( Posted in The Desk, June 27, 2008 )
It recently announced an agreement between the CUT and the government of Chile, read and Labour ministers, and Andrade Velasco respectively, relative to a minimum wage increase of 10.4%.
Every year, workers represented by Arturo Martinez complained of intransigence and ill treatment by authorities economic. This episode regular and permanent workers always go shorn, contrasts with the situation in the financial sector and corporations that have always had the backing and support of the Unidad de Fomento (UF) as a mechanism to protect their enormous profits During these past years. The situation gives
also think that there would have to redesign the way that the minimum wage is determined, in order to move to automatic indexation, at least the famous and controversial minimum wage, although it would be fair to apply automatic adjustments to all wages paid to contract workers.
worthy or not is just that while the banking and commercial companies automatically adjust their income to the CPI and thanks to the UF, workers must go through strenuous and often unworthy negotiation process to retrieve, to a lesser extent, the effect exerted on prices wages making them lose their purchasing power.
The evidence shows, moreover, that if anything has served to UF, has been to preserve the profits and gains, while wages are sinking into the dungeon of the devaluation. As is known, the UF is an economic recovery mechanism linked to consumer price index (CPI), which enables automatic and daily indexation -Depending on the CPI-all values \u200b\u200bexpressed in the famous UF. Ie it is a great way to hedge against the devaluation implies inflation.
Currently this is used predominantly in the financial sector are indexed so that all types of loans, mortgages and other contracts in the housing market, financial instruments and long-term government. There are also some types of income are indexed as alimony and some benefits of the social security system. At first the value of the UF was set three times a year, which showed a lag for the CPI. From year 1977 until today, the value of the UF is updated daily based on the CPI for last month.
Information is abundantly clear: financial indexation has fairly effectively fulfilled its objective of protecting the financial returns of inflation. Net income from financial institutions show a strong upward trend between 1990 and 2007, with a systematic increase of over 500% in the period, and these appear to be isolated from variations in the level of economic activity, so that declines in GDP growth are not reflected in similar declines in earnings of these institutions.
stresses, in this sense, they just have been adversely affected by the contraction of GDP in 1999, reducing its rate of growth only to quickly resume the course of accelerated growth have been presented to date. The same can be assessed on the banks that use financial indexation as a way to protect the returns on their loans. Again the net profits and rates of return appear to be isolated sector of the evolution of the entire economy.
Moreover, rates of return than banks several times (over 15%) of GDP growth in the period from 1999 to 2004. Is not unlike the general case of corporations. The Search data for the years 2002 to 2007 show a sustained growth of net profits by over 500% during the study period and again regardless of the level of economic activity, since hardly altered with decreases in productive activity country. Clearly, the introduction of financial indexation has been effective in preventing the erosion of purchasing power when income arising in the financial returns of the production factor capital.
However, for workers the story is the opposite sign. As is known, the year 1985, the labor market more flexible to the extent that the fixing of wages began to be subject to negotiation between the employer and the individual worker. From then until today the update of salary depending on the level of inflation is subject to the possibilities of workers to include clauses in their contracts indexing, mainly through the processes of negotiation and collective agreements.
The problem is that in Chile, the scope of these mechanisms is extremely limited, since between 1990 and 2007, the number of workers to collective bargaining is not enough to cover 15% of total employed workers.
This context of demobilization and low union participation illustrates the ineffectiveness of letting the workers themselves periodically for the negotiation of adjustment of wages according to the price variation. Unlike what was observed in respect of profits, wages have shown a tendency to fall.
The nominal wage growth was almost a decade of declines between 1995 and 2004, rising again to run in 2005. Only in 2007 will reach the level of growth experienced by the wages a decade earlier. In real terms, wage growth fell by half between 1995 and 2000, then stabilized and rising again recently in 2007 to the levels of a decade ago.
Contrary also to what happens with capital income, the trend in earnings growth shown in any single business cycle, but in the opposite direction to that presented by the utilities. Nominal wages are the downward course of economic activity between 1995 and 1999 but decline lasts for 5 years. While the course of GDP touches its lowest point in 1999 to begin a new uptrend since 2000, the rise in wages comes only in 2005. If you look at real wages, however, the trend is shown completely decoupled from the trend in economic activity, presenting a more moderate decline but also more persistent over time.
Such developments should be well understood by the trade unions and begin to come together to establish at least one indexing the minimum wage and not have to take every year humiliating and outrageous treatment to undergo successive finance ministers to workers.
Marcel Claude, an economist.
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