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Panama Wage Policy and Labor Code
Panama's salaries were high by regional standards in the mid1980s . In a 1982 study comparing salaries in manufacturing, Costa
Rica's average monthly salary was only 41 percent that of Panama's;
Guatemala's, 71 percent, and Honduras's, 84 percent. In 1985 the
average monthly salary in Panama was US$450, but that figure was
influenced by salaries in the canal area, which averaged US$1,300
per month. In 1985 the minimum wage in the metropolitan area was
US$0.82 per hour; that wage was adjusted for location and type of
industry.
In the 1970s, the government became heavily involved in labor
matters and intervened actively to increase wages. Although a labor
code had existed for many years, only the minimum wage provisions
were consistently enforced. In 1971 two decrees were issued; the
first imposed an education tax and the second required employers to
pay workers an extra month's wage each year.
In early 1972 a broad labor code, patterned after that of
Mexico, substantially changed labor-management relations. Workers'
security, benefits, and bargaining power were increased
considerably. Collective bargaining and unionization were
encouraged and resulted in rapid growth of union membership
(see Business, Professional, and Labor Organizations
, ch. 4).
Although the 1972 labor code contributed to political stability
in the 1970s, it substantially raised costs for employers,
especially those in labor-intensive activities. The code also
created disincentives to further hiring and private investment.
Employers were prohibited from reducing a worker's salary.
Therefore, piecework and assembly-type industries could not reward
workers on the basis of productivity. As a partial result of these
rigidities, Panama's labor costs were among the highest in the
Caribbean Basin. According to a 1984 World Bank report, the annual
cost of running a textile plant with 500 workers was US$588,300 in
Haiti; US$789,800 in Costa Rica; US$919,700 in the Dominican
Republic; US$1,048,500 in Colombia; US$1,057,600 in Mexico; and
US$1,156,700 in Panama. Only Jamaica's costs were higher
(US$1,828,300).
The labor code caused the effective cost of wages to rise,
fueling inflation and discouraging private investment. The
government, unable to devalue the currency, was forced to address
the root of the problem--high labor costs. Law 95, which became
effective in 1977, modified provisions of the labor code that
related to job security and benefits. Previously, employers could
only dismiss workers during their first two years on the job; that
term was extended to five years. New provisions inhibited union
actions, such as strikes, and imposed a two-year moratorium on
collective bargaining agreements, which froze wages.
As a condition for the disbursement of a structural adjustment
loan, the World Bank in 1985 recommended making the code more
flexible. Panama's then-President Nicolás Ardito Barletta Vallarino
(October 1984-September 1985) fully backed the World Bank
recommendations. Opposition from unions and from within his own
party, the Democratic Revolutionary Party (Partido Revolucionario
Democrático--PRD), forced Ardito Barletta to withdraw the proposed
changes and contributed to his resignation. His successor, Eric
Arturo Delvalle Henríquez, was more successful. In March 1986, the
Legislative Assembly approved major reforms in the labor code, in
spite of widespread protests and a ten-day work stoppage by the
unions. The changes included production-based wages, uniform rates
of overtime pay, piecework provisions, removal of protective
measures in industry, and flexible agricultural pricing. On the
whole, the labor code modifications were aimed at making Panama's
industry and agriculture more competitive internationally and
expanding employment opportunities. Nonetheless, the economy was
deemed likely to continue to experience high unemployment,
especially in the metropolitan area, where unemployment rates
tended to be much higher than the national average.
Data as of December 1987
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