Debate on the minimum wage in Peru: labor improvements or risk for small and medium-sized enterprises (SMEs)?

The debate over raising the minimum wage has resurged strongly in recent times, generating a clash of opinions among different sectors of society. While many advocate for better working conditions, the voice of micro and small enterprises (mypes) rises as a reminder of the economic reality facing the country. In Peru, mypes are a fundamental part of the business fabric, representing 99.5% of all companies and employing nearly 48.3% of the Economically Active Population (PEA). However, their situation is delicate, and an increase in the minimum wage could exacerbate their difficulties. In 2023, the outlook for mypes has been bleak. Approximately 80,000 small businesses have been forced to close, while those that have managed to stay afloat have suffered a 1.5% decline in sales compared to the previous year. This setback becomes even more alarming when considering that the decline since 2019 is 5%. In this precarious context, the proposal to raise the minimum wage could result in increased labor costs, which, in turn, could force many mypes to reduce their workforce or, in the worst-case scenario, close permanently. Informality is another factor to consider in this debate. In Peru, it is estimated that 86.3% of mypes operate informally, a phenomenon that has been perpetuated, in part, by the lack of incentives to formalize. An increase in operational costs could further disincentivize companies from taking the step toward formalization, resulting in a rise in unprotected workers and a greater number of precarious jobs. The goal of improving working conditions could, paradoxically, have the opposite effect if the context in which mypes operate is not taken into account. The profile of entrepreneurs also offers a crucial perspective. 53.4% of micro and small business owners started their businesses out of economic necessity rather than opportunity. This indicates that many of them lack the resources and financial capacity to cope with an increase in costs, putting the stability of their operations at risk. An increase in the minimum wage could push many of these businesses to opt for informality, a scenario that undermines the intention of improving workers' conditions. Beyond raising the minimum wage, it is essential to seek alternatives that promote the formalization and productivity of mypes. Among the measures that could be implemented are the simplification of administrative procedures, facilitating access to financing, and offering business training. These initiatives would allow mypes to grow and, consequently, offer better working conditions without compromising their sustainability. The current debate cannot focus solely on raising the minimum wage as a magic solution. As a government official recently stated, an increase in the base salary cannot be considered to automatically raise the value of work. Productivity is key to improving working conditions, and this requires a more comprehensive approach that considers the impact of policies across all sectors of the economy. Efforts to raise the minimum wage at a time when mypes are struggling for survival can have disastrous consequences. A more appropriate approach would be to focus on strengthening these businesses, which are the true engine of the Peruvian economy and the livelihood of millions of families. Proposing measures aimed at improving productivity and formalization could have a positive impact on employment and working conditions. Therefore, it is crucial for both legislators and civil society to reflect on the implications of an increase in the minimum wage. The intention to improve the living conditions of workers should not come at the expense of the stability of mypes. A constructive dialogue that considers the economic and social realities of the country is essential to find solutions that benefit both employers and employees and that truly contribute to the overall well-being of the population.