The Assault on Benefits in Venezuela

...AD's leaders had defended the old system of severance payment, which for decades had been a sacred cow in Venezuelan politics, but when the party joined Caldera in his move to the right, the CTV's opposition to neoliberal labor reform was dampened...

...This lead was just widened when outgoing Venezuelan President Rafael Caldera gained Congressional approval for the privatization of the five main components of the country's social-security system: health, retirement, unemployment compensation...

...And for laid - off or retired work ers , severance pay represented a substitute for unemployment compensation or retirement bene fits . Indeed, for the Venez u elan working class as a whole, the situation has taken a sharp turn for the worse...

...It is far from clear, however, how the vast majority of employees who earn close to the minimum wage, and the large numbers of informaleconomy workers who typically earn even less, will be able to pay enough into their privatized individual accounts to ensure adequate protection...

...In a tentative accord reached by labor and management in January 1996, each employed worker was given the right to choose between the old and new systems of severance payment, but the final arrangement made the new system mandatory for all workers...

...Benefits were thus calculated on workers will b the basis of a worker's last, pre- into their pri sumably highest monthly wage...

...In late 1995, Caldera established a Tripartite Commission of business, labor and state representatives to draft legislation to revise both the social-security and severance-pay systems...

...Most telling is the extent to which labor backed down from the demands it originally formulated within this commission...

...Under the old system, workers were compensated according to the number of years they had been on the company payroll, with no built-in maximum...

...In addition, the Caldera government approved a new severance-pay plan which removes retroactive cost-of-living adjustments from workers' entitlements...

...The political agreement between President Caldera and the still-powerful opposition party, Democratic Action (AD), partly explains organized labor's willingness to make these major concessions...

...Third, the 1996 tentative agreement linked wages to the cost of living, although differences existed between labor and business over the extent to which one should be pegged to the other...

...The final agreement whittled the limit down to five months, an amount clearly insufficient to discourage layoffs...

...Under the old law, a worker's severance benefits were determined by multiplying his or her last monthly wage by his or her length of employment, specifically the num- It is not cle ber of years with the company...

...Fourth, the CTV accepted uate protection...

...Nevertheless, the final setr how low-wage tlement between worker and business representatives able to pay enough eliminated the provision atized accounts to altogether...

...Meanwhile, NACIA REPORT ON THE AMERICAS Steve Ellner is director of the Research Center for Administrative and Economic Sciences of the Universidad del Oriente in Puerto La Cruz Venezuela...

...Another factor helps explain the softening of the CTV's position...

...Through 1994 and 1995, the first two years of the Caldera government, the President and the dominant faction of AD were resistant to neoliberalism, but by 1996 both the Administration and the AD leadership had reversed their positions and began to push for privatization...

...At the time, labor representatives insisted on such a cost-of-living -indexing arrangement on the grounds that it would compensate for the elimination of retroactive severance payments as a hedge against inflation...

...The CTV has long been incorporated into AD and typically does the party's bidding on labor matters...

...This was an important source of job security, dating to the Labor Law of 1936, co-authored by a 20-year-old Rafael Caldera...

...the participation of insurance companies and banks in the management of workers' health and retirement benefits...

...housina and recreation...

...Workers could draw on their accounts prior to leaving employment in order to cover medical and housing expenses...

...Second, the Tripartite Commission originally placed a 13-month limit on the amount of seniority taken into account in the calculation of a special severance payment for workers who had been laid off through no fault of their own...

...A government decree in 1991 legalized the practice, and by 1997 only about 20% of the minimum wage was considered the "basic wage" used to calculate severance pay...

...The labor movement accepted at least four major setbacks in the laws revamping social security and severance-pay benefits...

...In addition, the government conditioned further increases in the minimum wage on acceptance of severance-pay reform...

...18REPORT ON LABOR Chile's Corp Banca and Spain's Bilbao Vizcaya, both of which specialize in retirement funds, recently bought into the Venezuelan banking system, and are thus well positioned to gain considerable control of the new system once it gets off the ground...

...The majority of workers, especially those with large sums of severance pay a e q already accumulated, would have undoubted- ly opted for the old system out of fear that the money they were currently entitled to would be eaten up by inflation during their remaining years on the job...

...Under the new plan, workers will choose from a list of private companies to administer their health and retirement funds, with coverage that depends on the amount of their individual contributions...

...The elimination of this compensation favors the "flexibilization" of layoffs in accordance with the imperatives of freemarket globalization...

...Various presidential administrations and businesses had tacitly collaborated to dismantle the sys- tem of severance payments by limiting wage increases in the public and private sectors to "bonuses" excluded from the calculation of severance payments...

...ensure ade These retroactive payments served ensure ade to compensate for increases in the cost of living...

...The two steps represent significant setbacks for Venezuela's workers and indicate the current weakness of the country's trade-union movement, particularly the dominant labor federation, the Venezuelan Confederation of Workers (CTV...

...Until now, severance pay had been the worker's most effective form of social security...

...First, under the new system, severance payments are no longer calculated "retroactively...