The Income Trap

The increase in the minimum wage serves to reduce
the tragedy of income inequality slightly but does not have
the least impact upon the elimination of the
national panorama of poverty.

Cristovam Buarque

Brazil is once again offending its people by conceding a 20 reais ($8.5) per month raise in its workers' minimum wage. Twenty-one million Brazilians will begin the month of April by receiving this increase of 7/10ths of one real per day of work, less than a handout given to a beggar. With this sort of ridiculous raise, lower than the amount the cost of living increased this past year, the Brazilian worker will be able to do practically nothing for his or her family.

It is indecent that a country with national revenues now greater than R$ 1.1 trillion ($480 billion) per year—R$ 6,500 ($2800) per capita—is offering its low-income workers such a small raise. A much larger one would be possible if the rich Brazilians would accept the distribution of a small part of their own income.

But that larger raise would clash with the State's financial limitations and would serve little as the instrument to combat poverty.

Of the 21 million Brazilians who receive a minimum wage, only 9 million are private-sector workers; the other 12 million are public-sector retirees. The wage increase has a great impact upon the public-sector budget. This is why it would be financially difficult to raise the minimum wage to the amount that the worker has every right to desire.

The raise in the minimum wage, moreover, has little or no impact upon the struggle to eradicate poverty in Brazil. Even a substantial minimum-wage increase would do little to guarantee everyone access to the essential goods and services—education, food, healthcare, public transportation, running water, sewerage, and garbage collection. Because none of these goods and services will be available in the marketplace to the low-income worker. Even if the minimum wage were to grow 100 percent to R$ 400 ($174), the worker would not have money to pay for a good private school for his or her children, or to buy medical insurance for the family. Or to install running water and indoor plumbing in his or her house.

While it is immoral to accept the ridiculous raise in the minimum wage, it is demagoguery to propose great minimum-wage increases and, moreover, incompetence to propose the eradication of poverty through income alone. The solution to Brazil's poverty problem lies in the use of the available national revenue resources so that the State can assure all Brazilians access to essential goods and services.

To guarantee the monthly R$ 20 ($8.5) increase in the minimum wage, which will in no way improve the social conditions of those who will receive this raise, the public sector will have an additional expense of R$ 3.1 billion ($1.35 billion), and the private sector, one of R$ 2.3 billion ($1 billion). Spending more than this can put too much pressure upon public expenses and oblige the private sector to dismiss workers or increase product prices. But, if Brazil should decide to invest that R$ 5.4 billion ($2.35 billion) per year in social incentives, in just a few years a completely different social panorama would be possible.

It would be possible to guarantee that in four years no Brazilian home, no matter how poor, would be without running water or indoor plumbing. After raising the bolsa escola from R$ 15 ($6.5) to R$ 45 ($19.6) per child—R$ 90 ($39) per family—to keep poor children in school, Brazil would still have R$ 100 million ($43.6 million) per year left over.

With these two social incentives an additional income flux would be created for the poor populations—the bolsa-escola mothers and the workers constructing the water and sewer systems—but the true result would be the education of the children and the health and comfort afforded by the sanitation systems. But that vision demands a new logic, which is currently impeded by the income trap, the way we all think. In Brazil today, if we should ask anyone whether he or she would prefer to receive only R$ 20 ($8.5) per month or the guarantee of running water and indoor plumbing at home, that person would surely choose the first alternative; if the option were between R$ 20 ($8,5) with no strings attached or R$ 90 ($39) depending upon the school attendance of the family's children, the choice would also be the first alternative.

We are losing the capacity to think and make choices on the basis of medium-term concrete results, and we remain trapped by the idea of immediate income. Therefore, each year, when the moment arrives to debate the amount of the minimum wage, Brazil is divided over how much it should increase, but rarely do we defend a change in priorities. The increase in the minimum wage serves to reduce the tragedy of income inequality slightly but does not have the least impact upon the elimination of the national panorama of poverty. Brazil needs a program of income distribution that begins with a reasonable raise in the minimum wage but that also calls for an immediate "law of abolition," thus permitting a second abolition, that of poverty.

That program would cost no more than R$ 40 billion ($17.4 billion) per year, including all the expenses incurred by the universalization of basic, quality education, agrarian reform, housing, water and sewerage, quality public healthcare, microcredit, and all the projects that, in a period of 15 years, would change the social face of Brazil. Considering that those resources, as they are spent, induce growth and increase public revenue, the total cost would be below 10 percent of the Brazilian public-sector revenue.

This is such a small amount that it is surprising that it is not yet being spent correctly. The only explanation is that we have all fallen into the income trap and continue offering miserly raises in salary as if this were the only option.

Translated by Linda Jerome - LinJerome@cs.com

Cristovam Buarque - cristovambuarque@uol.com.br -, professor at the Center for Sustainable Development/University of Brasília, is the author of the book A Segunda Abolição (Abolishing Poverty: A Proposal for Brazil).

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