VZCZCXYZ0011
RR RUEHWEB

DE RUEHQT #0130/01 0331715
ZNR UUUUU ZZH
R 021713Z FEB 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0906
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS QUITO 000130 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EINV EC
SUBJECT: GOE BACKS OFF PROPOSED 50 PERCENT INCREASE IN MINIMUM WAGE 
FOR 2010 
 
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Summary 
 
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¶1. (SBU)  Ecuador's President Correa has publicly championed the 
idea of a "dignified wage" since taking office in 2007, and this 
concept is enshrined in the country's 2008 Constitution.  Last 
year, Correa frequently called for an almost 50% increase in the 
minimum wage to reach his definition of a dignified salary.  In the 
end, the administration raised the minimum wage by only 10% for 
¶2010.  Despite private sector claims that GoE labor policies have 
reduced labor flexibility and increased unemployment, the 7.9% 
unemployment rate in December 2009 reflects an increase in 
employment at year-end.  End Summary. 
 
 
 
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GOE increases minimum wage by 10% for 2010 
 
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¶2. (SBU)  After entering office in 2007, President Correa announced 
his objective of implementing labor reforms in accordance with the 
country's new Constitution that would, among other things, 
establish a "dignified wage" for all workers.  In theory, the 
dignified wage would be sufficient to enable a family to afford 
Ecuador's basic consumer basket.  In August 2009, Minister of Labor 
Richard Espinosa suggested $320 as a dignified monthly wage based 
on a consumer basket cost of around $519 and 1.6 wage earners per 
family, an amount publicly supported by President Correa. 
 
 
 
¶3. (SBU)  Fearing a jump of almost 50% at the end of the year from 
the current minimum monthly wage of $218 to $320, the private 
sector engaged in intensive consultations with the administration. 
Companies argued that the suggested increase in the minimum wage 
would have catastrophic economic consequences as businesses, 
especially in labor-intensive industries such as rose cultivation, 
and textiles and apparel, could be forced to close. (Comment: 
Private sector contacts in the flower and textile and apparel 
industries have told EconOffs that the threat of a large wage 
increases had essentially brought to a halt any new investment in 
their sectors.) 
 
 
 
¶4. (SBU)  After negotiations within the National Council for 
Salaries on setting a new minimum wage for 2010 broke down in 
mid-December, Minister Espinosa announced on December 31 a 10.1% 
increase in the minimum monthly wage, raising it to $240. 
According to Espinosa, approximately 4 percentage points of the 
increase were attributable to inflation, another 4 percentage 
points to productivity gains (although there is no entity that 
officially tracks productivity in Ecuador), and 2 percentage points 
were added to improve salary equity.  The new minimum wage applies 
to all private sector employees, including for the first time 
domestic employees, artisans, and small industries and agricultural 
workers.  The 2010 minimum wage represents a hike in salary of 
between 20% and 30% for these groups.  The minimum wage has risen 
steeply over the last three years from $170 in 2007, when Correa 
took office, increasing 17.6% in 2008 and 9% for 2009. 
 
 
 
¶5. (SBU)  Workers, who had expected a 46.8% increase for 2010, 
based on Correa's public references to a $320 "dignified wage," 
were dissatisfied with the new minimum wage and threatened public 
protests.  While significantly lower than the $320 figure that had 
been bandied about, businesses also complained about the increase, 
claiming it would still harm small businesses and the agricultural 
 
 
sector, which have been hit hard by previous tax and labor reforms. 
As a result of the pay hike, employment of domestic staff could 
also decline, particularly by middle class employers. 
 
 
 
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Measures adopted to reach the dignified wage 
 
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¶6. (SBU)  As a follow-up, on January 8, Minister Espinosa announced 
labor code reforms the GoE will propose to the National Assembly. 
The reforms would provide workers with more disposable income on a 
monthly basis, without increasing wages.  According to current 
Ecuadorian law, private sector workers receive as additional 
compensation two monthly salaries per year to cover education and 
Christmas season expenses.  The proposed reforms would now allow 
employers to spread out this compensation and pay it on a monthly 
basis. 
 
 
 
¶7. (SBU)  Espinosa's proposal also appears to accept the private 
sector's contention that all compensation components should be 
considered when analyzing whether a particular wage structure 
actually provides a "dignified wage."  For instance, Espinosa 
suggested the GoE's calculation of total salary might include the 
additional two monthly salaries, and payments to the employee's 
"reserve fund" (equal to another month's wages) paid out on a 
monthly basis. (Note, in July 2009, the National Assembly already 
passed a law to allow employers to pay employees directly on a 
monthly basis the amount previously deposited into their "reserve 
fund.") The eventual goal would be to set the minimum wage so that 
this total multiplied by 1.6 would cover the cost of the consumer 
basket.  With the 2010 minimum wage, the total salary under this 
formula equals $300.  Multiplying by 1.6 wage earners per family 
produces a household income of $480, $48.90 short of the current 
consumer basket cost of $528.90, as estimated by the Ecuadorian 
Statistics Institute (INEC) in December 2009.  In the meantime, 
mandatory profit sharing is expected to help bridge the gap. 
(Current law already requires companies to distribute 15% of 
profits among their workers, but compliance is uneven.) 
 
 
 
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Comment 
 
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¶8. (SBU)  Although the private sector has complained about the 
minimum wage increase, this is a rare instance in which the GoE 
appears to have taken their arguments into account when setting 
wages policy.  Meanwhile, the GoE's minimum wage decision and new 
proposals have not strengthened relations with labor.  Alex 
Gonz????lez, representative of the United Workers Front (FUT), an 
important umbrella group for organized labor, said in reacting to 
the GoE's new proposals that the administration's decision "to 
transfer money from one pocket to another, as it did with the 
reserve funds, is a mockery of the workers." 
 
 
 
¶9. (SBU)  It also may be difficult in the short-term to evaluate 
the employment effects of Ecuador's new minimum wage.  Although 
INEC released an unemployment figure showing an improvement from 
9.1% in September to 7.9% in December 2009, some private sector 
representatives have openly questioned the veracity of this 
improvement.  Private analysts point to job cuts in a number of 
sectors, such as rose cultivation (7,500 jobs lost in 2009), and a 
reduction in commercial activity in the last two months of 2009 
caused by rolling blackouts.  Although the private sector has 
 
 
expressed concern that any increase in Ecuador's minimum wage could 
damage the country's competitiveness vis-????-vis its neighbors, 
analysis by a well respected local economist suggests the dollar's 
depreciation has kept Ecuador's new minimum wage on par in real 
terms with those in Brazil, Venezuela, and Colombia. 
HODGES