In the midst of one of the worst economic crises to have hit Cuba since the fall of the Soviet Union, the government of Cuba has been forced to cut back aid provided to workers of the communist state. In particular, the government has announced it will end its policy of providing a guaranteed salary to unemployed workers.

The policy, which pays working-age people 60 per cent of the "regular" wages, has come to be regarded in Cuba as wasteful and inefficient, giving people little incentive to seek regular employment, while augmenting the income of those who work in black market businesses.
Salvador Valdés, Secretary-General of the Workers' Central Union of Cuba (CTC), announced on 1 February 2009 that the government would soon eliminate the practice, according to Agence France Presse.

"The state cannot continue subsidizing workers who are available to work" said the Secretary-General. Mr. Valdés added that thousands of unemployed workers would be shifted to important productive sectors of the economy, such as agriculture and farming, to reverse the 1.1 per cent decline in productivity the economy registered in 2009.

These sentiments were echoed by CTC Havana chief Luis Castanedo at the LXXXV Plenary of the National Congress of the CTC on 25 January, 2010, where he stated that the practice of sending workers home with a guaranteed salary needed to be rectified, according to the CTC's news site Trabajadores.cu.

Mr. Castanedo added that "the principle of protecting workers needs to be maintained, but by having people engaging in useful and necessary activities that are economically viable."

Subsidy Watch spoke to Dr. Andy S. Gomez, Senior Fellow at the Institute for Cuban and Cuban-American Studies, at the University of Miami, who said "the Cuban government is facing the biggest crisis since the fall of the Soviet Union," with exports having decreased by 23 per cent in 2009, and important food imports from the U.S. also having decreased, by 24 per cent. "The situation has been worsened by the US$ 10 billion in damages caused by hurricanes in recent years," he added.

With a foreign debt already at US$ 31.7 billion in 2008, Dr. Gomez concluded that the Cuban government "does not have the funds to provide these subsidies to unemployed workers any longer."

Many economists, however, do not consider unemployment benefits to be a subsidy, as they can be funded by workers via mandatory insurance payments on their wages and help overcome various real-world costs that are not always factored into theoretical markets, such as the time it takes to find a job, travel and relocation costs, and limitations on opportunities given a worker's skills and training. Numerous OECD countries offer higher levels of support than Cuba proposes to cut.

The challenge is to provide enough of an income to help workers survive unemployment at the same time as ensuring that workers have an incentive to find a job, explains Paul Swaim, Senior Economist at the Employment Analysis and Policy Division of the Organization of Economic Co-Operation and Development (OECD).

"However, it is generally thought that it is possible for a well-designed system of unemployment benefits to maintain adequate incentives for the unemployed to find jobs while also providing them with enough income to live decently while they are not employed," he said.

According to Mr. Swaim, many OECD countries in Europe had high levels of unemployment in the early 1990s, which was blamed at least in part on excessively generous unemployment subsidies with benefits that an individual could receive for many years, if not forever.

"In the first half of the 1990s, the unemployment rate in western Europe got quite high, with people remaining unemployed for 1-2 years," said Mr. Swaim.

The response from these governments was twofold. First, benefits were reduced, as was the length of time a recipient was entitled to receive unemployment subsidies. Second, ‘activation measures' were put in place, which required unemployed workers to prove they were actively seeking employment to a government case worker, who in turn would provide the necessary support to help them find a job.

Denmark, for example, lowered the maximum period for the receipt of support from 5 to 1.5 years and instituted activation policies in the 1990s. Its unemployment rate halved, from 7.2 per cent in 1990 to just 3.4 per cent in 2008.

"Since then they raised the limit up to 2 years because they thought they had gotten so strong at activation measures that they could afford to offer benefits for a longer time, without having people drift into unnecessarily long unemployment periods," Mr Swain added.

The unemployment support is just the latest expenditure to be eliminated by the cash-strapped Cuban government in its attempts to trim a budget weighed down by a history of providing generous subsidies to everything from basic food to sporting events.

In late 2008, the government ended heavily subsidised vacations and other benefits awarded to exemplary workers and communist party faithful. According to the Inter Press Service (IPS), the government was spending some US$ 60 million a year on these subsidies.

In September 2009, the Communist party daily, Gramna, announced that the government would no longer be providing lunch to the more than 3.5 million government employees (a substantial number, in a nation of just 11.2 million). The policy was costing Cuba US$ 350 million dollars a year according to the paper. In compensation, the government pays each employee an additional 15 pesos (US$ 0.60-0.70) per work day as compensation.

The Cuban government's budget was estimated to be around US$ 40 billion for 2009, according to the CIA World Factbook.