Questions Concerning Costa Rican Government and Economy

Early on in Dr. José Sánchez’s lecture he mentioned a governmental policy that seemed fairly vague. He began by explaining how the government is right centered, meaning that the country strays towards right sided politics without becoming too extreme. Dr. Sánchez stated that the Costa Rican government maintains its central right status by allowing private companies to operate with intervention from the state. My question is when does the government decide when to intervene? To me it seems like there needs to be a very delicate balance between government intervention and free commerce. But what I don’t understand is how to gage when the government is too hands on or too laid back. Dr. Sánchez mentioned that during the 90’s private companies switched from exporting raw materials to added value products. This push from the private companies generated a surplus in the Costa Rican economy, one that the government took note of. It was at this time that the government began to increase taxes and grow, ultimately hurting the economy by taking money away from people and companies. In a situation like this I agree that the government should impose some taxes but maybe if they remained slightly more neutral the Costa Rican economy would’ve strengthened, and the government wouldn’t have inflated as much as it did.       

Something that stood out to me during Dr. Sánchez’s lecture was that all companies must pay 66% of an employee’s salary back to the government. This means that every time a company pays an employer their monthly salary, they must pay an additional two thirds of that salary back to the government. To me this tax seems absurdly high and I wonder how a company can operate if it needs to pay so much just to hire an employee. Initially I thought that this would create a large unemployment rate since companies would be very hesitant to hire new employees. But then I began to think about the issue more and the answer came to me while walking around Heredia. Companies aren’t hesitant to hire more employees since they aren’t in need of any. I noticed that there are a ton of small shops and sodas with only one or two employees. To avoid paying the 66% tax on multiple salaries companies stay small and are comprised of only a few employees. Also, there isn’t a massive unemployment problem since 85% of Costa Rican companies are PYMEs or small to medium sized companies with under 50 employees. This means that even though individually a company might not hire a lot of employees, there are a ton of companies and jobs are spread out across these PYMEs.

Another thing that seemed odd to me was the size of the Costa Rican government. About 20% of employed Costa Ricans work for their government. Dr. Sánchez explained that since the government has so many workers that the government sends multiple teams to do the same job, creating redundancies. He went on to mention that it is common to see one government employee working while the others sit around and watch. At first, I didn’t believe it until I walked out of the lecture to see a government worker fixing a telephone pole while two other workers watched from the sidewalk. I began to wonder how the Costa Rican government could reduce its size without creating and unemployment crisis. I think there are multiple components that would go into solving this problem. I believe that the government must lay off their workers and cut taxes on employers. Then the laid off government workers would find employment elsewhere since companies would be more inclined to hire. If the 66% salary tax the employer must pay to the government is reduced they would be inclined to hire more and grow their businesses. The newly laid off government workers would be eager for work and it is more likely that they would get hired if the 66% tax was reduced. Hopefully this would shift more workers from being employed by the government to being employed by PYMEs.  

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