Translation by Lourdes Molina.
The economic crisis of the 1990s caused a salary decrease of 70% for Cuban state employees, leading to their loss of purchasing power. By 2015, this figure had increased by 23%. The current median monthly salary is only about 696 CUP (22.80 USD) and barely covers 54% of monthly basic household expenses. In April 2011, the Cuban government proposed a policy called “Política, Económica y Social” to ensure that state employee salaries cover basic household expenses. According to the Ministry of Economy and Planning (MEP), however, before salary increases went go into effect, the state had to first increase productivity. To that end, the state implemented economic reforms: State organizations were to end illicit handouts and excessive subsidies. As a result, salaries did increase in 2013, when these reforms were first implemented, but by 2015, they had begin to decline. Despite salary increases for salaried employees at state enterprises, including a 38% increase for health workers in 2014, Cuban families have not seen an actual increase in their income.
Some state officials consider that wealth must first be created before it can be distributed, adding that state organizations are still inefficient and that the Cuban economy has not yet experienced sufficient sustained growth to warrant salary increases. Yet, others argue that increased salaries may incentivize worker productivity. Unsurprisingly, salaried employees are frustrated about the vicious cycle that low wages and low productivity create. Wages and productivity have reached a stalemate.
In my opinion, the problem is not about the relationship between incentives and productivity. The problem lies instead in state policies that ignore the root causes of this problem: distribution and regulation mechanisms that hinder productivity at the microeconomic level, and the lack of coordinated reforms. Further, production does not exclusively affect salaries. Production also determines the supply of goods and services in a particular market at a particular time. But rather than production, it should be the workers’ consumption needs that determine their salaries.
Among these factors, the most important is the elusive notion of “labor value.” Due to a lack of information, State institutions do not understand the correlation between a particular type of labor and its wages. Until now, institutions have ascribed to a centrally-organized structure based on “categories of work.” These categories correspond to economic sectors and hierarchical levels, and are unrelated to ideal productivity at every step in the value chain. Given this, salaries do not regulate the labor-market. Also, the organization of production and services does not take into account the availability of the workforce.
Another important factor is the value of Cuban currency. Policies from the 1990s that aimed to prevent unemployment and to confront institutional inefficiency generated a 30% fiscal deficit in the gross national product. This led to an excessive printing of currency in order to manage the deficit. Subsequent policies only consolidated a dual currency that has distorted all commercial transactions, the prices of goods and services, and which prevents the coexistence of households and State organizations in the same markets. This makes it impossible to accurately estimate the cost of basic household needs, which is precisely the data that would help determine what a living wage might be.
At the same time, Cuban businesses can expect to increase production if the MEP, through the “Plan Anual,” guarantees appropriate salary levels for production and consumption access (domestic and international), investments and disposable currency.
Analyses show that low production would result in more than one million redundancies for a company. However, the incentive to grow in the private sector and the restructuring of State organizations comes from institutional transformation. According to ONEI, the Cuban government’s statistics bureau, more than 705,000 workers have left the State sector, which represents 54% of the 1.3 million announced layoffs. At the same time, more than 709,000 workers entered the private sector (0.56% more than those who left State employment).
The decrease of imports has resulted in a 3.5% relative decline in the domestic retail trade. Further, the decrease in subsidies to basic household goods has resulted in a 78% price increase of items that are now no longer part of rationed, household products. After the State deregulated agriculture, the price of agricultural products, on which the population spends 75% of their income, increased by 40%. All of this demonstrates that the economic reforms have failed to increase employees’ buying power.
In order for employees to earn a living wage, business structures must honor production values and improve personnel distribution/assignment. Further, in order to guarantee that salaries will cover workers’ basic needs, it is imperative to: (1) increase and maintain the supply of basic products; and (2) stop favoring an excessive circulation tax in order to get hefty revenues. Instead, the State must allow the market to regulate the value of the workforce. In conclusion, low economic productivity is triggered by the current system of distribution and inconsistencies in economic policy.
COVER IMAGE: Billboard at Cienfuegos airport (2016). By L. K. Yap.