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Venezuelan President Raises Minimum Wage and Unemployment

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In his weekly radio address to his citizens, Venezuela’s post-Hugo Chavez leader, President Nicolas Maduro, announced he would raise the minimum wage for the fifth time over the last year. The bump puts the minimum salary at 40,683 bolivars or $60 per month, according to Reuters.

The new minimum wage represents a 322% cumulative increase since February 2016 and is an attempt to protect citizens’ wages from “mafia attacks,” according to Maduro. The President attributed his country’s woes to anti-socialist political opponents and capitalists who have created an “economic war” to foment disorder and unrest.

teeth with a bolivar

Maduro’s comments are an attempt to appeal to anti-private business sentiments within Venezuela’s citizenry. Essentially, they’re a red herring designed to distract from the state-created hyperinflation that has left Venezuelans awash with cash, but little to buy. The enormous amount of cash floating around is a consequence of an effort to devalue the country’s currency with the intention of shrinking trade deficits by making exports more competitive.

Manipulating Venezuelan wages is an approach to correcting misguided socialist policies, one that will ultimately push prices higher when costs are passed on to workers.  However, the real economic harm of minimum wages is they’re destructive to labor markets by eliminating lower paying jobs. Venezuelan businesses that are forced to pay more for a worker who’s worth less than the minimum wage will look to automation or simply leave the position unfilled.

Venezuela’s unemployment rate reflects the effects of minimum wages over the last 12 months. Although the country’s leadership is known for being less-than-forthcoming with the release of economic indicators like GDP and unemployment, reports show unemployment at 7.3% in April 2016. Forecasts expect 9% by the end of Q2 and 11% by the end of 2017.

Venezuela unemployment rate graph

Until leaders like Maduro scale back regulations and market manipulations, market forces that function to balance prices and unemployment rates will continue to be ineffective to solving Venezuela’s problems.

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