Thursday, May 01, 2008

The minimum wage ritual

Since Chavez is in office, April 30 or May first has received a new ritual: Chavez announces, or rather in his munificence grants us, the new minimum wage. Yesterday was no exception as he decreed that the new wage would be 30% higher than the current one. Considering that last year official inflation was above 20% and that the one this year is headed toward a possible 30%, clearly this is not great improvement.... Which does not stop the government to proclaim that it is the highest minimum wage in LatAm. The highest , that is, at the official exchange rate: if you take the real exchange rate it is a weak average. The official would be 371 USD a month, the real one is a much more modest 240 something............

But the real perversion is not the amount of the minimum wage, it is the long term effects of systematic knee jerk increases on the wage spread among Venezuelan workers over the last ten years. What happens is that the folks who make more than the minimum wage do get an increase too, but not a 30%. Eventually there is a compression of the wage mass toward the bottom half where there is less and less incentive for workers to seek personal betterment since any effort they make will be swallowed by a Chavez decree. The result is that the wage distribution in Venezuela tends to be more and more a J curve where the really high wages get everyday higher. In Venezuela the spread of wages has become even more obscene in governmental sector than private sector!!! High wages in government (courts, executive) are now routinely 20 to 80 times the minimum wage, something that would be totally unacceptable in Western democracies, and even the US... Venezuelan socialism at work, with the future consequences easy to predict.

-The end-

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