Minimum-wage setting in times of crisis

In Chile, the minimum wage level is adjusted annually, the new levels coming into effect each year on July 1. This year, the adjustment will take place in a context of international crisis resulting in a fall in output, a signifi cant rise in unemployment, and a major drop in the rate of infl ation. While changes in such variables need to be read with care, the particular features of the crisis render it necessary to protect domestic consumption, which hinges mainly on employment and worker income. On the positive side, we fi nd that Chile has consistently reappraised the minimum wage for many years now, which enables it to apply a moderate adjustment without greatly disturbing the minimum- to average-wage ratio or the evolution of productivity, as refl ected in estimates based on three different increase scenarios. Finally, the rate of unemployment must be included as a key variable to determine the pace of future increases to the minimum wage.