Nearshore Americas

As Colombia and Chile Shrink Their Work Weeks, Are Wage Increases Coming Next?

Colombia and Chile have officially taken an axe to their respective work weeks, following a trend that seems to be taking hold in some European territories and showing signs of a groundswell in Latin America.

On April 11, the Chilean Congress passed a bill that will cut maximum working hours for the week from 45 to 40. The reduction will be gradual, achieving its goal of 40 weekly work hours over a period of five years. The law will take effect in 2024, reducing the work week nationally to 44 hours. Companies will have the option to reduce hours at a faster pace.

Colombia finds itself in a similar boat. On July 15 of 2023, the country will begin its own process of cutting down the work week, as established in a bill passed by Colombian legislators in 2021. On that day, Colombia’s work week will be reduced from 48 hours to 47; by July 15 of 2024, another hour will be knocked down from the work week, leaving it in 46 hours. In 2025, hours will be reduced to 44, and they’ll fall to the goal of 42 by 2026. 

Though the bills are on their way to implementation, debate over the consequences continues in both countries. Those who oppose a shorter work week argue that productivity levels will inevitably fall and that labor market disruption might lead to wage inflation. 

Richard Von Appen, President of Sofofa, one of Chile’s biggest industry chambers, commented in a letter sent to newspaper El Mercurio that, in spite of the “legitimate aspirations” of the bill, it would result in “a negative impact on competitiveness, employment, wages and business formality” if precautionary measures weren’t implemented. Chile’s productivity levels fell 3.5% in 2022 when compared to 2021, according to data by the country’s National Commission for Evaluation and Productivity. 

Those who support the experiment of a shorter work week see it not only as a victory for workers’ rights, but also as a chance to demonstrate that improving employees’ wellbeing will increase productivity and the quality of the work being done. 

That’s the main argument put forth by former Colombian president Alvaro Uribe, who’s credited as the architect behind the 42 hour work week bill. 

“Workers will have more time to spend in education, with their family and for leisure. This will benefit companies because it will create a more fraternal working environment, which will in turn improve productivity,” he said to the Colombian press. 

What Industry Observers Foretell

Though not part of the local debate, industry observers have been paying attention to these developments in Chile and Colombia and wondering about the impact that they will have in the market of nearshore service providers.

John Walter, COO at ZMAXINC

John Walter, COO at consulting firm ZMAXINC, sees a shorter work week having a “definite” impact on Colombia’s pricing, though he doubts that impact can be considered major, given other factors that have been pressuring the Colombian market over the past couple years.

“The price was already increasing in Colombia due to over-saturation of English customer support jobs over the past three years,” John Walter told NSAM. “It would be unfair to blame the increased outsourcing costs in Colombia on the work-hours reduction entirely, or even mainly.  But it is undeniable that the shorter work week will have a minor impact on pricing forecasts for BPO work in the country.”

Marcos Carneiro, who works at the Professional Development Department in Brazil’s UFPE Informatics Center, has a more positive outlook. He expects that IT professionals in particular will attain a “better work-life balance, which may lead to greater job satisfaction, triggering better mental and physical health and resulting in higher work productivity.”

“More people may be available for part-time work, and companies may end up attracting more diverse candidates, including those who prefer hybrid or fully remote work, and this can help promote diversity and inclusion in the IT job market,” he added.

Nevertheless, Carneiro recognized that trimming the work week could increase labor costs if companies find themselves pushed to hire more workers to maintain productivity. 

Jesus Hoyos, Chief Strategist at Solvis Consulting and Principal Advisor at CX2 Advisory

Jesus Hoyos –Chief Strategist at Solvis Consulting and Principal Advisor at CX2 Advisory– sees other concerns already ailing customers in Colombia, mainly on matters of remote work

“If working hours are cut short, BPOs have to guarantee compliance with these new criteria; they’ll have to offer more options for on-site or remote work in order to achieve bandwidth requirements for meeting both SLA commitments and new regulations,” Hoyos stated.

“BPOs will have to open more offices near to where employees live in order to comply with the new law. This will help with recruitment volumes,” he added.

Companies will have time to adjust to the new work week in Chile and Colombia. It remains to be seen whether the timeframe will be enough and if companies will adapt comfortably to this new normal.

A Haunting Presence

Proposals of a shorter work week are not unique to Chile and Colombia. The idea has been haunting Europe for almost a decade. In 2015, Iceland launched a trial run for a four-day work week, reporting that the experiment was an “overwhelming success.” The UK undertook a similar experiment between June and December of 2022. Of the 61 participating companies, 56 continued experimenting with the four-day week; of these, 18 said they would institute it as a permanent change.

The proposal has proven attractive enough for several European countries to give it a test run. Belgium, Scotland, Wales, Sweden, Germany and Spain are among the countries who have dabbled with the idea.

If these experiments prove consistently positive, don’t be surprised when other Latin American governments decide to jump in. 

Latin America is infamous for having some of the longest and heaviest work weeks in the world. Work weeks in Mexico, Argentina, Bolivia, Costa Rica, Nicaragua, Panama, Paraguay, Peru and Uruguay can reach 48 hours. In Brazil, El Salvador and Guatemala, weekly working hours are capped at 45. The average work week among OECD countries is 40 hours long. When accounting for the total hours worked each year, Mexican and Costa Rican workers accumulate the most compared to other OECD members.

The rise of left-leaning, more worker-friendly administrations in the region makes the prospect of a shorter work week more solid. Mexico overhauled its labor law to make it more worker friendly; recently, its Congress passed a law that increased mandatory vacation time. In Colombia, the Labor Ministry is chewing over the possibility of re-defining the timeframe of night shifts. Peru, Argentina, Mexico and Costa Rica have seen proposals to shorten the work week. In Brazil, some startups are already undertaking the four-day trial. 

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If the shorter work week trend takes hold in Latin America, expect a shift in the landscape which will push companies to reconsider their recruitment and talent sourcing strategies. As mentioned by market observers consulted by NSAM, wage increases are almost a given. In markets, such as Colombia, where investors are already feeling the heat of rising labor costs in tier-1 cities, smaller-scale options might grow attractive in their eyes.

Even then, don’t expect companies to move away from the major Nearshore locations, such as Bogota, Mexico City and San Jose. Those territories remain attractive, with more and more players joining the field, even when costs are high. The value proposals remain, in the end, too good to ignore.

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

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