The least could have
ceased to be one
a Midsummer Night's Dream

CLAUDIO SALVADORI DEDECCA

EThis is a modified version of the essay completed at the beginning of last April, with the aim of supporting debates on the adjustment of the minimum wage in 2004. It took into account the terms of the proposal discussed by the Federal Government at that time, which ended up guiding the decision final announced on the day before May 1st.

The main reason that justified its elaboration is the relevance of a minimum wage policy for income distribution and growth. Furthermore, the proposal presented here is fully compatible with the responsible management of public accounts.

The abandonment of the policy of increasing the minimum wage in 2004 may have meant the loss of one of the last instruments in the hands of the government in favor of growth within the limits of 3.5% for the year. If the current perspective is maintained, there is a high possibility that the national product will grow below 2% in 2004, as well as the risk that the country will experience a drop in per capita income for the second year.

In the months of March and April, the adjustment of the minimum wage gains centrality on the Brazilian political agenda. Once its new value is defined, the theme goes into hibernation for 11 months.

Until recently, the debate on the topic was polarized, on the one hand, by the position that considered that a substantive increase in the purchasing power of the minimum wage would not present greater restrictions and, on the other, by that which pointed out these as the biggest obstacle to the adoption of the policy. Today, the consensus is broader. There is widespread recognition that such restrictions exist and that, therefore, the appreciation of the minimum wage depends on addressing them.

The current consensus explains a logical problem. If the restrictions exist and they are relevant, there is no possibility of a rapid and intense increase in the minimum wage. Proposals to double or set its value at a certain level, in a short space of time, are not viable. It is important to recognize, therefore, that the policy of increasing the minimum wage is more complex.

The recovery of the minimum wage therefore depends on a policy that recognizes existing restrictions and adequately addresses them. Furthermore, it transforms the issue of the minimum wage into a topic systematically present on the economic and social agenda of the government, Congress and Brazilian society. For it to fulfill these purposes, it is necessary to establish a certain predictability about the future evolution of the minimum wage, so that the government has some strategy to face its impacts on the public budget and the private sector can evaluate its implications on its cost level.

There is a pressing need to define a long-term policy to increase the purchasing power of the minimum wage that overcomes existing restrictions and that transforms the discussion about its valorization policy into a recurring process for Brazilian society.

It is worth saying loudly and clearly that there will be no consistent minimum wage policy without growth in the level of economic activity and productivity and that the increase in the minimum wage is an inductive part of growth itself. In short, it is necessary to think about the minimum wage policy as an income policy in a context of public actions in favor of the systematic expansion of effective demand and social justice. It is the spirit that supports this proposal.

It is worth asking: why not define a policy to increase the minimum wage that takes into account the performance of the Brazilian economy? Why can't we adopt a target for the evolution of the minimum wage, which provides predictability for the government and the private sector?

The starting point of its formulation takes into account what economists learn in their introductory undergraduate courses. All economics manuals accept that the evolution of labor income must be compatible with those of product and productivity. Why not incorporate this assumption to establish the basic minimum wage adjustment each year?

It would be reasonable to ensure that the minimum wage keeps pace with estimated increases in output and productivity for the year. This criterion is compatible with all the assumptions of classical economic theory. Furthermore, according to this same theory, it would not have an inflationary effect. And, finally, he would be unquestionably socially fair.

This criterion could be adopted as a consensus policy between government, Congress and society. Furthermore, it could be established each year, in the months of February and March, for the government to discuss with Congress an additional increase that takes into account the economic and political perspectives. This increase could be socially negotiated in forums similar to those established by the initiatives of the Social Development Council or the National Labor Forum. A higher additional increase could be adopted in a more favorable economic or political context.

The table below shows the estimated annual growth rate of Gross Domestic Product; the estimated annual rate of increase in productivity and an estimate of additional increase – called the agreed real increase.

In this exercise, an acceleration of productivity growth and the real increase agreed to higher rates of product growth are considered. It is reasonable to assume that a more impressive performance of the product is related to the recovery of the investment rate and, therefore, greater productivity allowed by the incorporation of newer generations of machines and equipment, more efficient scales and prospects of sustained income gains. .

Also, the better performance should open space for the negotiation of a more significant agreed real increase that accelerates the trend of appreciation of the minimum wage, given the greater possibilities of profit in private economic activity and revenue in the public sphere.

According to this exercise, the real minimum wage in 2010 would be equivalent to 2,5 times its current purchasing power. This movement would require a real increase, in relation to product performance and productivity, of 5% per year until 2006 and 7% per year between this year and 2010. These values ​​cannot be considered high, if real rates of financial remuneration are taken into account. that the country has been supporting.

But let us analyze a little better the effect of this policy on the evolution of the mass of income. To do so, it is necessary to assume some basic assumptions regarding the effect of the minimum wage adjustment on the income structure.

In the case of retirement income, the hypothesis is adopted that the minimum wage adjustment is reproduced throughout the structure. That is, the 11% increase in 2004 would determine an increase in retirement spending of the same magnitude. For income from work, it is considered that the effect of the minimum wage adjustment decreases for higher wages. It would be 11% for those who earn up to two salaries and would decrease progressively, being 6% for those who earn income above ten minimum wages. The effect considered here corresponds to that generically called market mechanism, which tends not to reproduce the increase in remuneration observed at the base for the entire structure.

This would not prevent collective negotiations from guaranteeing more significant increases for the entire remuneration structure of a category. A fact that could only be possible if companies in this category were able to support it.

Also, it is considered that the increase in the minimum wage would spread to the salaries of non-salaried workers or those with non-regulated employment contracts. It is assumed here that the minimum wage is the beacon of labor market remuneration, regardless of the type of employment relationship.

Considering these hypotheses, the simulation carried out with PNAD data shows that an 11% increase in the minimum wage would imply increases of: 10,1% in the total amount of retirements and pensions; 8,2% of the total income of those employed. The increase in the total mass of retirement and pensions would be lower than that observed for the total of direct contributions to social security.

The decision on the intensity of increasing the total mass of income would depend, each year, on the position of assuming a higher agreed real increase. In this context, the possibility of using the minimum wage policy as an instrument of income distribution would be placed at the center of the discussion, by inducing a more accelerated evolution of purchasing power, compared to that of product and productivity.

In short, the total mass of income would grow by 8,2% for a total increase in product and productivity of around 6,9% in 2004-2005. It is therefore explained that this policy of increasing the minimum wage would tend not to have impacts on the evolution of the total mass of income that could fuel the inflationary process, accepting the orthodox assumptions on the subject.

Furthermore, the government could, through industrial and agricultural policies, seek to face possible inflationary tensions, therefore using other instruments to combat them that break the exclusivity currently given to the basic interest rate.

Two other aspects, at least, must still be considered. The first concerns the capacity of municipal governments to bear the greater expense of payroll and pensions. Without a doubt, this is a real restriction that must be addressed, as, on the contrary, the minimum wage policy could worsen the fiscal crisis in municipalities. Two ways of coping could be sought: economic growth as an instrument to increase revenue and a reduction in the high and growing financial burdens that fall on municipalities.

The other refers to the effects of the policy on smaller companies, which, in general, are more labor intensive and have less competitive capacity. Two paths, among others, could be pursued. The first is through an industrial policy and financing mechanisms that reduce the financial burden and risks of technological modernization of these companies. The other would be compensation for small and medium-sized companies through income tax or some other taxation excluding social contributions. This measure could even be used to induce greater formalization of the labor market.

This compensation could not mean a drop in revenue for the government, as the increase in the minimum wage would imply greater effective demand and, therefore, a greater volume of tax contributions.