Monday, April 30, 2012

Laborious Labor Law Load from Chavez who never held a real job in his life

[UPDATED] What keeps us abuzz all these days is the promised new labor law.  There is no mystery, Chavez is using it to distribute goodies for his reelection but the consequences may be devastating.  Not that it matters for the regime, they have no intention of fulfilling it anyway inside the public sector.

The first thing we must be aware of is that the new law shall be illegal.  It will be approved through an enabling law that was itself illegal.  And the old labor law was an "organic law" meaning that it was voted by more than 2/3 of the parliament and as such IT HAS to be changed or be re-voted by a 2/3 of parliament.  Indeed the regime knows that very well because in all cynicism I suspect that they will publish an unworkable instrument but with hopeful electoral benefits just to have some lawyer succeed at trashing it in court, any time after Chavez is reelected.  Then a new law will be discussed and voted.  Maybe.

The second thing to understand is that the regime is skilfully playing the ignorance of the people (assuming that they are understanding what they are doing themselves and not victims of their own ignorance).  In a pseudo-revolution which has aimed at creating a complete dependency between the state and the citizen, a XXI century form of slavery directed by a tiny elite, there is one basic concept that no one, NO ONE, seems to understand: the more benefits you give to workers, the more depressed their base salary.  Let me explain in case some of you, probably chavistas still reading, do not understand.

Let's say that you need a job done.  That job is worth to the company 100 Units.  So you may hire a worker for 90 Units, the 10 excess units being your return on investment, the upgrading of the business process, the rainy day fund, the seasonal variation of income fund, etc....  This in a country were inflation is at a reasonable 3% rate.  In Venezuela with a 30% inflation, in theory the on paper margin should reflect 70 units at most for the worker, something that is not happening, but I digress.  In other words, in XXI century economy the real margin of return for the owners of companies rarely pass the 5% (unless of course you deal in glamour Apple-like stuff).  And even if we were dealing with slave owner commie Chinese entrepreneur who make 50% returns, you would still be paying your worker at east 40 units.

So, how do you give those 90 units to your worker?  Does that mean that you divide it in 12 parts and give a share once a month?  Not at all.  In the current legal system of Venezuela, with onerous severance laws, ridiculous food stamps obligations and what not, it is fair to say that the 90 units are divided in at least 18 parts.  That is, if you were having a base salary US style you would be getting 7.5 units a month but in Venezuela you get at best 5, and lower as needed.  You will get two extra 5 at year end, and another 5 through the business mandatory food stamp. That is about 75 units.  The remaining 15 units you will get them AFTER you leave your job, someday, after inflation has been eating a nice chunk out of it.  And that in the private sector because if you are a public servant you may not get the 5 in food stamps, nor the 15 owed you until years after you were fired or retired.  If you get them since no court will rule against the regime (courtesy of Aponte^2 own words).

Of course the numbers above are a gross approximation for the sake of a quick understanding and the actual number of shares varies according to your job, skills, etc...  But the principle is the same: an employer hires you for what you are expected to bring the business and he will pay you a monthly fraction of that depending on the investments required for you to do that job.  You may divide your share in 12 or 24, but in the end you cannot get more than your share because otherwise the business will go bankrupt, or in Venezuela start getting state subsidies until someday it finally collapses under its own weight (aluminium industry anyone?).

Two decades ago the severance system had been so ill conceived that it simply became impossible to maintain (a combination of high inflation and economic downfall).  Then you were getting a payment based on how many years you had worked and when inflation reached 100% small companies simply went bankrupt to pay a high executive retiring (an option as to fire them after a certain number of years while the bill was still manageable).  So with a rare common sense, the government (who was the least able to meet its obligations) sat down with trade union and business organizations and redesigned the system along the lines I exposed above.  It was certainly not perfect but it worked better than the past in that businesses could budget their severance obligations more or less in spite of inflation and economic downturns.  The private sector quickly paid the difference to its workers and moved on to the new system but the state, well, to this day, a decade and a half later, still owes gazillions to its workers....

So what is populism à la Chavez going to do?  Pretend that the workers were robbed (they were not, they were paid what was owed them and started a new system that is more reliable than the last one) and go back to the old system even though they know that they can't afford it......

In addition they will enshrine the "stability" a work, meaning that it will be nearly impossible to fire anyone unless the regime approves it,  increase penalties in case you fire them anyway, give a maternity leave of 6 months, forbid to fire father or mother for two years after a baby is born, reduce the working day to 7 hours (while making that free hour a training time in revolutionary propaganda payed for by the employer), and such other stuff we keep hearing.  We do not know how many of these goodies will find their way in the final bill but you may expect the worse!  To top it off, all the severance deposits that must be deposited by the employer in a special fund will be now managed by the state which will pay your severance.  Some day, when it can, when they like your paper work, when you bribe everyone from the doorman to the Cuban boss.......  After all we have the recent example of how the pension fund of the roja rojita PDVSA was squandered away by speculators in the US who are facing justice there but no word at home from the people supposedly in charge of protecting those pension funds.

How do you think employment will go after such a law is enacted even if only half of these threats are fulfilled?  In the graph on the left from Tal Cual today you can observe yourself how unreal that law is (and those are not very credible official numbers from the INE but let's accept them).

In Venezuela in 2011 there were 6.9 million folks with a job, "ocupados formal" (the INE considers a job any activity that busies you 10 hours a week).  AND 5.4 million that work odd jobs, "informal" here and there and that do not belong to any state social service, 13YEARS after a socialist revolution!!!!!  They do not pay taxes, of course, unless you count the bribes the buhoneros must pay the Nazional Guard to set shop in the streets.

Of the 6.6 you need to subtract the 2.4 million of the public sector who will benefit or not but who will certainly be blackmailed by the regime to keep their job by voting Chavez and staying quiet no matter how late their paycheck comes.  In other words Chavez's crowd is secretly organizing a law for the 4.5 million in the private sector "privado".  The objective is clear: to create social tensions during the next months and win away as many as possible of these workers to the chavista side in a blackmail of sorts, meaning that only Chavez can force private sector to give you the 110 units for your 100 unit job.

All of these could have been avoided if chavismo were a responsible left wing regime (oxymoron?).  For example we could have done away with the cumbersome severance plans by creating a jobless insurance which covers workers for 6 month (the average severance payment by the way for somebody working a couple of years).  Still, for unjustified layoff we could have retained a severance payment.  Also, instead of building barrio adentro we could have focused on restoring hospitals and create a real social medicine, complemented with a renewed network of ambulatorios which already existed and today seem to work better than many of the barrio adentro CDI.... At least when they are in the hands of opposition local managers.  In other words, the reason of the severance (antiguëdad) was for jobless time and to borrow in case of medical trouble.  If those services existed, really, we would not have this discussion today.  We have Sukhois instead and a cadaver on line with Cuba.

Instead we are headed into a sever downturn in employment,  in a further loss of competitiveness, if possible, in a clear discrimination in hiring women who are building a family (1), etc, etc....  In other words, final paralysis followed by progressive bankruptcy of the private sector.  This is good for the regime of course since the bolibourgeois will benefit for their business of the indulgence of the courts and remain in place while screwing their workers just as the state is doing currently.  Rule of thugs, by thugs, for thugs.

Update: believe it or not but Chavez signed the damn law today WITHOUT publishing it.  He claims that he is waiting for the high court to rule on its constitutionality. After the Aponte^2 affair we know for sure that the less constitutional the law, the fastest it will be approved.

1) In this very macho society it is the woman who bears all the charges.  Progress would have been to force the father into post natal care of the baby while the wife returns to work, or at least force the business employing the father to shoulder some of the costs of the business employing the mother (like it happens in many civilized countries).  But no!  More macho posturing!  More macho message that a woman's place is home!  What a great revolution!!!!!


  1. Anonymous12:06 AM

    I had this very discussion in Venezuela, over 20 years ago! A group of employees was speaking about the latest government-mandated increase in benefits. and one of them claimed that the government was looking out for him. No, I replied. The government thinks you're stupid and cannot be trusted with your own money. We employers would rather pay it all to you when you earn it but they make us keep part of it until you leave.

    1. I hace News for you: there is no news. They still think that it is a ploy from the employer to keep the "prestaciones". There seems to be an absolute inability to grasp that, just as they are unable to understand that low gas prices favor the rich way, way more than the poor!!!!!

  2. Is it true that the Chavez administration got rid of restraining order laws that protect battered people (women and men)?

  3. Anonymous4:05 AM

    Esta Ley es anticonstitucional, por la simple razón que por habilitante no tiene valor, debe ser votada por las 2/3 partes de la Asamblea Nacional, así no tienen mayoría y no se aprueba, y para ganar la mandan a firmar por su jefecito. ¿Nos creen idiotas? La Maga Lee

  4. This comment has been removed by a blog administrator.

  5. off topic but related: Cuba is not the only country that makes money off of "workers" it sends to work in other countries. North Korea has been sending North Koreans to work for basically for free in work camps in Siberia and collecting money for it. See:
    Amazing. But there are many credible reports on the internet and youtube. This is one of the more entertaining videos.

  6. Daniel; I like you again, you sound like a tea Partier..! LOL

  7. You guys need to import Ron Paul.

  8. Thanks for this post. It provides some great insight.


Comments policy:

1) Comments are moderated after the sixth day of publication. It may take up to a day or two for your note to appear then.

2) Your post will appear if you follow the basic polite rules of discourse. I will be ruthless in erasing, as well as those who replied to any off rule comment.