Setting and asjusting minimum wage levels

Costa Rica

In Costa Rica a new formula was agreed between Government and social partners in 2012. The formula contains an inflation component, as well as a growth-related component. The inflation component considers expected inflation, plus an ex post correction of the estimates. The growth-related component incorporates 20 per cent to 40 per cent of average GDP per capita growth of the previous five years (lagged by one year). The final determination of the production component is left for negotiations between the social partners in the minimum wage tripartite commission.

Costa Rica’s formula therefore is:

∆ MW = expected ∆ CPI (+correction factor) + (20%-40%) * ∆ GDP per capita

The application of this formula is made conditional on certain situations in the economy and labour market. The inflation component is not automatic if inflation accelerates (i.e. effective inflation is greater than expected inflation plus 1 per cent). Also, the economic growth component is not automatic if one of the following situations occurs: the unemployment rate is greater than 8 per cent; there was negative economic growth for four successive quarters; or there is more than a 15 per cent change (positive or negative) in the exchange rate between minimum wage adjustments.

In the event that any one of the particular situations listed above takes place, the social partners are called on to recommend the final adjustment, taking the particular circumstances into account.