Box 3 - Effects of the Minimum Wage on Prices and Inflation

The minimum wage (MW) is one of the most widely used public policies in almost all the countries.Included among its objectives are the protection of workers against unduly low wages and to contribute to the reduction of poverty and inequality.However, there has been evidence of the adverse effects of its implementation on the labor market that has cast doubt on its ability to increase the welfare of the labor force and allow the labor market to function well (Neumark and Wascher, 2008).In Colombia, the concept of the MW was legally established in the mid-twentieth century through Act 6/1945 and became effective in 1949.In its implementation process, a wide range of minimum wages was introduced.Thus, for example, Decree 236/1963 (which regulated Law 1/1963) established minimum daily wages by department and company size; Decree 240 from the same year readjusted the MW for the agricultural sector and for workers under sixteen years of age and fixed the hourly minimum wage.Starting in 1964, the MW was determined by economic sector (commerce, manufacturing, services, transportation, construction, etc.), company size and geographical area (urban and rural), but in 1983, by means of Decree 3506, it was unified throughout the country.Among the arguments justifying this measure was "the elimination of unjust discrimination against workers in the rural sector.The adjustment process culminated on July 1, starting from which date there was a MW for all Colombian workers who were placed at this level of remuneration." 1