politics

Venezuela Raises Minimum Wage 3,000% and Lots of Workers Get Fired

  • Hyperinflation, depression, devaluation add to company woes
  • Some employers are restructuring costs, rejiggering pay scales
Venezuelans Struggle With Maduro's New Economic Plan

Venezuelan workers who earned a pittance are now earning a slightly larger pittance, thanks to a big increase in the minimum wage. What they may not have are jobs.

Starting this week, 7 million employees are guaranteed 1,800 bolivars a month -- worth about $20 at the black-market rate. President Nicolas Maduro intended the mandate as political boost, but it’s having the opposite effect as companies, already hit by Venezuela’s epic economic contraction, tell workers they can’t afford to keep them.

While there have been many similar moves in the past, never has one been so disruptive, arriving amid hyperinflation, depression and devaluation. Some employers are restructuring costs, rejiggering pay scales and negotiating settlements with workers. Others are simply dismissing people. Much of the action happens secretively as companies try to avoid punishment by the government, which has been jailing those it believes are flouting the rules.

Caracas garage owner Marcos Vizcaino, 56, said the increase was the final blow for the family business of two generations. He said the scarcity of spare parts, a sclerotic tax bureaucracy and hyperinflation had already complicated matters and resulted in less than a customer a day.

“I already told my four employees to go find other jobs,” he said. “I’ve decided to close. There’s no need for me to keep to losing money for a third year in a row.”

No Customers

In two industrial and wholesale districts in Caracas, La Trinidad and Boleita, about half the businesses were closed last week, including several restaurants that depend on local workers. Weekday traffic resembled the leisurely flow of a Sunday.

“I have four salesmen; all have come in this morning,” said Manuel Rosas, 55, who owns a shop that sells spare parts for Chryslers. By 11 a.m., he had sent them all home because they had nothing to do.

Workers sit during a break outside a factory in Guatire.

Photographer: Fabiola Ferrero/Bloomberg

The higher minimum wage, which Maduro announced last month, was among several bids to steady the rapidly failing state’s economy and stanch hyperinflation. The socialist autocrat also devalued the currency and lopped five zeroes off denominations of the bolivar bill, which has been rendered almost valueless.

Difficult Meetings

Sine the new minimum wage was announced, business and industry groups in Caracas held a flurry of meetings. Lawyers have been holding advisory sessions with clients, and there have been difficult sit-downs among owners, employees and unions, all players in the nation’s heavily regulated employment economy.

Vizcaíno says he can’t let go of workers easily. If they believe they have been fired wrongly, they can complain to a Labor Ministry court, setting off a lengthy bureaucratic process akin to a trial.

Not far from Vizcaíno’s auto shop, dozens of workers fired after Maduro’s wage announcement gathered at the Labor Ministry’s doorstep. Many arrived as early as 7 a.m. seeking legal guidance on their dismissals but were prevented from entering after appointment times ran out. Many inspectors had been dispatched to see whether pharmacies, shops and factories closed without permission. Workers anxiously posed questions to officials who told them to come again the next day. Disappointed and confused, many left.

Emergency Plan

“In a situation like this, the government should have an emergency plan to advise workers,” said Edwin Lumar, a 29-year-old shopping-mall security guard. His employer fired three out of six workers without providing legal paperwork. “How many times have new wages been put in place with no results to end hyperinflation?"

In fact, since Maduro took office in 2013, he has boosted the minimum wage 24 times. But inflation keeps galloping and businesses keep shutting down. Some 20,000 have closed since 1996, three years before Maduro’s mentor, Hugo Chavez, took power, according to Fedecamaras, the nation’s largest business organization. Only about 3,600 remain open. In June, more than half of companies surveyed reported they worked at less than a quarter of capacity, according to Conindustria, a trade organization.

“Closing is an individual dilemma,” said Rodrigo Agudo, Dairy and Meat Institute director and food industry expert.

Graffiti reads “Got Bread?”on a closed store in Caracas.

Photographer: Manaure Quintero/Bloomberg

Restrictive Controls

Apart from the astronomical rise in wages, companies have limited ability to adapt, thanks to restrictive controls. Food operations are closely monitored as the government provides them imported raw materials. More than 500 supermarkets and stores have been fined and 200 managers and workers detained since Maduro’s announcements, according to Cedice, a private-property watchdog group.

On Sept. 3, the government seized a pharmaceutical company in Maracaibo that planned to shut; it was previously fined for hoarding products. In August, the government seized a Smurfit Kappa plant that made cardboard after it closed several production lines and sent workers on early vacation. Demand had fallen as the food packagers it supplied closed.

Banking, commerce, education and construction companies, which often have large and stable payrolls, are expected to be buffeted. Benefits pegged to wages -- which depend on an employee’s tenure -- also will increase, and large firms have collective-bargaining agreements subject to government scrutiny.

“The impact can be devastating; it can consume a whole company’s capital,” said Aurelio Concheso, a labor expert at Fedecamaras.

But all merchants face an existential test. In Barcelona, a city in eastern Venezuela, more than 200 retail stores out of about 950 have closed since last year, said Wael Raal, a shop owner who is also president of the community’s commerce association.

“We are crossing a desert,” he said.

— With assistance by Noris Soto