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Dying wages

At VEB 15,000 plus VEB 18,000 in food benefits, the current minimum wage in Venezuela covers less than half of the standard basket of basic commodities. Oswaldo J. Avendaño A.

The middle class (stratum C) goes grocery shopping more frequently (every 2.9 days), and the loss in purchasing power of this stratum is estimated at around 30% (Venancio Alcázares)

Venancio Alcázares

28 de mayo de 2016 06:38 AM

Actualizado el 29 de mayo de 2016 10:29 AM


Dying wages

The loss in purchasing power is felt by Venezuelans every time they go grocery shopping. At least twice a week they get a fresh reminder that increasing food prices are disproportionate to the increase in revenue, despite current price controls. Although the minimum wage established in Article 99 of the Organic Law of Labor and Workers (LOTTT) has been raised twice in 2016, it remains too low to afford basic necessities.

Planning Minister Ricardo Menendez said in January 2016 that only 30% of workers in the country earned a minimum wage. Since last May the full minimum wage (base pay plus food benefits) increased 33% when President Maduro raised it to VEB 33,637. The daily minimum wage is paid at VEB 501, plus VEB 619.5 for food benefits, totaling VEB 1,120.5, which cannot buy an average executive menu worth VEB 1,500.

On an hourly basis, the outlook for workers is more discouraging. A worker earns VEB 60.625 per hour, which can hardly cover two VEB 35 bus fares. At VEB 77.437, per hour, food benefits can barely buy a candy worth VEB 50.

As of March 2016, the food basket was estimated at VEB 203,943.95 by the Documentation Center for Social Analysis of the Venezuelan Federation of Teachers. (Cendas-FVM). One worker earning minimum wage plus food benefits (the comprehensive minimum wage) would need an additional VEB 170,306.95 to afford the standard basket of basic commodities. If the household monthly income is calculated on the basis of two individuals earning a comprehensive minimum wage (VEB 67,274), the family’s needs will not be met. To afford the standard basket of basic commodities a family needed by the end of the first quarter of 2016, 13.55 minimum wages, 10.97 months' worth of food benefits, or 6,06 comprehensive minimum wages. In other words, in order to at least afford the bare essentials of life, a Venezuelan must work for four and a half months, or 135 days.

Loss in purchasing power

Inflation further erodes the purchasing power of Venezuelans. At the end of 2015, the Central Bank of Venezuela reported a 180.9% increase in prices. In 2012 the minimum wage was VEB 2,047.52; since that year the basic salary has increased nominally by 635%. But, according to estimates by consultant ODH Group, the minimum wage decreed in September 2012 amounted to VEB 42,290.42 at current prices. "This means a loss of purchasing power of 64% for those who earn the minimum wage," says economist Anabella Abadi.

Carlos Lopez, the general coordinator of the Bolivarian Socialist Workers Central (CBST), a pro-government union, and member of the National Federation of Workers, argues that the alleged economic war is another obstacle to afford the basic food basket. He blames the so-called “bachaqueros” (black marketeers) for the distortions in the food distribution chain resulting in yet another unauthorized product price increase.

“If the so-called ‘Petare basket’ [at the prices of some basic products as openly sold by black marketeers in the working class and poor neighborhood of Petare] is used, the minimum wage is obviously not enough. The government is working to make distribution a people’s conquest and not a government handout," says Lopez.

To Economist Oscar Torrealba it is not about the Venezuelan minimum wage being low. In his view, the responsibility for the loss of purchasing power lies with the printing of inorganic money, the iron-fisted price controls and the low level of production and investment in the country.

Francisco Allen, chief of the Economic Analysis Unit of pollster Datanalisis, says that the loss in purchasing power of the Venezuelan middle class is estimated at around 30%. The Venezuelan population belonging to socioeconomic stratum C is consuming "one third less" than what it did in 2015. The drop in the D and E strata is of about 17%.

Allen notes that the percentage in the lower classes is lower than the average due to the black marketeers factor "which entails a redistribution of income from the middle and higher levels to the lower ones."

"The middle class is taking a host of measures to make ends meet." In the lower socioeconomic strata black marketeering is the only choice.  In the medium strata people are liquidating their savings to have some income, or get a second job," says Allen.

Income allocation

During an inflationary process people change their consumption patterns in response to price changes. According to a February 2016 Omnibus Survey carried out by Datanálisis, Venezuelans allocate on average 49.7% of their income to purchase food items; 8.9% to cleaning and personal-care products and 8.4% to health. Only 2% of their disposable income is allocated to saving and 1.8% to the payment of debts. The remaining 33% is allocated to other items such as transportation and education.

"We are witnessing a significant change in budget allocation. In 2012 the household allocated about 42% of its income to food purchases, while today we are talking about almost 50%. In the E stratum it is 52%. Spending more on food doesn't mean that you're eating more" says Allen.

Grocery shopping frequency

It seems that the relationship between the time spent to buy groceries is inversely proportional to the quantity of items that can be purchased. According to Datanalisis, in 2008 people went grocery shopping every 10.3 days. The strongest change occurred in 2012 when this indicator fell to 6.9 days. This year the standard value is one grocery shopping outing every 3 days.

Although the gap is not large, there are slight differences by households of different income groups in the frequency of shopping. The middle class (stratum C) goes grocery shopping more frequently (every 2.9 days); while the upper classes (A-B strata) go shopping every 3.5 days, and the lower class (E stratum) every 3.1 days.

"Respondents indicated that the average spending is more than VEB 7,000 per grocery shopping outing. If grocery shopping is made every three days, we are talking about two weekly grocery shopping outings, around eight shopping outings per month. More than VEB 50,000 is spent this way," says Francisco Allen.

Shielding the wages

For Economist Oscar Torrealba the minimum wage should rise according to the increase of the productivity of the worker and the labor demand. He considers that to improve the purchasing power it is urgent to reactivate the productive apparatus in order to create new jobs. In his opinion, if inflation foreseen for this year is left unchecked, Venezuelan workers can be expected to fall into extreme poverty in 2017, even if they earn a comprehensive minimum wage.

"To protect your purchasing power you must invest in assets. But the minimum wage does not allow it. Investing in assets or foreign currency would allow you to protect yourself from inflation," says Torrealba. He dismisses the proposals by some members of the Democratic Unity Roundtable (MUD) coalition of setting the minimum wage at VEB 200,000.

The CBST expects the Local Committees for Supply and Production (CLAP) "to offset speculative prices of the private sector." Carlos López expects the CLAP to replace traditional food distribution mechanisms at the medium-term. He also relies on this new scheme to fight the food black marketeers. "So far the committees are providing enough food to meet the basic needs of women and children. We are focusing on the food problem. With four bags per month the food problem is obviously solved," he says.

Lopez acknowledges that the country needs to produce. He supports the call of the national Government to the working class demanding that all businesses and factories closed down by their owners would be seized and handed over to their workers so production could be restarted. "Wages can be insufficient to a certain extent, but increasing productivity can raise the income of Venezuelans," he says.

If the current conditions of the economy persist, a greater loss of purchasing power can be expected. As a result, more than 50% of income would be spent on food

Anabella Abadi estimates that during the remainder of the year the government will raise the minimum wage at least twice. To make up for the estimated inflationary jump of 500%, raises should be "radically high." "Let's say in a very optimistic scenario that the two remaining raises would add up to 70%, this just won't make up for inflation in 2016", says Abadi.

Economic variables affecting the purchasing power of Venezuelans are like cancer nearing its most advanced stage - short-term prospects are bleak. The government is doomed to continue to develop the Bolivarian Economic Agenda through the so-called 14 production engines to ensure a better quality of life in the country. However, it is expected that the purchasing power of Venezuelans over the next seven months will continue falling.


Translated by Sancho Araujo

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