Ecuador achieves living wage goal

Ecuador achieves living wage goal

In 8 years the Ecuadorian government has reached a goal that no other government in the world has even attempted. In Ecuador the legal minimum wage has been raised to ensure that all waged workers earn a living wage. The minimum wage level reached in 2015 now permits the average household to purchase a basket of household goods and services. This basket, the cost of which is published monthly, is divided by the average number of earners per household (1.6) and is used as a proxy for a living wage.

In 2007, when the current government came to power, the legal minimum wage covered just two thirds of a living wage. After a series of increases above consumer price inflation, this gap has been closed. Within Latin America, Ecuador is now second only to Panama when it comes to the purchasing power of its minimum wage.

Contrary to the belief of some economists, this relatively rapid rise in minimum wage levels does not appear to have carried a heavy economic cost.
Ecuador has one of the lowest levels of unemployment on the continent and major employers like the big banana producing and exporting companies have welcomed a levelling-up of wages and other labour standards in the industry.

In the transition phase, the government had powers to ensure that companies did not pay dividends until they had paid their employees the difference between actual earnings and the living wage level for the year in question. Officials also stress the importance of seeing this significant achievement in the wider context of policies to favour social protection, employment contract security, labour inspection, health & safety and environmental legislation, and the employment of disabled people.

The banana industry certainly cannot argue that rising wage bills have seriously handicapped growth of the country’s second source of export income. Banana exports have hit record levels in 2013 and 2014 and look set to break new records this year. Major buyers too can now reassure consumers that Ecuadorian bananas are no longer the fruit of poverty wages, as was undeniably the case at the turn of the century.

There is still a long way to go to achieving Decent Work across the sector, but the government has led the way with a wage policy which other countries would do well to emulate.

Graph showing minimum and living wage levels


Sources: Ministry of Labour, Quito; World Banana Forum.