Thursday, April 28, 2011

Minimum wage hike for fake prosperity

It is difficult to overstate how idiotic and useless is the recent decreed wage increase.  Never in the economic history of Venezuela was such a measure been so populist and yet so useless and so bearing of dire consequences for those who think today that they got their long due.  We can start with today's cartoon of Weil at Tal Cual to illustrate at the very least how useless the minimal wage increase is:
There you go, your new minimum wage!
The monster about to eat that family is not only the inflation monster, it is also the lack of safety net in the country as the citizen is plagued with deficient public services, insecurity and what not.  No amount of minimum wage increase can help you when there is no electricity at home, that your local Barrio Adentro is closed, that you lost your job because your boss went bankrupt, that you cannot get a new job because nobody is hiring, that food is cheap at Mercal but only when you can find it, that if you get some stipend from some "mision" you risk been robbed of it on the way to your ranchito, etc, etc...

But of course, the higher up of the regime, fattened through these last 12 years, and surrounded with Body Guards at tax payer expense have lost touch with that reality long ago, though they do sense the grumbling.  So, applying what works for them, they throw some money that is not theirs, from their high but not ivory towers, with the paradoxical result that they will make it all the worse.

Why will this time around the minimum wage increase will make things worse?  Are we not talking of not that much money to begin with?

Historically in Venezuela all have agreed with the existence of a minimum wage.  Since that minimum wage was rather low, all bosses, including the state, were able to live with.  There was a time when the government met with trade union leadership and business representatives to fix the minimum wage in a realistic way and even on occasion decide a scaled pay increase for all wages below a given level.  Purchasing power for the masses was helped somewhat to avoid a recession, and trade unions promised to moderate other demands for a while if such wage increases took place.  But chavismo has done away with that because in its imagery it is essential that any benefit, ANY, no matter how silly and useless that one might be, appears as granted by the beloved bolibanana leader.

Unfortunately the economic pseudo policies of Giordani have had a very negative impact.  First, they have squeezed the middle wage sector.  Under chavismo the higher salaries have increased more than the lower ones, at least in the public sector.  For example a High Court justice takes today at least 30.000 a month (not disclosed, and not counting other benefits such as body guards) while the janitor down the hall makes 1.500.  That is, at the very least, the wage spread in the public sector is 20 fold and if we were to ad all benefits I suspect that we would find figures in the 30 fold range just for administrative positions, something unacceptable in civilized countries but OK in XXI century socialism.  I suppose that in productive positions you could have a rationale for wage spread, except that state enterprises in Venezuela are all half broke, which would make the spread there even more obscene.

I think today, depending on whom you believe, more than half of the employees of the public sector make less than two minimum wages.  This has been deliberate because it has been one way to pay handsomely the higher up echelons, those that must support actively the regime with all of its moral and financial corruption.  This way, through money, fidelity is hoped for.

For example my S.O. makes less weekly than I do but keeps receiving strange bonus here and there which make his position as a bureaucrat more finacially rewarding than mine as a business manager with real responsibilities.  Of course, my S.O does not support the regime but his hard work and technical skills are what allow some of his colleagues in his echelon to do the political work that they could not do if in fact they had also to run the country.  This equally explains why the country is floundering since too few technically savvy people like my S.O. are left in public administration as they are pushed away irremediably by the politics of the system, directly or indirectly.

The effect in the private sector has been different because only big companies are able to survive the onslaught of chavismo attack on private property.  As a result Venezuela today is a mix of small business and large one with a smattering of multinationals.  Large companies, say, more than a 100 employees, have more ways to face out the tug of war with the regime that assaults them with everything in the book, from constant hikes in the minimum wage to deprivation of currency for essential imports of raw material and spare parts.  Smaller companies simply do not have the means to afford a Human Resources department or the lawyers to fight back the regime regulations.  As such they are surely squeezed out of the economy event though they are the bigger job creators.

And this leads us to why is this time the minimum wage increase such a drama for the country.  Besides being insufficient (it is around 25% while inflation is more than 30%) it will this time around increase inflation and joblessness.  The percentage of salaried people that will "benefit" from this measure is higher than ever and thus the inflationary impact will be felt with an added 3 to 5 % tot he already expected official 25% for this year.  Not to mention that higher wages will expect some sort of adjustment, maybe not a 25% but at the very least a 15%.  And people making less than twice the current minimum wage will be pushed down in the remuneration scale, many down to minimum wage.

But this wage hike comes in the heels of a brutal devaluation in January which has not been processed through yet as the regime is still stalling on the price control adjustments it must do while business lose money or stop production altogether.  You can easily imagine that this time around very weakened companies are not going to be able to face such wage adjustment and thus we can expect unemployment o keep going up as the public sector is clearly unable to increase its payroll.

Finally, another demagogic measure is now forcing all business with less than 20 employees to pay fro their workers lunch, in cash. There was a reason for these small companies not to be forced by the lunch law: they do not have the resources to manage such a mandate.  I remember a few years ago when the limit was pushed down to 20 employees and that we had to pay for lunch: that year our earnings were almost wiped out.  Since then we have been unable to make any significant investment to improve productivity and production,  investments being now limited to the preservation of the business.  In fact, our payroll is this year ten less than it was 3 years ago.  Granted, it is not only due to the Cestaticket, but our stagnation started then and ever new governmental regulations forbid us to grow.

In short, the wage increase this time is going to make matters much worse for the country as no other measures are taken to face down the economic consequences of a decade of ill management by Giordani, the lone finance minister in the world to have kept his job through 4 devaluations.

If the regime were to have taken some other serious financial measures to counter inflation, maybe that minimum wage increase would have been meaningful.  But it has not done so nor plans to do it.  Inflation is already been fueled through all the subsidies that the regime already employs, subsidies that could be better used to increase Venezuelan productivity through, say, repaired highways, electrical stability and the like.  More subsidies will be required for Mercal and others, in an electoral year and as such that minimum wage increase will ad more fuel to the crisis while workers will find out that the 15% they receive in May will be totally eaten out by the time they receive another 10% in September.  If they still have a job, that is.....

This time around minimum wage workers will not even enjoy for a few months a fake prosperity.


  1. AB

    Significant Other

  2. Anonymous8:37 PM

    Another great post Daniel, thank you!

    One thing I wish you had mentioned was the upcoming law to regulate prices and profits. If Chavez uses the enabling law to pass it, then we are really going to see many more businesses throwing in the towel.

    How funny, Chavez trying to pull a Richard Nixon.

    Come think of it, Chavez is so vainglorious I wouldn't be surprised he's got his own version of the White House Tapes.

    PS. Blogger is acting up with comments posting, so I did this one Anonymous to see if it worked

    Roberto N

  3. Its like dejavue all over again. From this this time last year and there have been numerous pay raises for government employees before and since to help inflation along even more. Of course the increasing cost of food on the international market which Venezuela is dependent on is also a major driving force along with the fact that the importers pass all of the increased costs of bribery and corruption and their commissions paid in USD on to MERCAL or private markets. Meanwhile, His Marxist alter ego has continued to expropriate the means of local food production and processing! All a disaster!! Can these crooks hold it all together till the election? That is the question.
    SO's: Everybody should have an SO. Not having one makes for a very lonely life.


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