The dilemma between inflation and the social and labour conflict is not resolved

Leonardo Vera / Informe Carpe Diem

The government of Nicolás Maduro is now facing a serious public policy dilemma about choosing between a reduced inflationary pressure evading the chance of new wage increases for public sector workers and dependents or a reduced popular pressure and labor unrest by offering any compensation formula for workers in the public sector.

Amid a high and runaway inflation such as that in Venezuela, without wage increases for workers in the public sector and pensioners since March last year, the erosion of the purchasing power has resulted in discontented stakeholders that at any time could have established a support base for the government of Nicolás Maduro.

The monthly minimum wage, pensions and retirements, pegged to the dollar at March 2022 (year of the last wage increase) at US$ 29, are nowadays US$ 5.29. Without increases in the minimum wage, the salary scale of the public sector is not increased either, resulting in economic precariousness for the more than 1 million workers depending on the State and for near 5 million pensioners and retirees depending on social security and for other 800,000 depending on other independent public retirement regimes.

The root problem is that amid the impact of inflation, workers in the public sector lack the contractual or institutional mechanisms as a hedge against inflation. Collective bargaining in the public sector in Venezuela is absolutely outdated. Salaries are still fixed in bolivars and the minimum wage and salary scale have not increased since almost a year.

In an economy with prices fixed in dollars and a public sector increasingly pegging utilities fares and fees to the dollar, workers and dependents in the public sectors are the most affected.

In January and February, thousands of workers, professionals and technicians in the sectors of education, health, steel and metallurgy, public administration, autonomous universities, including pensioners and retirees, have staged demonstrations nationwide to demand the dollarization of their salaries and the improvement of their labour conditions.

The government of Maduro and its Minister of Labour Francisco Torrealba have responded to these demands with silence. Only non-qualified spokespersons, aligned with the PSUV, have said that sanctions have led to the collapse of public revenues thwarting the government’s effort to address the demands of a wage increase.

The efforts of the tripartite roundtable set up at the end of January in Margarita, with the support of the International Labour Organization (ILO), failed to lead to a salary agreement, as long as the Ministry of Labour did not submit any proposal and used as an excuse the lack of resources and the dramatic impact of sanctions on the economy of the public sector.

At that third in-person session of the Social Dialogue Forum attended by the ILO, the only agreement reached regards the establishment of a technical committee to discuss the salary issue in February, while the government and its trade union, the CBST, focused on signing a petition to condemn international sanctions.

In our view, two aspects justify the action of the government of Maduro to resist wage increases. On the one hand, pegging the salary to the equivalent in dollars in March 2022 requires a considerable demand of resources, and the government lacks an objective source of resources further than higher gasoline prices. On the other hand, government external economic advisors worry that a major wage increase would result in an unusual pressure in the exchange market, triggering a more virulent inflation process.

A research highlighted in our first report of the year suggested that if the government of Maduro wanted to take the minimum wage to the US$ 29.68 of March last year, it would require throughout this year approximately US$ 1.39 billion to cover the increase that would benefit the 5 million retirees and pensioners existing in the country and US$ 1.83 billion just to cover the increase on the 1,100,000 workers and employees in the public sector. This totals between 5 and 6 GDP points. It is worth noting that in such exercise we took as our premise that the minimum wage increase would impact the entire salary scale and therefore the wage average of the public sector, which stands today at approximately US$ 39 a month.

For the time being, is it hard to expect a solution to the salary and purchasing power issue. Therefore, the government of Maduro will have to deal with a highly conflicting internal labour environment involving the public sector that always has a chance of becoming an uncontrollable social protest.

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