Dilma to the Legislature- Wages will go up

President Dilma Rousseff addressed Brazil’s National Legislature on its opening yesterday. The next few posts will address a few concrete policies to expect in the coming years, as well as a few aspects of the speech that are worth further consideration:

MINIMUM WAGE

The minimum wage was $510 Reales per month in 2010 and the proposal—an executive decree issued by Lula and awaiting approval in Congress—is to raise it to $545 per month. Unions are demanding $580 and employers are silently pushing for the minimum. Given that inflation in 2010 ran at about 6 percent by official figures, the increase appears to be justified on the grounds of the rise in prices alone.

What is important to remember in Brazil is that very few people make minimum wage. Most make multiples of minimum wages, two or three minimum wages. It is also important to remember that if people have a formal sector job (about half) employers have to pay for transport and one meal. Labor rules are draconian for business owners; not only in terms of contributions, taxes, bonuses (workers in the formal sector receive a thirteenth monthly salary), but also in terms of hiring and firing. The market for labor is so rigid that it often costs more to fire than to keep an employee on the payroll and minimize their pay and responsibilities.

The Heritage Foundation’s Economic Freedom Index is a questionable instrument, but solely in terms of rankings, it is telling that Brazil falls in the nether-regions of Mali and Azerbaijan, at 113th overall. The labor market has much to do with this.

From a basic political perspective, the minimum wage is perhaps Brazil’s  biggest political question of the moment, and always a tough issue to mediate. The two largest “factor” groups are represented: labor means votes and popularity (which often translates into legislative support), the other is capital, cooperation among the business community, and the reaction of the media, which tends to side with business and can also affect the president’s legislative fortunes in the legislature.

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