1.4 million Cubans will get pay raise in August

LAS TUNAS, Cuba – The cold hard facts are that more than 1.4 million people will see an increase in salary next month. Meanwhile, in the private and cooperative sectors of the Cuban economy, or even within the companies owned by the State, which work under dynamics where wages have tended to rise, it has not been the same for almost one out of every two public employees. 

The increase announced corresponds to the so-called budgeted sector, whose support must be totally or partially subsidized by the public coffers and of which those who work in the institutions, and public service agencies, or government and political superstructures are part. This includes, for example, those who provide health services, education, culture and sports services, public administration, communal services, and the armed forces.

The last time the government increased the minimum salary was 2005 when it was upped to 225 pesos [a month]. Since then only the business and private sectors have seen increases, while in other sectors only certain groups like the staff of health institutions, those involved in the operation and maintenance of the energy sector, tourism, oil drilling, Mariel’s special development zone, and some athletes, coaches and sports specialists have seen a rise.

It will take a while, but soon people will realize that the minimum salary has been increased by 400 pesos which brings the average monthly salary per worker up to 1,067 pesos. Several reasons have been given for this move. The first was expressed by President Miguel Díaz-Canel Bermúdez, who used his recent visit to Pinar del Río to clarify several points. The Cuban leader pointed out concrete examples of what the raise — equivalent to 16 convertible pesos (CUCs) — signified.

The decision is not surprising except for the fact that it is being done right now. Persons who comment on the current domestic economy described the move as audacious, admitting that it took them by surprise. The did not expect it at a time when Cuba has seen its external revenues fall precipitously.

The move had been suggested by economists. They want to see a break from the vicious circle of postponing the rise of wages in the budgeted sector until other pending issues had been resolved — for example, the monetary-exchange duality or the growth of internal productivity.

“Normally you say: for there to be an increase in salary you have to increase productivity, but it is also true that in order for productivity to increase you have to stimulate your worker. So what comes first? The chicken or the egg?” asked José Luis Rodríguez last November. The former Minister of the Economy added that under certain conditions, and the current situation falls under that, political measures were needed to stimulate productivity — such as the salary increase given doctors — especially in a segment of the population not directly linked to the production of material goods or services that generate income in convertible currency.

A calculated risk

By the end of the year, an extra 7.5 billion pesos will be circulating on the street, which leads to the question of whether, at a minimum, we can avoid inflation and price escalation that might end up diluting a well-meaning and well-received idea. The new measures also include incentives to raise wages in the productive sector linked to exports. Also targeted is the promotion of business development from economic and financial mechanisms.

New sources of funding have been added to the State budget for contributions meant for the social security of public employees. This move assures the return of released funds back to the public coffers, something extremely important within the financing scheme whereby the contributions almost never reach the total amount that is destined to the payment of retirement pensions.

However, the question pending is what will happen to the lower income sectors, since neither the minimum pensions nor the basic amounts of social assistance have been subject to changes after the small increase of November 2018.

As salaries go up, so do costs

While we rejoice, we must also take into account other dynamics that are as, or more, relevant and that could mark the success or failure of what was announced on June 28.

An update to the amount and structure of expenses of urban families dependent on salaries and pensions, released at the end of last year by the Center of the Cuban Economy, indicated processes that at this moment are being reinforced. Namely the increase of salaries and pensions, the variation in the amount of food rationed, the elimination and/or reduction of subsidies to goods and services, as well as the dynamics of the prices of basic goods.

The Center estimates that compared to results of analogous studies completed in 2005 and 2011, in 2016 there was an “improvement in the average salary, and a contraction of the role of the rationed basket of consumer products.”

In their estimation they only took into account vital necessities, underlining the free access to education and health care the State provides. They also excluded the cost of renting homes, since the majority of the population lives in their own homes. With all this included in the average, they said the per capita monthly expenses in food for these types of households moved in 2016 in the range of between 297 and 334 pesos, close to what was found in 2011, but very distant from what existed during the last wage increase given to state employees. At that time expenditures ranged between 228 and 250 pesos.

As for transport services, they assumed the use of locations closest to the family nuclei, or the regular public transportation services. They stressed that these figures could move downward compared to the use of workers transported, or substantially in the opposite direction with the use of other more expensive options such as purchase of necessary foods not found in rations provided, or rental payments. But, even under those parameters, spending alone, compared to 2011, almost doubled.

The purpose of the Revolutionary Government is to bring the salaries of its less favored workers closer to what is supposed to be the range of their essential needs. But it is evident that the trend upward of the costs of satisfying said requirements has continued since the last wage increase of 2005.

It would therefore be logical to expect other measures to accompany this wage increase, reforms that challenge and order structural deformities of the economy that are less and less relevant, such as the monetary-currency duality or the current mechanisms for the formation of retail and wholesale prices.