The President of Venezuela Nicolas Maduro has passed legislation to increase the country’s minimum wage by a whopping 275% from 40,000 bolivars to 150,000 (around $8).
With rampant hyperinflation, this is an attempt by the Venezuelan government to offset the impact of huge price increases on workers’ monthly pay packets. However, with inflation rates estimated by the IMF at over 200,000% this year, a 275% increase in minimum wages is unlikely to ease the suffering of Venezuelan workers.
The Venezuelan economy has been in turmoil since 2013, with the total cumulative decline across the time period estimated at 65%. This is in stark contrast to the economic performance of Venezuela in the previous two decades where its oil wealth was used to fund spectacular economic growth and social development.
With the largest recorded oil reserves in the world (yes, even more than Saudi Arabia!), the economic woes of Venezuela are proving to be the epitome of Dutch Disease. Since the global price of oil started to decline in 2013, the fragile economy which was almost entirely dependent on oil revenue has seen hyperinflation, dwindling GDP, soaring debt, and mass unemployment.
These are dark times indeed for Venezuela and after shunning the global economy, it is hard to see any positive way forward in the near future.
Think like an economist!
- What is meant by the term National Minimum Wage?
- Why did the President of Venezuela increase the minimum wage by such a large amount?
- Using this article as a reference, assess the likely impact that this increase in the minimum wage will have on the living standards of workers in Venezuela.
