Venezuela: The impact of increasing the minimum wage, beyond the crisis

The Venezuelan government ordered that the minimum wage will be tripled, but this measure will not reduce the effects of the crisis

Venezuela: The impact of increasing the minimum wage, beyond the crisis

For the fourth time in the year, Venezuelan President Nicolás Maduro ordered the minimum wage to be increased. This increase is the largest to date, as the monthly minimum wage increased by 103% leaving it in 5,196,000 bolivars. According to the only official exchange rate in the country, this amount corresponds to 65 dollars and barely afford to a can of tuna.

Leer en español: Venezuela: El impacto de incrementar el salario mínimo, más allá de la crisis

For Maduro, the measure of granting another increase to the minimum wage is part of an "economic war", a theory of the president that assumes that the opposing businessmen and foreign powers seek to deepen the Venezuelan crisis. "You throw hard in the war (and) we throw hard too until we stabilize and we will achieve it," Maduro said at a public ceremony after promulgating the minutes.

However, in no case, and particularly not in the Venezuelan case, people are taken out of poverty only by increasing the minimum wage.

First of all, it should be taken into account that in most of the world's economies, the adjustment to the minimum wage is made in accordance with the inflation figure. Ideally, wages, and especially the minimum wage, should be increased by at least the same percentage of inflation. In this way, the generalized increase in prices generated by inflation is compensated by an equivalent increase in wages. This means that even though the goods are more expensive, people can continue to consume the same amount as before.

The problem with a 103% salary increase in Venezuela is that it does not even come close to the astronomical inflation figure that manages the economy of this country. According to mid-June reports confirmed by the country's parliament, this inflation now reaches 24,571%. For this reason, although the increase in the minimum wage sounds exaggerated, in reality, it does not represent a greater gain for the average Venezuelan. This is because even the most basic goods are far out of reach because of the effect of inflation on their prices.

You can also read: What can you buy with the new minimum wage in Venezuela?

A counterproductive measure

For Venezuela, which already seems to have lost the fight to control inflation, increasing the minimum wage can has the opposite effect to that desired, because instead of allowing people to access more goods, it can end up increasing their prices. Even in a nationalized economy such as Venezuela, the goal of the companies that produce consumer goods is to generate income, so that they can continue to remunerate their employees in the market.

For them, an increase of 103% in the minimum wage means an equal increase in the price they pay for their labor. What this means is that if they continue to sell their products at the same price, their profits would decrease proportionally to the increase in the expense of wages.

For companies that must be kept afloat in a country that already faces shortages of several products, the only solution that would allow them to survive would be to increase the selling price of what they produce. This, again, would reduce the purchasing power of Venezuelans, and inevitably deepen the crisis.


Latin American Post | Pedro Bernal

Translated from "Venezuela: El impacto de incrementar el salario mínimo, más allá de la crisis"