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Friday, May 10, 2019

Thousands of Venezuelan Refugees Are Being Saved by a Quirk in Minimum Wage Law

Illegal refugees are not subject to minimum wage requirements in Trinidad and Tobago, and that’s a good thing.

Image by David Mark from Pixabay

On April 24, more than 30 persons drowned in choppy seas as they attempted to flee their country’s repressive regime for a better life. But these were not Cubans or Haitians going to America—they were Venezuelan nationals trying to reach the island of Trinidad.

Lying just eight miles off the coast of Venezuela, the former Spanish and British colony is a ready option for Venezuelans fleeing Nicolas Maduro’s socialist regime since its collapse accelerated in 2015. This is so even though Trinidad is an oil and natural gas economy that has been officially in a recession since 2012, with the IMF and the World Bank projecting GDP growth in 2019 at less than one percent. Yet the Venezuelans kept coming, and the best guesstimate hovers around 40,000 immigrants over the last three years. Even more oddly, most of them seem to be getting jobs despite Trinidad and Tobago’s moribund economy.

A Fake Economy

How was this possible? It is true that the unemployment rate in the twin-island republic has supposedly remained under 5 percent despite the economic contraction and increasing layoffs. But that is largely because of the government’s manipulation of employment statistics through make-work programs, which provided a rotating pool of persons with “jobs” cutting grass and cleaning drains for a few weeks at a time. Thus, when the Central Statistical Office carried out its annual employment surveys and asked, “Have you worked in the past year?” the “yes” answers were higher than a more rigorous process would have revealed.

Were the country really at a 5 percent unemployment rate (which is defined as “full employment” on the reasonable assumption that most of that 5 percent must be people who don’t want to work), then it would be impossible for most Venezuelans to get jobs, even though it seems the majority are working as waitresses, laborers, store clerks, and prostitutes.The official economic statistics from Trinidad and Tobago (T&T) were, if not fake, at least wrong. Trinidad’s labor force is made up 623,000 people, according to the Central Bank’s outdated data (the most recent estimate is from 2017), which means that Venezuelans increased the pool of available workers by around 6 percent over a period when GDP did not grow at all. Yet there they were in bars, construction sites, groceries, restaurants, factories, car washes, and retail stores. You could find them renting apartments in all the island’s urban centers and shopping in the malls.

What this phenomenon revealed, first of all, was that the official economic statistics from Trinidad and Tobago (T&T) were, if not fake, at least wrong. Those figures painted a picture of a country running at full productive capacity, but that capacity had been inflated through the oil and gas rent revenues the government had collected through two different administrations during the boom period of 2003 to 2008, and fiscal momentum allowed continued manipulation until 2015. One of the vote-catching measures instituted during that period was an increase in the minimum wage, and it is this that provides the key to the Venezuelans’ employment puzzle.

Minimum Advantage

The minimum wage in T&T is US$2.10 an hour (T&T$15). Although minimum wage rates had been mandated since the colonial era in the 1930s, the wage rate did not become part of legislation until 1998 when it was set at US$1.10 (TT$7) and subsequently raised in 2003, 2005, and 2010. At no point did these increases lead to higher unemployment, as economic principles and empirical studies dictate—or at least, not obvious unemployment.

Venezuelans were not subject to T&T’s minimum wage laws.

In fact, employment shortages did increase in the private sector, especially services, but the government masked the overall unemployment effect by creating more jobs in the public sector—government ministries, state companies, and the aforementioned make-work programs. Subsidies for tertiary education were also increased, which had the effect of taking more young people out of the potential employment pool and thus artificially reducing unemployment even further.

And then came the influx of Venezuelans.

The most important employment criterion for these Venezuelans was not that they were dedicated or qualified (although many of them are technicians and semi-professionals) but that they were not subject to T&T’s minimum wage laws. So here are all these employers in the services and manufacturing sectors, forced by government policies to pay wages that are above the market rate, who suddenly obtain access to a labor pool that does not fall under the laws of the country. Even with the language barrier, the availability of Venezuelans still helped business owners rationalize their costs.

Exploited Venezuelan Workers?

Inevitably, however, the situation has led to accusations that employers are guilty of exploiting the Venezuelans. It is more than a little revealing, however, that these assertions about “exploitation” have come both from persons who argue that the state should assist the refugees and those who are opposed to letting them into the country—which is to say the claim is political rather than empirical.

In a free labor market, wage exploitation is not technically possible: the employer must pay a wage that allows employees to meet their living needs, or else it makes no sense for the individual to take the job. Nobody wins. Certainly, the employee would like to be paid more, and the employer is undoubtedly paying less than he would if labor were in shorter supply: but that is not exploitation, save in political terminology.

This is best illustrated by the quintessential figure of capitalist oppression: the prostitute. There are Venezuelan women working in “massage parlors” in Trinidad and Tobago who, were they back home in a pre-Chavez economy, would in all likelihood not have chosen sex work. Yet even in this situation, choice is still a factor. Many of the Venezuelan women choose this option given their situation even though they might not have done so otherwise. Many of these women could get jobs in T&T as waitresses or store clerks. Assuming a below-minimum wage salary of $1 an hour and a 48-hour six-day work week, this provides a monthly wage of approximately $192 USD ($1,344 TT). This compares to an hourly rate of between $43 to $57 for sex workers (although Venezuelan women, being fair-skinned in a Caribbean country, probably earn more).

If they work out of an escort agency, they probably get just $14 after the agency’s cut and, assuming two clients a day for a five-day work week, that totals $560 USD ($3,920 TT). To give an idea of the cost of living on the island, you can rent a two-bedroom apartment for $285 USD a month, and a weekly basket of groceries can be purchased for $35. The country’s monthly median wage is $550.

It is therefore not unreasonable to assume that many of the Venezuelan women choose this option given their situation even though they might not have done so in their original circumstances. But that is the inevitable outcome of socialism.

Ironic Market Pressures

In response to all these issues and international pressure, the T&T government has belatedly started a program to register Venezuelan refugees so they can legally work in the country. Yet, if the Venezuelans do take up this offer, most of them will lose their competitive advantage in the T&T job market since employers will have to pay them the minimum wage rate. For other reasons, such as the T&T administration’s tacit support for the Maduro regime, most Venezuelans are unlikely to take up the government’s offer (which is only valid for a year, anyway).

It is the market distortions caused by government policies that give refugees in T&T an economic advantage. And herein lies the irony: it is the ultimate market distortion of socialism that has put them in this bind.

  • Kevin Baldeosingh is a professional writer and author. He mainly writes on economics, education, and parenting. He is the father of two small children.