Colombia’s 23.7% Minimum Wage Hike, Stirs Inflation and Informality Fears
Colombian President Gustavo Petro on Monday decreed a 23.7% increase in the country’s minimum wage for 2026, the largest real rise in at least two decades, bypassing negotiations with unions and business groups and sparking warnings from economists, bankers and employers over inflation, job losses and rising informality.
The decree lifts the monthly minimum wage to 1.75 million pesos (U.S$470), or close to 2 million pesos including transport subsidies, and will apply to roughly 2.5 million workers when it takes effect next year. Petro said the measure aims to reduce inequality and move Colombia toward a “living minimum wage” that allows workers to “live better.”
But business associations, financial analysts and opposition lawmakers said the scale of the increase — far above inflation and productivity trends — risks destabilising the labour market and the broader economy.
According to calculations based on official data, with inflation expected to close 2025 at around 5.3% and labour productivity growth estimated at 0.9%, a technically grounded adjustment would have been close to 6.2%. The gap between that benchmark and the decreed hike exceeds 17 percentage points, the largest deviation on record.
Informality and job losses
Colombia’s minimum wage plays an outsized role in the economy, serving not only as the legal wage floor but also as a reference for pensions, social security contributions and public-sector pay.
Banking association Asobancaria warned that increases far above productivity can generate unintended effects. Citing data from the national statistics agency DANE, the group noted that 49% of employed Colombians — about 11.4 million people — earn less than the minimum wage, mostly in the informal economy, while only 10% earn exactly the minimum wage. Former director of DANE and economist Juan Daniel Oviedo believes that an increase that only benefits one-out-of-ten workers will stump job creation. “A minimum wage of 2 million pesos will make us move like turtles when it comes to creating formal jobs — something we need to structurally address poverty in Colombia.”
Retail association FENALCO described the decision as “populist” and said the talks had been a “charade.” Its president, Jaime Alberto Cabal, said the process ignored technical, economic and productivity variables and would hit small businesses hardest.
Lawmakers also raised concerns about the impact on independent workers and contractors in the agricultural sectors, especially hired-help on coffee planations. Carlos Fernando Motoa, a senator from the opposition Cambio Radical party, said the decision would push vulnerable workers out of the formal system.
“The unintended effects of this improvised handling of the minimum wage will end up hitting independent workers’ pockets,” Motoa said. “Many will be forced to choose between eating or paying for health and pension contributions.”
Economists warned that micro, small and medium-sized enterprises — which account for the majority of employment — may respond by cutting staff, reducing hours or shifting workers into informal arrangements to cope with higher payroll and social security costs.
Inflation and rates at risk
Analysts also cautioned that the wage hike could reignite inflation, complicating the central bank’s easing cycle. Central bank economists have forecast 2026 inflation at 3.6%, down from 5.1% expected in 2025, but several analysts said those projections may now need revising.
In an interview with Reuters, David Cubides, chief economist at Banco de Occidente, called the increase “absolutely unsustainable,” warning it would affect government payrolls, pension liabilities and the informal labour market.
“Inflation forecasts will have to be revised,” Cubides said, adding that interest rates could rise again in the medium term as a result.
The impact is amplified by Colombia’s ongoing reduction in the legal workweek. From July 2026, the standard workweek will fall to 42 hours, meaning the hourly minimum wage will rise by roughly 28.5%, further increasing labour costs.
The decree comes six months before the presidential election on May 31, 2026, and is viewed by critics of Colombia’s first leftist administration as an electoral gamble aimed at shoring up support for the ruling coalition’s candidate, Senator Iván Cepeda.
Opposition senator Esteban Quintero, from the Democratic Center party, warned that Colombia risked repeating the mistakes of other Latin American countries that pursued aggressive wage policies.
“Careful, Colombia. We cannot repeat the history of our neighbours,” Quintero said. “Populism is celebrated at first — and later the costs become unbearable.”
Former finance minister and presidential hopeful Mauricio Cárdenas said the decision would inevitably lead to layoffs, particularly in small businesses already operating on thin margins, and described the policy as “economic populism” whose costs would materialise after the election cycle.
“The employer ends up saying, ‘I can’t sustain this payroll,’” Cárdenas said. “People are laid off, and many end up working for less than the minimum wage. In the end, nothing is achieved.”
Liberal Party senator Mauricio Gómez Amín said the increase risked becoming a political banner rather than a technical policy tool.
“Without technical backing, a 23% increase translates into inflation, bankruptcies and fewer job opportunities,” Gómez Amín said. “Economic populism always sends the bill later.”
While supporters argue the measure will boost purchasing power at the start of 2026, analysts cautioned that the short-term gains could be offset by higher prices, job losses and a further expansion of Colombia’s informal economy — already one of the largest in Latin America.
