Elías Amor Bravo, Economist, July 30, 2020 — The recent publication of the National Office of Statistics and Information (ONEI), “Average Salary in Figures. Cuba 2019” has confirmed what is more or less already known.
In the first place, average nominal monthly salaries in Cuba have grown since 2015, when they were a little more than 687 Cuban pesos (roughly $28 US), up to 879 pesos in 2019. The growth accelerated that year by 192 pesos, 28%, showing a necessary evolution, if salaries are to mean anything.
Secondly, the same as before, this average salary in 2019 is the equivalent, according to the present exchange rate, to a little more than 37 dollars, and given the prices in the convertible-money stores, it’s obviously not enough. The buying power of salaries for daily basic necessities outside the subsidized “basket”, despite having increased, continues to be insufficient.
The combination of these two tendencies explains why salaries are one of the main concerns for Cubans, a result obtained in all the known opinion polls about the social reality of the Island.
Salaries are a double-edged sword in an economy.
On one hand, excessive growth has a negative effect on external competition, driving up production costs, limiting profits and generating inflationary pressure. Equally, higher salaries (with inflation under control) create high levels of buying power in the population, which leads to a succession that, in the words of Díaz-Canel, is fundamental for stimulating consumption and production. In this case, inflationary tension also appears.
Growing salaries are the main threat to inflation. For this reason, economists insist on the need for salaries to correlate with labor productivity. If the two variables keep pace, unit costs remain stable, competition is not eroded, businesses produce more to meet increasing demand, and this results in greater buying power. Managing this virtuous circle isn’t easy and depends on policies of growth and well-being, plus the R and D (research and development) of technological innovation.
How much have prices increased in Cuba since 2015? And what has productivity done?
The question of prices is complicated, because the Consumer Price Index refers only to the national market. In such conditions, you have to refer to the GDP deflator, which offers official data only up to 2018. Taking into account these limitations, a growth in prices of 20% (possibly more) can be estimated between 2015 and 2019, which leaves a real salary increase of 8% in these years, around 1.6% annually. Barely perceptible.
The indicator for labor productivity is obtained from dividing GDP in constant prices by the occupation level. In accord with our estimates, which include up to 2019, productivity increased in the same period by 12%, as a result of the decrease in occupation level. This indicates that the growth in unit costs has been 16% between 2015 and 2019, the equivalent of 3.2% per year. There have been inflationary tensions on the cost side.
In sum, salary increases since 2015 have had limited impact on real buying power, but, through the weak growth experienced by productivity, have generated inflationary pressure on costs, above all on the budgeted sector [that is operations included in the State budget that do not return revenue to the State, including: public health, education, culture and sport, public administration, community services, housing and defense]. The policy of central planning has ended up being, in terms of salaries, another resounding failure.
In addition, other results arise from the analysis of the official ONEI data.
For example, salary inequality among Cubans is increasing.
By territory, the distance between the lowest salary earned in 2015 on the Isle of Youth, barely 617 pesos, and the highest in Ciego de Ávila, with 752 pesos (equivalent to 135 pesos, or 22%) in 2019, hasn’t been corrected. Just the opposite. Ciego de Ávila loses first position at the expense of Artemisa in 2019, with an average salary of 989 pesos, while the lowest corresponds to Santiago de Cuba, with 757 pesos, a difference of 232 pesos (double what it was in 2015), the relative equivalent of 31%.
In addition, in Artemisa, the increase in salaries in those years approached 50%, (specifically, 48%), while on the Isle of Youth, salaries increased by only 24.3%, below the average. The provinces that experienced higher salary growth are those that had the highest levels, and at the same time, those in which the lowest salaries were paid have been those that registered less growth. Santiago de Cuba, for example, barely saw growth of 20% for salaries in this period, clearly lagging behind. So what kind of central planning is this?
It’s easily observed that salary inequalities in Cuba are a function of where you live. And then Díaz-Canel goes and announces that development in his strategy should be launched from the municipalities, a clear bet for keeping and increasing these unjust inequalities. The economy of central planning, without ownership rights or a market, cannot ensure salary justice among the territories of the Island. On the contrary: it increases the differences.
Salary inequalities for Cubans are greater still when distribution by economic activity is analyzed. In this case, the difference in 2019 between construction, which paid 1,597 pesos, the highest salary, and hotels and restaurants, with 529 pesos, the lowest, reached 1,068 pesos. A Cuban who works in construction receives a salary three times greater than someone who works in tourism.
As for trends, there are activities that gain and others that lose in regard to salaries. For example, the sugar industry, which paid 1,238 pesos in 2017, barely paid 1,062 in 2019, a decrease of 14% in this period. Even hotels and restaurants, which had the lowest average salary in 2019, had a downward trend in salaries after 2017, from 546 pesos to 529, or -3.1%. For education and health professionals, the results are contradictory. While the first receive salaries lower than the average 783 pesos, the second receive 965 pesos. The increase in salary for educators since 2017 has been 47% and for health workers, 16%.
One last inequity. The official statistics for salaries support the observation that the high intensity of non-State activities, private or self-employed, like hotels and restaurants, transport and trade, shows lower salary levels (and fewer salary increases) than in the budgeted sector that depends on the Government. Does anyone actually believe this?
Translated by Regina Anavy
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