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Brazzil - Economy - April 2004

Only Bosses Happy with Brazil's New Minimum Wage

Starting May 1st, Brazil's minimum wage will be raised from 240
to 260 reais, roughly from 80 to 87 dollars. In order to obtain
the purchasing power it had in 1959, today's minimum wage
would have to be US$ 208 (R$ 618). If the Gross Domestic Product
growth were taken into account, the minimum should be 1,200 reais.

Mylena Fiori


Picture The Brazilian government decided that this year's annual increase of the country's minimum wage will be 8.33 percent, which is more than inflation and most price increases during the period. However, by raising it from US$ 80.89 (240 reais) to US$ 87.63 (260 reais) the Brazilian minimum wage still has a lot of ground to cover before recuperating all the purchasing power it has lost over the last 64 years since it came into existence.

According to calculations by José Maurício Soares, of the union-linked Dieese (Departamento Intersindical de Estatística e Estudos Sócio-econômicos—Socio-Economic Studies and Statistics Department), in order to obtain the purchasing power it had in 1959, today's minimum wage would have to be US$ 208 (R$ 618).

In 1959, the minimum wage in Brazil was tied to the cost of a basic-needs basket (cesta básica). At that time it could purchase four basic-needs baskets. Today a minimum wage pays for 69 percent of one basic-needs basket. In 1959, a minimum wage could pay for 1,000 trips on urban buses. Today a worker uses all of his minimum wage to pay for 153 trips by bus in the city.

Purchasing power is not the only way to compare today's minimum wage with what it was in the past (in fact, comparative purchasing power is a difficult and uncertain calculation). There is also Gross Domestic Product growth. That averages out to 3 percent a year since 1959, which would mean that the minimum wage today should be US$ 404 (R$1,200).

According to Soares, if the government continues to base adjustments of the minimum wage on inflation indexes and increasing it slightly above those indexes (which is what the government did this year; the real increase was 1.2 percent or 1.4 percent, according to the government and the Dieese, respectively), it will take more than 49 years to double it's purchasing power. On the other hand, adjusting the minimum wage with real increases of 3 percent (which is what has been done, on average, over the last eight years), it will take around 22 years to double its purchasing power.

Soares says that the only way to effectively increase minimum wage purchasing power is to use long-term targets, for periods of at least 4 to 8 years, and follow them.

Inflation Indexes

Between April 2003 and April 2004, the IPCA (Índice Nacional de Preços ao Consumidor Amplo—Broad National Consumer Price Index), which the government uses to gauge its inflation targets, rose 6.10 percent. The IPCA measures inflation for families with monthly incomes between 1 and 40 minimum wages in the metropolitan regions of Rio de Janeiro, Porto Alegre, Belo Horizonte, Recife, São Paulo, Belém, Fortaleza, Curitiba and Salvador, besides the Distrito Federal and Goiânia. If the IPCA is used as a comparison base, the real increase of the minimum wage announced yesterday was 2.23 percentage points (2.11 percent).

During the same period, the INPC (Índice Nacional de Preços ao Consumidor—National Consumer Price Index) rose 6.84 percent. The INPC measures inflation for families with a monthly income between 1 and 8 minimum wages in the same areas as the IPCA. If the INPC is used as a comparison base, the real increase in the minimum wage was 1.49 percentage points (1.40 percent).

There is also the ICV (Índice de Custo de Vida—Cost of Living Index), which measures inflation for families in São Paulo with monthly incomes between 1 and 30 minimum wages. It rose 6.17 percent, which means that if it is the comparison base, the minimum wage rose 2.16 percentage points (2.04 percent).

The increase in the minimum wage was announced April 29 by Minister of Labor, Ricardo Berzoini. The readjustment decision was made by Brazilian President Luiz Inácio Lula da Silva after several meetings with ministers over the past few days to discuss the impact of the increase on government accounts. The President kept his promise to raise the minimum more than the level of inflation, calculated at 5.89 percent over the past months.

In addition to increasing the minimum wage, the government also decided to readjust the family wage, which will go from US$ 4.5 (R$ 13.48) to US$ 6.7 (R$ 20.00) per child for workers who receive the minimum wage.

Organizations that represent workers, such as the CUT (Central Única dos Trabalhadores—Workers' Central Union), consider insufficient the announced increase in the minimum wage. According to CUT president, Luiz Marinho, the readjustment will not make it possible to meet the needs of the population, especially for those who receive between one and two minimum wages. The CUT wanted the minimum wage to be fixed at US$ 101.00 (R$ 300.00).

The entrepreneurial sector, on the other hand, expressed satisfaction with the increase determined by the government, avoiding economic impacts that could lead to higher interest rates.

The CUT intends to fight for the value of the minimum wage to attain US$ 471.00 (R$ 1,400.00) in 2005.

The Minister's Explanation

The primary surplus target of 4.25 percent of GDP would be compromised if the minimum wage was bigger than US$ 87.63 (R$ 260) declared minister of Planning, Guido Mantega, as he sought to justify the R$ 20 increase.

Mantega pointed out that the budget had earmarked US$ 1.01 billion (R$ 3 billion) for a minimum wage increase, which would have been at R$ 256. The new salary will mean an expense of US $1.2 billion (R$ 3.650 billion), he explained.

Mantega went on to say that the government had been hoping for increased revenue in order to raise the minimum wage more, but that after checking the books for March and April it was clear that there was no way to raise the minimum more without compromising fiscal targets.

The minister said the government is determined to reach its fiscal goals and is certain that GDP growth will be 3.5 percent this year and 4 percent next year. "It is important for people to understand that we are growing. Vigorous growth is occurring. That is why we need money, so we can invest it and bring interest rates down and get the private sector moving," he declared.

In conclusion Mantega said that the government had been very successful last year in handling the economic crisis and dealing with the problems the previous administration had left.

Mylena Fiori works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br.
Translated from the Portuguese by Allen Bennett.

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