Thursday, May 1, 2014

THE MYTH OF MINIMUM WAGE (or what they won't tell you in Politics 101)

Nicolas Maduro, the embattled President of Venezuela whose support is now probably much less than the bare majority that the official results in last year's Presidential elections said that he had, in an effort to shore up his dwindling support has announced this week a thirty per cent increase in the minimum wage as from 1st May. The minimum wage now moves from 3,720 B's (which is equal to US$520 at the official exchange rate) to 4,252 B's (which is US$675 at the official exchange rate). In other words, the increase is officially equal to US $155.

There are several problems with this: first of all,  the increase is only worth a little over US$67 at the black market rate; in other words, in reality the increase is less than half of the trumpeted thirty per cent. Everybody knows that it is virtually impossible to buy US dollars with Venezuelan Bolivars unless you happen to have first class contacts inside the Government. Secondly, inflation last year in Venezuela is officially reported as being 56.2%. (I do not know what the inflation figure is for this year, but you better believe that it is as high, if not higher, than it was in 2013). So, the trumpeted 30% increase "to help the poor workers" has not even kept them level with the raging inflation even at the official exchange rate!

 But the continuing Venezuelan troubles, serious as they are, are not the point of this post. I was just using this particular "event" (for want of a better word) to illustrate how politicians the world over use minimum wage to fool people. Fact: minimum wage is NOT a device used by governments to help the poor and the underpaid worker. Minimum wage is a device used by governments to increase productivity. Don't believe me? Check it out: the countries with the highest minimum wage in the world also have the highest minimum wage. Coincidence? Yeah! Right! And the Easter Bunny brings presents on December 25th!

But you can test what I am saying another way: let's say that the minimum wage in the country of What's Happening Now is $5 an hour. Now, let's say that you live in What's Happening Now and that you have a small garage in which you repair motor vehicles. In this garage you employ two young men at $5 an hour for 8 hours a day, 5 days a week. So your weekly wage bill is $400 a week. The government of What's Happening Now suddenly raises the minimum wage to $10 an hour. The result of this decision is that your wage bill now is doubled overnight. But you simply can't  can't afford to pay out $800 ($400 to each employee) a week. So? What do you do? Answer: You have to let one of them go. The other one that you keep has now to do the work of the dismissed worker as well as his own. In other words, he is forced to become more productive. And as to the one who is let go ... well, he either has to retrain himself in order to get another job or work harder in his next job in order to keep it. Productivity has been increased.

Now you know why opposition politicians always yell loudly about increasing the minimum wage when they are in opposition but when they get into power they become strangely silent on the issue They know that raising the minimum wage abruptly and too quickly can have serious and deleterious effects on employment and the economy.  Trade Union leaders are, of course, another story. They (at least the ones in this country) couldn't care less about economics. All they really care about is having their membership pay their dues so that they (the leaders) can live well. (When last did you ever see a Trade Union leader lead a strike and forgo his pay while the workers were out on strike?)

Maduro's gambit of increasing the minimum wage will play well temporarily with that increasingly diminishing section of the electorate that still supports him, but as reality continues to bite the poor in Venezuela, he will find it harder and harder to convince his countrymen that he really knows how to fix the very serious problems created by his hero, Hugo Chavez. The truth is that this latest action of his just shows how really shaky he is. The reality is that his government cannot last ... at least, not without even more severe repression that is taking place right now.  If I could advise him I would tell Maduro that he ought to know that problems cannot be solved with the same level of consciousness that created them. Unfortunately, nobody has taught the former bus driver this. What a pity!

1 comment:

  1. With apologies to my readers. There is a typo in the third paragraph of this post. The second and third sentences in this paragraph should read:
    "Fact: minimum wage is NOT a device used by governments to help the poor and the underpaid worker. Minimum wage is a device used to increase productivity."