LABOUR-BRAZIL: Minimum Wage Loses Buying Power While GDP Grows

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 22 2000 (IPS) - The minimum wage in Brazil has shrunk to 28 percent of its value of 1940, when it was put in place, while the Gross Domestic Product (GDP) of Latin America’s giant has risen fivefold since then.

The minimum wage has ceased to be a factor of distribution of wealth and a guarantee of minimally decent living standards for workers, and instead reflects the social inequities that characterise Brazil, according to a study released Tuesday by Marcio Pochmann, a researcher specialising in labour economics at the University of Campinas, 100 kms from Sao Paulo.

The minimum monthly wage, worth 76 dollars at today’s exchange rate, is equivalent to just 28 percent of Brazil’s per capita income. In 1957, at its peak, it was worth 2.7 times that, Pochmann pointed out.

In other countries cited by the study for the sake of comparison, the minimum wage ranges from 30 to 60 percent of per capita income.

Pochmann’s conclusions, based on government statistics, run counter to the arguments touted by government officials, lawakers, economists and business leaders opposed to raising the minimum monthly wage by 30.9 percent, to 100 dollars.

Last week the proposal won the backing of the Liberal Front Party (PFL), the biggest member of the governing coalition. The stance taken by the traditionally conservative party has generated divisions within the government while sparking a heated political controversy.

President Fernando Henrique Cardoso dubbed the initiative “demagogic,” and claimed it would increase the social security deficit by 70 percent, since two-thirds of the 18 million pensioners in this country of over 161 million earn the minimum wage.

Moreover, government officials argue, it would push thousands of city governments into bankruptcy, because half a million municipal employees are paid the minimum wage.

The Union of Municipalities of the Northeast, which represents nearly 2,000 city governments in Brazil’s poorest region, complained that three-fourths of its municipalities could not afford to pay their lowest-earning employees 100 dollars a month.

But Pochmann disagrees with the arguments that the minimum wage is mainly limited to the public sector and that a raise would contribute little to boosting the income of the public at large and would trigger a wave of unemployment.

More than 90 percent of minimum wage-earners work in the private sector, says the expert, who points out that of all formal economy wage-earners, 21 percent – or 14.9 million – are paid the minimum wage.

The historic evolution of several indicators reveals that, contrary to the arguments of critics of the minimum wage hike, the periods of lowest minimum wages coincided with the periods of highest under- and unemployment and booms in the informal economy.

That was even true of years of economic recovery, such as 1994 and 1995, he adds.

The minimum wage is defined by the constitution as the amount needed to cover the basic dietary, housing, education, healthcare, transport and recreational needs of a family of four.

But trade unions argue that the minimum wage would have to be multiplied by seven to meet those objectives.

The adjustment of the minimum wage every May 1st typically triggers a hot debate.

The Workers Party and other leftist groupings have been arguing for a substantial increase. But the novel element this year is that members of the Liberal Front Party, known for their conservative stances and staunch loyalty to the government, joined the ranks of those arguing for a raise.

In this year’s budget, still under debate in parliament, economic authorities proposed an increase of just seven percent – equivalent to the projected accumulated 12-month inflation rate for April.

The government says budget difficulties, especially the social security deficit, stand in the way of restoring the buying power of the minimum wage.

That problem was aggravated this year due to the government’s agreement with the International Monetary Fund to obtain a large surplus in the public sector’s primary accounts.