Envío Digital
Central American University - UCA  
  Number 416 | Marzo 2016


El Salvador

Minimum wage history, struggles, maneuvers and proposals

This is the first time in El Salvador’s history that such disparate organizations have issued such diverse proposals to increase the minimum wage. It speaks to the capacity of the current leftwing government to stimulate widespread participation in public policy formulation. Never before has there been a real debate on this issue. In the past, the rightwing governments simply cut deals among the upper echelons.

Elaine Freedman

When Karl Marx wrote 172 years ago that “Wages are determined through the antagonistic struggle between capitalist and worker,” it was one of the most profound revelations about the relations of production in capitalist society, and it remains true today. “The lowest and the only necessary wage rate,” he went on to explain, “is that providing for the subsistence of the worker for the duration of his work and as much more as is necessary for him to support a family and for the race of laborers not to die out.”

The first time in history

From Marx’s perspective, the struggle for a minimum wage could be seen as an effort to cover the needs of the employer class and the survival of the “race of laborers,” but certainly not the needs of the working class. Resolving those needs requires much more than simply increasing the minimum wage. In fact it requires nothing less than changing the relations of production. But until that is achieved, a minimum wage increase provides an important breathing space for workers. Achieving it is an arena of the class struggle in which the State and the government also participate.

At the end of the 19th century, after a combative port workers’ strike in New Zealand and arduous campaigns by the National Anti-Sweating League both there and in Australia, those two countries established a minimum wage by law for the first time in history. And within 50 years, the International Labour Organization (ILO) had been created and working men and women in most countries in had won the right to a minimum wage.

The minimum wage gets in the Constitution

The minimum wage was established in El Salvador’s Constitution in 1950, fruit of a struggle by the Union Labor Reorganization Committee (CROS). CROS had come together four years earlier, as its name implies to rebuild the union movement, wiped out during the dictatorship of General Maximiliano Hernández Martínez (1931-1944). In its first two years, under the dictatorship of Salvador Castaneda Castro, CROS won two important demands: the creation of a Labor Department—which would become the Ministry of Labor—and a collective labor conflicts law.

With the rise of the Revolutionary Council of Government, the result of a 1948 coup d’état against the government of General Castaneda Castro by a group of young officers, many of them trained in the United States, the oligarchy’s “modernizing” group displaced the more conservative group that was resisting diversification of the country’s economic base. Six days after the coup, the new government declared that “the country’s development requires a Fundamental Charter adapted to the new political, social and economic conditions national life is taking on.”

CROS jumped at this opening, working intensely to build consciousness, organize and mobilize the working class to assure that different demands would be included in the Constitution. During the Constituent Assembly debates, the unions affiliated to CROS kept up a broad mobilization of workers in the Legislative Assembly around the clock. They camped there together with student organizations and other progressive groupings, and occasionally took the floor and laid out their ideas and positions despite having no members in the Assembly.

As a result of CROS’ work, Chapter II of the new Constitution’s Title IX on “Work and Social Security” established a number of advances on labor issues: the right to form unions, equal salaries for equal work, a 44-hour work week, the right to the 13th month (year-end bonus) and to annual paid vacations, compensation for work accidents or unjustified dismissal, collective labor contracts, the right to strike, maternity benefits for women and social security. Article 38, which established that all workers have the right to earn a minimum wage, was regulated by articles 144 to 160 of the Labor Code, which was approved for the first time in 1963 and is still in effect.

Fifty years of minimum increases

The minimum wage was supposed to be reviewed every three years, the maximum lapse permitted by law. But reviewing it didn’t always imply increasing it. For example, there was no minimum wage increase for rural work between 1979 and 1986 and no increase for any economic category between 1998 and 2003.

In 1965 day laborers earned the equivalent of US$0.25 a day for picking coffee. Today they receive US$4.30. In other words, the minimum wage in that category has only gone up $4.05 in 50 years. In 1970 commercial sector workers earned the equivalent of $0.40 a day, and while the increase has been slightly greater than for coffee picking, it’s still pathetic: they currently get $8.39 a day, only $7.99 more than 45 years ago.

How many minimum wages are there?

The current minimum wage table is quite varied. It contains eleven minimum wages, nine of which are established through negotiations in the National Minimum Wage Council (CNSM). The salaries of state workers don’t go through this entity, as they depend on the executive branch. In 2010, Treasury Minister Carlos Cáceres announced that as of 2011, the base salary for state workers would be $300 a month, a 44% increase over the $208 they were earning at the time.

The minimum wage in the construction sector has a special regime, established through collective contracts between unions and bosses. In general, according to Ismael Nolasco, executive director of the Salvadoran Construction Industry Chamber, wages for construction workers are 30% higher than the others “given the specialization the sector requires.”

The nine minimum wages that fall under the CNSM purview include four in the agricultural sector, two in agroindustry and one each in the maquilas (assembly plants for re-export), industry and commerce/services. Many believe that establishing such different minimum wages should be corrected. According to FMLN legislative representative Zoila Quijada, “there is a level of injustice in the minimum wage. Industry has one amount, commerce has another and rural workers have another, as if some human beings can eat meat and drink milk and those of other sectors don’t have that right.”

The nine established monthly minimum wages are currently $251.70 in commerce and services, $246.60 in industry, $210.90 in the maquilas, $171 in coffee processing plants, $129 in coffee picking, $124.20 in sugar refineries, $118.20 in general agriculture, $109.20 in the sugar cane fields and $98.70 in cotton picking, although this crop is hardly grown in El Salvador anymore.

What factors go into the minimum wage?

Article 149 of the Labor Code gave life to the tripartite National Minimum Wage Council. The article states that it is “a body dependent on the Ministry of Labor and Social Benefits. It will be made up of seven members: three will represent the public interest, two the workers’ interest and two that of the bosses. The representatives of the public interest will be designated by the Executive Branch as follows: one by the Ministry of Labor and Social Benefits, another by the Ministry of Economy and the other by the Ministry of Agriculture and Livestock. The representatives of the workers and bosses will be elected in conformity with the respective regulation.” The first Council met in 1964.

The Labor Code’s list of factors that must be taken into account to establish the minimum wage includes criteria such as the cost of living, the nature of the work, the different remuneration systems and the different production zones. The governmental representation went beyond that to include productivity, investment and employment, the cost of production, competitiveness, inflation, economic reactivation (through increased domestic demand) and the redistribution of income.

The wages don’t stretch far enough

The cost of living is measured by the Basic Food Basket (CBA). In urban areas, the CBA is made up of 11 products: French bread, tortillas, beans, rice, sugar, meat (beef, pork and poultry), fats (margarine and cooking oil), eggs, milk, fruits (oranges, plantains and bananas) and vegetables (potatoes, onions, green chili, tomatoes, chayote squash and cabbage). In rural areas the basket only has 9 products, excluding the bread and vegetables.

The basic urban basket is currently valued at $206.54 a month for a family of four. While some minimum wages cover the purchase of those products, the same cannot be said of the rural minimum wages, most of which are below $148.11, the cost of the basic rural basket.

The General Division of Statistics and Censuses, which establishes the basic food basket, says it “represents the minimum caloric requirement an individual needs to work,” which matches Marx’s definition: as much as is necessary to maintain a laborer during the day and allow him to support a family and for the race of laborers not to die out.

The expanded basic basket is a different ball game, as in addition to food it includes clothing, housing, electricity, water, health and education. It is currently set at $407.72 in urban areas and $291.84 in rural ones. Under any perspective, the data clearly support the low-income workers’ claim that “the wages don’t stretch far enough.”

Productivity and the minimum wage

Productivity is measured by dividing the gross domestic product by the number of people actively employed. While in reality there is a huge variation, from $37,153 per worker per year in electricity, gas and water supply sector to $5,345 in agriculture, the average is $9,500. That is less than Costa Rica’s average productivity, the same as Guatemala’s and greater than either Honduras’ or Nicaragua’s.

By the logic of productivity, one could imagine that Costa Rica would have the highest minimum wage in the region, and so it does. But El Salvador’s highest minimum wage (commerce and services) is $90 lower than Guatemala’s, $157 lower than Honduras’ and only $30 higher than Nicaragua’s, even though El Salvador’s economy is nearly twice as productive as Nicaragua’s. In agriculture, the minimum wage is $241 lower than in Guatemala, $200 lower than in Honduras and on a par with Nicaragua.

From the business point of view, El Salvador’s relationship between productivity and the minimum wage is the best in the region. The Salvadoran worker produces more and earns less. That’s why it’s more profitable for Salvadoran business managers to hire national workers than workers in other countries. Nonetheless, the Salvadoran oligarchy, loath to invest in its own country, has important investments in Guatemala, Honduras and Nicaragua.

Decades ago, the Poma family built a “Metrocentro” mall in each Central American country and opened vehicle import companies regionally while the Siman family installed branches of its department store in several countries of the region. All Salvadoran banks went to neighboring countries and new hotels built with Salvadoran capital have appeared throughout Central America. With the dollarization of Salvadoran currency, these investments proliferated even more. One would think they would invest more where the labor force produces more for less, but other factors also play a part. One is that the higher minimum wages of the other countries increase the sales of products and services in those countries. Another is the investment incentive tax laws in each country.

Blackmail arguments that don’t hold water

Those opposed to a significant minimum wage increase offer the standard argument that this would negatively affect investment, a disincentive that would in turn affect job generation. This argument is refuted by the following statement in the ILO’s Global Wage Report 2014/15: “New studies or meta-analyses of earlier studies show minimum wages either have no negative effects on employment levels or very small effects that can be either positive or negative.” Its 2015 World Employment and Social Outlook reconfirms this, adding that in all Central American countries with higher salaries than El Salvador’s, investment and the GDP are also higher. In reality, wages only make up 22% of the production costs of a country’s businesses, and in agriculture only 15%-18%.

Another argument put forward to avoid raising the minimum wage significantly is that it would increase inflation. The data don’t support this either. El Salvador saw an 8% minimum wage increase in 2011 then in 2013 a 4% annual increase for the next three years. That totaled a 16% increase in the minimum wage in the four-year period between 2011 and 2014, the last year for which we have official inflation data. Yet in that same period inflation only rose an average 2% a year, the bulk of which (5.1%) was in 2011, before the 8% wage increase was introduced in mid-year. Even in 2015, which had the third 4% wage increase, inflation was -0.2% as of October.

Would increasing the minimum wage reactivate the economy?

Economist César Villalona explains that “what’s making it difficult for investment to grow more in El Salvador is the restricted nature of the domestic market, due to the excessive concentration of income, low salaries and low pensions, which are both even lower in the case of women.”

Increasing the minimum wage would help increase the market for national production, which would help the economy grow. Of the 162,000 businesses registered by the Ministry of Economy, the vast majority of which are micro and small businesses, 99% produce for the domestic market. Moreover they generate employment for 68% of the urban population with a job. Increasing the minimum wage isn’t the only mechanism to reactivate their sector of the economy, as only 12% of the population receives the minimum wage, an important part works in the informal sector not subject to the minimum wage law and another smaller but important part is pensioners. Nonetheless, it would unquestionably benefit rather than damage it.

Will it help reduce the inequality?

The government’s proposal for increasing the minimum wage and several others from the union movement include “income redistribution” as one of the criteria underpinning their argument. It must be admitted, however, that El Salvador’s inequality is so longstanding and so extreme that this measure will make little difference. An analysis of the distribution of the GDP shows that 63% is big business earnings, 16% is taxes to the government and only 21% goes to paying wages and salaries.

The 10% of the population with the largest recorded incomes receives nearly a third of the national income while the 10% with the lowest recorded incomes receives less than 2%. According to the Wealth-X consultancy firm and the UBS financing institution, the Salvadoran oligarchy has an accumulated capital of US$21 billion, without even taking the transnationals they are associated with into account. And just between 2011 and 2014, 160 Salvadoran millionaires and multi-millionaires increased their capital by another US$1 billion.

These data make it evident that much more is required than a minimum wage increase to effectively redistribute income in the country. The slight improvement in recent years in the Gini coefficient, which indicates inequality, has been due not to an increase in the minimum wage, but to the success of the government’s social programs.

While a minimum wage increase wouldn’t change the inequality figures notably, those figures help reveal the absurd reasoning of big business, so concerned that their earnings would be affected by any such rise. All that would in fact change is the daily situation of the 12% of the formally employed population at the very bottom of the pay scale.

A rain of proposals

The National Minimum Wage Council has been receiving different proposals for an increase since last June. The first came from the Union of Private Security Company Workers, affiliated with the National Union Federation of Salvadoran Workers (FENASTRAS). It was followed by the Union and Guild Unity Movement of El Salvador (MUSYGES), a grassroots movement with union representation, although some of its affiliates submitted their own proposal. Next came the National Association of Private Enterprise (ANEP); the Center for the Defense of Consumers (CDC) and Enlaces; the MIPYMES Union, an association of small and medium businesses under the ANEP umbrella; the Salvadoran Labor Movement (MLS); the Salvadoran Union Coordinator (CSS); the Unitary Social and Union Coordinator (CUSS) and the Foundation of Studies for the Application of the Law (FESPAD). And of course the government also has a proposal.

In sum, six proposals have come from union representations or groupings that include them; two from NGOs; one from women’s organizations; one from large private enterprise and another from small and medium private enterprise; and one from the government. Politically speaking, five are from organizations and/or alliances politically and ideologically close to the FMLN and the government, three are clearly identified with the rightwing camp associated with the National Republican Alliance (ARENA) and three have no political or ideological consistency.

The most ambitious proposal came from CUSS, which proposes a single monthly wage of $550 for all workers across the board, women included. CSS followed with $450 in the city and $300 in the countryside. The one submitted by the Workers’ Union Confederation of El Salvador (CSTS)-CONPHAS and the Concertation for Decent Employment for Women, both of which are under the MUSYGES umbrella, was close behind with $407 in the city and $298-$307 in the countryside, in turn followed closely by CDC/Enlace, which proposed a single wage of $400. FESPAD also proposed a single wage, but of $300, while the government is proposing $300 in the city and $250 in the rural area.

Only four proposals were based on the existing wage differentiation by productive sector found in the wage table. The MLS proposes a 25-30% increase for each sector while MUSYGES, which fluctuates back and forth between supporting right and left positions, proposes a 7% annual increase for each sector over three years until reaching 21%. Not surprisingly, the lowest proposals are those of ANEP and MIPYMES, both of which favor a 9% increase for each sector, divided into 3% per year.

Two important novelties

The first new element that needs to be highlighted is that this is the first time in Salvadoran history that such disparate organizations have submitted ideas, which speaks well of the government’s capacity to stimulate a gamut of participation in public policy formulation. Maricarmen Molina, political director of the CSTS, applauded this phenomenon: “We’re delighted that for the first time in our history a debate is being generated on the minimum wage issue. Previously, under the rightwing governments, deals were just cut among the upper echelons.”

The second novelty is that the majority of these proposals are breaking with the logic of minimum wage heterogeneity, which de facto sets up an unjust hierarchy among the different productive sectors. Some suggest two minimum wages, one for the countryside and the other for the city, recognizing that the Basic Food Basket has a lower value in the countryside. Others suggest a single one, arguing that in reality living costs are the same in rural and urban areas and that both populations need to resolve needs that go beyond the 9 or 11 products of their respective food basket. Although a unified minimum wage would be the surest step toward eradicating this injustice, either option would represent an important advance over the current situation.

Interestingly, those who propose the highest increases are also the ones who would eliminate the distinctions between sectors, while those who propose the lowest would maintain the distinction.

The increase in 2013 was utterly irrelevant

A third novelty is the proposal offered by the MLS, signed by those who also happen to make up the “workers’ representation” in the CNSM. The fact that their proposal defends the bulk of the working class demands and arguments over those of the business class is yet another historical first.

In April 2011, these same representatives sided with the business representation in agreeing to the 8% increase that was finally approved by the government of Mauricio Funes. Two years later, Funes proposed a 10% increase, the businesspeople countered with 8% again and the labor representation on the CNSM proposed only 7%. In the end, the negotiation took a regrettable turn. Although a 12% increase seemed possible at one point, ANEP, supported by these same “workers” in the Council, twisted the government’s arm to get it to abstain at that point, so they could achieve what they wanted: a 12% increase but spread out over three years at 4% per year, ending in 2015. In reality, it was an insignificant increase.

The “compadres” and their maneuvers

In those 2013 negotiations, then-Labor Minister Humberto Centeno publicly accused the people representing the labor sector in the CNSM of not defending the workers’ interests. Those four men—Israel Sánchez Cruz, Israel Huiza, Miguel Ramírez and José María Esperanza Amaya—plus Ricardo Soriano, another labor leader, are known in the trade union world as the “compadres” (buddies). Huiza, Ramírez and Soriano go way back together and their relationship with the previous rightwing governments dates back to the presidency of Napoleón Duarte in the second half of the eighties. They represent union federations and confederations (CTD, CSG, FESTRAES, FESINCONSTRANS and more recently FESTIVES) whose history is also laced with pacts with military governments, as happened in the steel workers strike of 1967, a spark that catapulted the consolidation of the grassroots forces.

At that moment, FESINCONSTRANS made a pact with the government of General Fidel Sánchez Hernández and nearly succeeded in forcing the workers to accept the unjustified firings in the steel factory. Luckily for the unionists, the Salvadoran Unitary Union Federation, headed by Salvador Cayetano Carpio, appeared on the scene, supporting them in both a solidarity strike and a successful negotiation process, events that moved the population.

The compadres are found together not only in the Minimum Wage Council, but also in the Superior Labor Council and the Salvadoran Social Security Institute, both of which are also tripartite bodies. They have consistently tagged on to ANEP’s positions in the tripartite dialogues and on other occasions, such as in 2012 when President Funes tried to get the business leaders politically committed to ARENA out of their managerial posts in autonomous government institutions and in 2014 when the Right presented an unconstitutionality appeal against the pensions trust fund during the current government of Sánchez Cerén. Ironically this trust fund was a scheme they themselves had approved to bail out the fiscal problem affecting the ARENA government under then-President Antonio Saca.

According to Maricarmen Molina of the CSTS, “the problem is that the process for electing the labor sector’s representation for the tripartites is neither clear nor transparent.” In addition to the CNSM, the Superior Labor Council and the Salvadoran Social Security Institute, the State has two other bodies in which the labor sector has a joint decision-making role with the government and the business sector: the Salvadoran Institute of Professional Formation and the Low-Income Housing Fund. The voting mechanisms are different in each one, but all guarantee a favorable correlation for the labor representations that hold anti-labor positions. For example, the electoral formula for the CNSM is “One union, one vote,” which means that even the informal sector unions not governed by the minimum wage can vote. Due to a maneuver by the “compadres,” however, the public employee unions, many of them sympathetic to the FMLN, were sidelined.

“Don’t sell out to private enterprise”

Every two years, the Labor Ministry calls together the currently more than 550 unions registered with it. Molina defines the bulk of them, including many of the 200 that participate in electing representatives to the tripartite bodies, “virtual unions” or “rubber-stamped unions” because they don’t represent a real base of workers.

Many are unions that still have their legal status but have ceased to exist in practice. Molina proposes the government conduct an audit to purge the union registry, leaving only legitimate organizations with workers who maintain a labor relationship with a boss and engage in collective negotiation processes with their managements.

Given this long history, the union movement as a whole and the government itself were positively surprised by the proposal put forward by the “compadres” and their MLS, which broke with its historic pattern by distancing itself from business and moving closer to the government’s proposal. Molina called on them to “be consistent with the proposal the workers have put forward in the negotiation process. Be firm, consistent; don’t sell out the will of the working class to private enterprise.”

How long?

Last December the government said it was expecting a new minimum wage agreement for January of this year. Now it’s saying it hopes there will be an agreement by March.

CNSM president and Labor Ministry representative Alejandro Rosales fears that the decision will take much longer. The Labor Code regulations set no deadline for the review period, but rather as long as the process takes. “That explains why the discussion in 2013 took us from February to July,” laments Rosales. “We could waste the whole year with private enterprise arguing that it sees no problem since the Labor Code only says it has to be reviewed every three years and they are now reviewing it...

Meanwhile, the workers are the ones suffering. This makes the following statement by “compadre” Miguel Ángel Ramírez worrying: “A final decision on the adjustment is expected, which will be done by the end of the year. But this will depend on the political and juridical will and on the country’s financial conditions.”

The debates must be public

The working class has every reason to worry and speculate about what’s really going on in the CNSM. The perception is that the discussion is being reduced to a debate about the proposals of only three actors in the process: ANEP, the government and the compadres’ MLS. Most of the other organizations have sided with the government proposal, but are insisting on their right to be informed about what’s being discussed there.

In the middle of January FESPAD presented a proposal to the CNSM to open to the public the sessions in which the minimum wage increase is to be discussed and decided. By a majority vote of the business and labor representatives, the Council denied the request. Under the Public Information Access Law, FESPAD can get the Institute of Public Information Access to oblige the CNSM to open its discussions.

“Put yourself on the people’s side”

Labor Minister Sandra Guevara is supporting FESPAD’s proposal, arguing that the CNSM owes it to the entire Salvadoran population, whose taxes help pay the per diems of the CNSM members. She revealed that her institution contributes over $35,000 a year toward those per diems. ANEP, for example, has charged over $10,972 for 48 meetings.

Guevara admonished the “workers’ representatives” for their position: “We are asking the labor representation to put itself on the side of the people and respond to the working class’ need for a wage increase because the decisions being made inside the CNSM don’t favor the more than 68,000 working men and women.”

Other demands beyondthe minimum wage

In addition to the increase itself, the union movement has other demands in this process, one of which is to regulate the election of the union representation in all the tripartite entities with homogenous electoral mechanisms and based on an audit and cleansing of the registry. Another is to reform the Labor Code so that the minimum wage review period and increase is done annually and not “at least every three years,” as established now. In this they enjoy the support of the Ministry of Labor, whose to-do list includes presenting the reform bill to the Legislative Assembly.

The struggle for the minimum wage has to be taken up because the agreements that are reached will be a measure of the correlation of forces between the workers and the bosses. Moreover, the working class has rights that go far beyond that of “providing for the subsistence of the worker for the duration of his work and as much more as is necessary for him to support a family and for the race of laborers not to die out.” It also has the right to a full life, physical and mental health, recreation and healthy relaxation, higher education… and happiness.

Elaine Freedman is a grassroots educator and the envío correspondent in El Salvador.

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