Real wages in the public sector soar 31%, and 3.3% in the private sector

Thanks to the big inflow of petrodollars, Hugo Chávez's government is increasing public spending and the economy has taken again the road of growth. However, in terms of wage increases, this benefit is not being distributed equally and there is an enormous difference between people working in the public and private sectors.

When comparing the first quarter of 2012 with the first three months of 2011, the wage index prepared by the Central Bank of Venezuela (BCV) shows that when last increases are taken into consideration and inflation is discounted, the purchasing power of the average public sector's wage recorded this year an increase of 31%.

Although the purchasing power of the wage earned by private sector workers is kept, the increase remains modest since workers' salary only increased 3.3%.

The two sides of Venezuela's economy coin can be seen clearly, when specific groups of workers are taking into account.

While the wage purchasing capacity of professionals, scientists and intellectuals that work for the government rose 36% in the first quarter, the private sector's wage only rose 4%.

Mid-level technicians and professionals working in the public sector reported a real wage increase of 32%, while in the private sector there was a 0.2% decline.

The stagnation

In Venezuela, five out of ten people work for private companies and two out of ten work for the government. Therefore, the situation of the private sector affects a large number of households.

Efraín Velásquez, the President of Venezuela's National Economic Council (Consejo Nacional de Economía) stated that the wage stagnation of private sector workers is mainly due to an environment where "price controls - which have been strengthened with the Law on Fair Costs and Prices - undermine operating margins and discourage investments."

If companies do not make enough profits, there is a little room to increase wage. Note that if investment in machinery and equipment that allow companies to expand production does not increase, companies do not need to invest on hiring people.

As a result, there is a huge supply of workers, and hence, there is no need to increase wages to attract professionals, technicians or any other kind of employees.

Apart from price controls, private investments have not grown in an environment characterized by expropriations and obstacles to gain access to foreign currency.

The BCV has not reported official numbers on private investment in the past year and a half. Nevertheless, the last data recorded are illustrative: between 2007 and 2010, the private sector investment fell 43.6%.

Electoral party

In the government economy, increasing oil barrel and revenues from bond sales represent millions of petrodollars, which allow Venezuelan authorities to increase wages of public workers, especially in the midst of a campaign.

The last seven years show that in times of election campaign, wage increases granted to government employees are much more generous. Nevertheless, this year's increase is twice higher, in real terms, than the increase granted in 2006 when Hugo Chávez defeated opposition candidate Manuel Rosales.

Analysts state that President Chávez's illness, which so far has prevented him from visiting the whole country, forces the Venezuelan government to soar public spending as a tool to gain more votes.

In the first four months of the year, the Venezuelan National Treasury's spending, without including debt payments, recorded the highest increase of the last four years, even after discounting the effect of inflation. Everything points to rising expenditures.

Low ceiling

When comparing this year's first quarter with the first quarter of 2011, the average general wage of public and private sector employees recorded an 11.5% increase.

Although it shows a remarkable increase, the second highest wage rise since 1998, the truth is that over the last fifteen years the purchasing power of employees has not grown.

After short periods of economic recession and prosperity, the wage purchasing power from January to March of 2012 totaled 18% less than in 1997.

The situation of private sector employees is not quite optimistic.

The government adopted an amendment to the Labor Law, which increases severance benefits, but employees become more expensive for companies throughout the years.

As a consequence, enterprises have an incentive to reduce wage increases for older employees.

The possibility that companies will grant workers bonuses that are not taken into account in the payment of severance benefits is ruled out by law.

Translated by Karen Daza