Hard Currency Payments to Workers Boost Buying Power for Many Cubans

“Transition” is a loaded word in Cuba because of its political overtones. Officials, the party, and even Havana billboards assert that “there will be no transition government” in Cuba.

The economy, however, is another matter.

Just as Cuba has developed a dual currency economy where pesos and dollars circulate side by side, its labor market is also diversifying. The conditions of the first three decades of Cuban socialism where the state was virtually the only employer, enterprises were governed by state planning, workers earned pesos and had no other source of income are still present, but they no longer fully describe the Cuban workplace.

The changes are apparent in small businesses, joint ventures, farms, cooperatives, and even parts of the state sector where earnings have increased. When combined other non-state income sources such as remittances from abroad and and black market activity, this trend is reducing the relevance of the official yardstick of personal income. The average monthly salary of 217 pesos cited by the government no longer reflects the earnings and purchasing power of many Cubans.

Joint ventures. By law, Cuban workers in joint ventures are paid through state employment agencies, and they receive salaries comparable to those paid in the state sector. However, in reality, the earnings of many employees of joint ventures are higher because joint ventures find ways to supplement workers’ pay.

One of the most common is the jaba, a monthly basket of household goods that both joint venture and state workers receive from their employers.

Many joint ventures also find ways to funnel hard currency to workers. For example, a cleaning woman at Varadero’s Bella Costa hotel earns a 267-peso salary, a jaba, $4 in cash, and a share of tips that amounts to about $10 monthly. A junior manager for a Canadian company earns 300 pesos plus $100 monthly. A sales representative for an industrial equipment manufacturer earns 300 pesos plus $300 monthly.

Other companies give employees money for meals. One company provides its 60 office workers a $3 lunch stipend per day, effectively a monthly supplement of about $60.

These payments occur in a legal gray area: They are not envisioned in Cuba’s foreign investment law d appear to be outside of the structure established by the law. However, they are widely known to take place, and some local analysts see them as an effective stimulus to higher productivity.

One major investor, Sherritt International, says it has official approval to pay bonuses tied to productivity. These are provided in the joint venture agreement covering its nickel at the Pedro Soto Alba plant in Moa, executives say. Interviews with off-duty workers revealed that a shift manager earns 460 pesos plus $70 in an average month; a boiler operator gets 320 pesos plus $60.

A third type of pay supplement is provided in the foreign investment law itself: profit sharing. One small company provided in-kind benefits such as vacations and health benefits to its workforce. ETECSA, the national telecommunications carrier that is a joint venture with Italy’s STET, began profit-sharing in August 1998. As a result, an operator’s 200-peso salary is doubled with a $10 monthly payment.

Cuba’s farmers have been called “the rich of the revolution” because their ready access to foodstuffs has insulated them from the ups and downs of the economy. Recent agricultural reforms, while limited, are yielding some evidence of increased farm incomes.

Private farmers volunteer little data (and perhaps keep little data), but in interviews they express satisfaction with their ability to sell to farmers’ markets.

Near Mariel, a sugarcane cooperative pays its members about 325 pesos monthly. A cooperative in Matanzas pays about 400 pesos per month. In Havana province, a UBPC cooperative one of the profitable minority in this type of cooperative is able to pay about 600 pesos monthly in combined salary and bonuses.

In the cities, farmers’ market vendors seem to earn a good living. One former carpenter in Havana’s Cuatro Caminos market says he earns 2,000-3,000 pesos monthly, about ten times his former state salary. At another Havana market, a former day care worker earns over 1,000 pesos each month, as compared to a 150-peso salary in her former job.

A 1998 survey of Cuban cuentapropistas (self-employed) revealed average after-tax income of 743 pesos monthly. This average was calculated after excluding three high-income cases: two taxi drivers with monthly incomes of 6,500 and 8,700 pesos, and a private restauranteur who earns 24,000 pesos.

Cuban officials seem aware that while reforms have enabled some to increase their earnings substantially, they have also led to new inequalities. President Castro discussed this issue in a February 9, 1999 speech in which he promised salary increases for health and education workers. Health workers received a 30 percent salary increase in April.

Apart from appropriating funds to increase salaries, the state is introducing incentive schemes of its own. Cuba’s economic press regularly reports on productivity bonuses paid in dollars to workers in industries that earn foreign exchange, such as sugar and tobacco. In Moa, workers in the state nickel enterprise tell of salary supplements ranging from $20 to $30 monthly, tied to production and the price of nickel.

One way to measure the impact of these changes is to compare salaries to the cost of food in farmers’ markets. The following is the cost of a market basket containing a pound of rice, a pound of black beans, a pound of pork chops, two pounds of tomatoes, three limes, and a head of garlic:

December 1996 | Havana | 50.5 pesos
March 1998 | Havana | 46
October 1998 | Havana | 49.5
February 1999 | Havana | 44.25
February 1999 | Santiago | 35.5

The following are percentages of monthly income that Cubans in various occupations must spend to purchase that market basket at February 1999 Havana prices:

Retiree with pension—————————————————— 34%
Retiree with pension plus monthly $10 family remittance——– 13%
Worker with average salary——————————————– 20%
Emergency room doctor of internal medicine——————- 10%
State hotel construction worker—————————————- 9%
Hotel cleaning woman—————————————————– 8%
Average “cuentapropista” (entrepreneur)————————— 6%
State nickel worker——————————————————— 5%
Varadero resort musician———————————————— 4%
Produce vendor in farmers’ market———————————– 4%
Nickel worker in joint venture——————————————- 3%
Joint venture junior manager——————————————– 2%

Cuba’s initial reforms do not add up to a capitalist economy, but they irk socialists who lament replacing “moral incentives with material incentives.” And while giving workers experience in market settings, they have improved the welfare of many Cuban workers and their families.

Peters is vice president of the Lexington Institutue in Arlington VA.
For more information please contact the Lexington Institute at 703.522.5828.