The Influence of Minimum Wage Rates on the Level and Distribution of Real Wages in Chile, 1960-1972

A number of studies on income distribution in Latin America have documented the association between the imposition of military rule, particularly in Brazil (1964) and Chile (1973), and the deterioration in the relative (and, in some years, the absolute) levels of income of the urban working classes. How can this observed association be explained? One explanation of this phenomenon, which we will call the institutionalist hypothesis, places emphasis on the ability of the state to influence directly the movements in real wages. In the Brazilian case, for example, Fishlow (1972), Langoni (1973) and Souza and Baltar (1979) argue that the repression of trade union activity coupled with a wage policy which restricted increases in the government-determined minimum wage to way below the rate of price inflation were primarily responsible for observed falls in the average real wage rate of about 20 per cent between 1964 and 1971. In a recent issue of this Bulletin, Vol. 1, No. 1 (1981), Haworth and Roddick advance a similar argument to explain the fall in average real wages of between 20 per cent and 40 per cent (depending on the aggregate measure used) in Chile between 1972 and 1977. They argue that following a coup d'etat in September 1973, the military junta which took state control implemented an attack on wages by (1) abolishing trade union activity; (2) holding down increases in the minimum wage (salario minimo) to well below the rate of price inflation; and (3) by often delaying the payment of such increases for several months. The implications of these arguments are that the military regimes in Brazil and Chile were able to control real wages by using the instruments available to the state. In contrast to this institutionalist hypothesis, Macedo (1977) and Macedo and Garcia (1980) argue that in the Brazilian case, these observed trends can be fully explained by reference to market forces, i.e., movements in the supply and demand for labour. In their model, the supply of labour in the industrial sector is kinked, being perfectly elastic at a 'social stbsistence' real wage rate when a labour surplus already exists within the urban sector, and then becoming

Distribution (mathematics · Economics · Efficiency wage · Labour economics · Minimum wage · Real wages · Wage · Economic Theory and Policy · Income, Poverty, and Inequality · Mathematics

• Chile before and after Monetarism

  Benny Pollack, Jean Grugel•Bulletin of Latin American Research•1984

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