The minimum wage does not cover workers' basic needs
<a href=www.vheadline.com>Venezuela's Electronic News Posted: Sunday, May 04, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita VENANCHAM
VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: On Wednesday, April 30, the government announced a staged increase in the minimum wage to aid workers who have borne the brunt of the economic instability and a tight labor market and who also earn real salaries too low to allow them to buy the entire standard consumption basket. This measure covers public and private sector employees. A 10% adjustment will become payable on July 1 and a 20% additional adjustment will start on October 1. These increases are not retroactive.
According to CENDA's calculations, the basic food basket cost 353,876 bolivares per month in April 2003, 4.4% more than in February in spite of the price controls. That means that the Bs.190,080 per month minimum wage buys only 53.7% of the basket. But workers will have access to 59% of the basket's value starting July 1 (with a Bs.209,088 per month minimum wage) and 69% on October 1 (with a Bs.247,600 bolivar per month minimum wage) ... not counting the effects of inflation from now to then.
Whether they agree with the minimum wage hike or not, the question is whether businesses are in a position to absorb the impact of this salary decree. If they are, will it be large enough to improve workers' living standards?
In the first place, the private sector stated (through FEDECAMARAS) that it would abide by the Presidential Decree ... but FEDECAMARAS does not underestimate the tribulations of the Venezuelan economy, and indicated that a minimum wage increase would be irresponsible at the present time. In any event, an adjustment of over 80% would be necessary for the lowest-earning workers to be at least able to buy the complete basket of consumer goods. The National Treasury is clearly unable to bear a salary hike on that scale for the private sector, nor is the private sector for that matter.
The increase will cost the Treasury 800 billion bolivares according to the National Budget Office (OCEPRE). It will be funded by revenue raised through an extension of the Bank Debit Tax (BDT) and Central Bank profits.
Even so, the parties will have to bear costs associated with the increase. Private businesses, for their part, will have to cut payroll even more in order to reduce the measure's impact on costs. And workers who manage to keep their jobs may find themselves with more purchasing power only in the short run, given the inflationary pressure that will be generated by funding of the increase through the use of Central Bank foreign exchange profits.
The trend should be to keep jobs in existence, and even to create more of them ... but that cannot be achieved solely by an adjustment in the labor market; also needed is a set of economic measures to restore the country's productive activity, and legal, political, and social reforms to enhance the nation's institutional efficiency.