Salary Increase in Bolivia: A Measure that Encourages Informality? | Incremento Salarial en Bolivia: ¿Una Medida que Incentiva la Informalidad?

By Paul Aramayo, El Deber:

A new increase in the national minimum wage or the basic salary, without considering the real situation of the private business sector, significantly raises formal labor costs, directly affecting the ability of companies — especially small and medium-sized ones — to maintain payrolls under the current labor regime.

Every May 1st, a structural debate in Bolivia is reopened regarding wage adjustments. For 2025, the Bolivian Workers’ Union (COB) has proposed a 15% increase in the National Minimum Wage and a 20% increase in the basic salary. Beyond its political component, this proposal has profound legal, economic, and social implications that deserve to be analyzed from the perspective of labor law.

The first thing to understand is that a wage increase is not merely a linear raise in the worker’s salary. In Bolivia, every additional boliviano in the basic salary generates a series of accessory obligations for the employer, such as: employer contributions, social benefits, bonuses, severance payments, and others, like the Border Subsidy, which is equivalent to 20% of the worker’s basic salary. This practically discourages any formal company from operating in international border areas.

According to calculations based on the last wage increase decreed in 2024 (Supreme Decree 5154), the minimum wage of Bs. 2,500 ended up costing the employer Bs. 3,751 per month — that is, 41.7% more than the base amount.

In this context, a new increase in the minimum wage or the basic salary, without considering the real conditions of the private business sector, significantly raises formal labor costs and directly affects companies’ ability — especially small and medium ones — to maintain their workforce under the current labor regulations.

As a result, many businesses are forced to “informalize” their labor relations in order to survive, failing to meet their social and labor obligations to their dependent workers and often dispensing with social security and even job stability. Far from improving the worker’s conditions, this exposes them to greater vulnerability. Unfortunately, this cycle repeats itself every year: the greater the rigidity and cost of formal employment, the greater the growth of informality — which in Bolivia already exceeds 80%.

Paradoxically, these types of measures contradict the goal of ILO Convention 122, ratified by Bolivia, which obliges the State to promote full, productive, and formal employment. If wage increases are imposed without regard to economic reality, and without parallel policies to ease the burden of labor costs (such as tax incentives or employment subsidies), they will continue to push employers toward informality.

Labor law cannot be merely a vindicative tool. While wage increases largely have a political component — especially when commemorating Labor Day — it is essential to consider the country’s current economic situation: high informality, foreign currency shortages, rising inflation, and increasing fiscal pressure on formal businesses. Decisions on wage policy must align not only with the legitimate aspirations of workers but also with the reality of the private sector. Only then will it be possible for businesses to comply with labor regulations without jeopardizing their own survival — and, above all, without being forced into informal schemes that further undermine Bolivia’s labor market.

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