benefits if the increase is in addition to the salary in benefits such as the part of the payment of the vacation bonus, bonuses. There you will see a greater benefit.

He said that with the announcement of the increase in the minimum wage, the basic basket and some items of this type automatically increase immediately. “We are going to have relatively expensive things for everyone.”

What to do about this situation?

– The reality is that the minimum wage was of course very low, but what happens is that the salary increases for the working base in our country are basically guided by electoral issues.

So, it’s nice to say I already increased the salary by a percentage. The increases are very scandalous: the accumulated increase is more than 30 percent. It sounds very cumbersome, of course, but the reality is that it leaves the worker in a complex situation because the economic environment reacts immediately.

And in the case of companies?

– Without trying to argue, there is too much risk, especially for small and medium-sized companies, which are the ones that are going to increase their expenses. And not only in direct salary. The bonus days established by law by the LFT, which are calculated by the salary the worker earns in a day.

If the worker earned 207 pesos a day, now it will be 233 pesos. That is, a difference of 25 pesos that will have to be covered by the company.

Salaries and expenses have long been no longer tax deductible. And it is also a very significant impact for the company’s spending, recalled Professor Vásquez.

And if this does not manage to transfer the increase in prices to the market, obviously they must be absorbed. Some of the companies will have to reduce their workforce because they will not be able to cover the quotas.

It is a vicious circle?

The truth is that the panorama is complex and there is no physical solution to get out of it.

How to turn this vicious circle into a virtuous circle?

– There must be a change in other elements, such as the cost of raw materials and energy used to transform their products.

I’m not talking about price freezes, it’s a symptom that the government will end up paying part of it.

Lower energy costs

If we had access to best international prices on all raw materials that are acquired in the country for the production and reduce the price of energylike gasoline and gas, then, we could redistribute the risk we run with the increase in the minimum wage. It would be cost compensation.

And probably, we could keep the prices and with it, the profit margins. But this is not simple. It is a problem that implies that the government works together with the companies and organizations that bring them together, to achieve agreements to reach changes. And this would lead us to a better position for everyone.

Are the salary increases a result of the political agenda and the electoral period?

– The political agenda He has focused, from a very personal perspective, more on staying in power than on actually generating profits. Those they generate are apparent.

The cost of a family’s daily consumption in Mexico has increased. We continue to think that 6,000 pesos a month is enough for a family of 4 to eat, have fun, and have a vehicle to get around.

In reality, we do not have a public policy that leads us to encourage the growth of families. We have many small policies that apparently bring benefits to the working class.

Just look at the distribution they made in the Federation Expenditure Budget (PEF), how they left fewer resources for basic and higher education; how there are fewer resources for health. So where are the benefits?

If I earn more money now, does that mean I can have a private doctor and pay for medicines outside of the public health service? I don’t think so. We do not see a government policy really aimed at improving the quality of services to Mexican society.

Do wage increases lead to an increase in labor informality because companies cannot cover all benefits?

– Exactly. So either I fall into a scheme that instead of giving the worker a salaried contract and I am going to contribute by paying the IMSS contributions, then I have a more noble scheme in theory which is the assimilated minimum wages, where I basically pay the worker his salary and I withhold the tax.

And that’s where my obligation ended, because I am not obligated to pay Social Security contributions in some cases and only to pay the medical part and not the part that is best for the worker for the future. Of course, the informality it grows and that is the problem.

There are fewer job creators in the formal sector than in informal businesses. It becomes complicated to have a real measurement of employment, unemployment and the impact that these changes made by the government have on minimum wages, said the UI academic.

Finally, wages increase, but also taxes?

-Yes, because in the case of the Income Tax (ISR), there is a subsidy and that somewhat reduces the increase in the salary increase because it compensates for it. But, the subsidy ends at 5 or 6 times the minimum wage and becomes null.

If we take into account that more than 50 percent of the Economically active population (PEA), falls between 1 and 6 minimum wages, so, we are going to see a opposite effect And where we cannot decrease is in the social security part, both for the employer and the worker, since the salary increase automatically increases the contributions and the retention is higher.

So, the effect is that taxes end up eating up the salary increases when these are not high enough to generate compensation in that sense.

What are the actions to solve this problem?

– The solution is not only to increase salaries, but to improve general conditions, to seek that in some way the country becomes a producer and also a generator of raw materials, that we become an economy that does not depend so much on the importation of equipment, materials, technologies.

And as we change towards that part, then we will have greater control over the economic base and we will not depend as much and to such magnitude as we do today on the outside, every day will be better.

The Ibero professor stated that “Tax subsidies are not going to lead us to a better public economy or public policy.”On the contrary, the quality of life of Mexicans will increasingly decrease and we will see it in the short term.”

Likewise, he noted that he hopes, “next year the government will realize that it has to adjust its policies and that it will lead us to a better economic situation; but the actions have to come from them.”

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“And of course, companies will have to continue working. The Mexican businessman always seeks to benefit his workers, because he understands that the company moves based on the worker, not based on the businessman. But the businessman must also seek his benefit” , he finished.

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