Episode Summary
In this episode of The Expat Files, Johnny Mueller provides an unfiltered look at life in Latin America, focusing on sweatshops, maquilas, and the complex economic and labor systems that shape the region. He discusses the ownership and relocation of sweatshops, working conditions, financial practices, and the challenges faced by workers.
Johnny begins by introducing the podcast as a platform that provides an unfiltered view of life in Latin America, contrasting it with the idealized portrayals in travel magazines and websites. He acknowledges the common perception of sweatshops in Central America, particularly in countries like Guatemala, Honduras, and Nicaragua, but challenges the accuracy of these narratives. Mueller explains that many sweatshops are owned by South Koreans and New York-based garment district entrepreneurs, who often move operations to countries with lower labor costs, such as North Vietnam and Indonesia. He highlights the dynamic between sweatshop owners and politicians, where wage increases can prompt the relocation of sweatshops. Mueller also touches on the potential future shift of sweatshops to Africa, citing political instability as a deterrent.
He then discusses the working conditions and cultural perceptions of maquilas in Latin America. He highlights that raising minimum wages in the region has led to workers leaving, and that many countries have two minimum wages, with agricultural workers earning significantly less. He contrasts the negative perception of maquilas in the first world with the more neutral or positive view in Latin America, where people see them as a way to escape rural poverty and gain access to modern goods. Johnny also notes that while working conditions are not ideal, they are better than in the past, and workers are generally happy and proud of their jobs. He concludes by emphasizing that the workers are not forced into these jobs and are actively seeking them as a step toward progress, similar to the Industrial Revolution in the first world.
The podcast segment then discusses the challenges faced by female workers in maquilas, particularly those owned by Koreans and other Orientals. Johnny describes how these workers endure harassment and a toxic work environment, often due to the cultural disconnect between the owners and the workforce. He contrasts this with maquilas owned by North Americans, where workers are generally happier and more productive when women dominate the workforce. Johnny also highlights the cutthroat nature of the maquilas industry, where owners often outsource work to cheaper Asian-owned factories, leading to poor working conditions and a lack of worker protections. The segment concludes with the observation that Korean and Oriental owners are often blamed for the negative reputation of maquilas due to their tendency to abandon operations abruptly when faced with increased costs.
Johnny then discusses the financial and labor practices in Latin America, highlighting the challenges faced by workers and the economic structures that support the government. He explains how companies often shut down rather than pay off debts, leading to worker suffering. He also details the workweek, salary structure, and payment schedules, noting the prevalence of monthly salaries and the lack of hourly pay. Johnny further explains the tax systems, including VAT (EVA), and how it is integrated into prices without being explicitly visible to consumers. He also touches on additional taxes such as those on gas and tourism, which are particularly burdensome for tourists.
In this segment, Johnny discusses the financial systems and benefits of Latin American workers. He highlights how Latin governments generate revenue through VAT, tourist taxes, gas taxes, and donations from first-world governments, which often end up in the pockets of officials rather than public services. He also critiques the quality of public healthcare, electricity management, and retirement benefits, pointing out that many workers receive minimal support. Additionally, he mentions government-mandated bonuses like Bono Catorce and Alguinaldo, which are part of the employment benefits, but notes that a significant portion of workers operate off the books to avoid government oversight and taxes.
Finally, Johnny discusses the reasons why many Latin American workers choose to stay off the books, despite the benefits of being on the books. He highlights that a significant percentage of workers (20 to 40%) remain off the books due to lack of job security and the absence of a guaranteed retirement payout. However, there is a strong incentive for workers to stay on the books because of the one-time retirement payout that is mandated by law. This payout is available if a worker retires, is fired, or is laid off, but not if they quit voluntarily. The system is complex and varies by country, but the maximum payout typically comes after about 20 years of service. Government jobs are highly desirable because they offer job security, higher pay, and the potential for a substantial retirement package. Johnny provides examples of private sector workers who received one-time retirement settlements, contrasting them with government workers who receive a more substantial retirement package. He also explains how the Latin American Social Security system operates, noting that it is a scaled-down version of the first-world system, with lower contributions and a different structure. Despite the flaws in the system, many Latin Americans still prefer to adopt first-world practices, even if the implementation is poor.
Topics
Sweatshops in Latin America, Ownership and relocation of sweatshops, Political and economic dynamics, Future of sweatshop industries, Minimum wage in Latin America, Cultural perceptions of maquilas, Working conditions in maquilas, Worker pride and motivation, Harassment in maquilas, Maquilas and labor conditions, Cultural disconnect in the workplace, Worker harassment and abuse
Chapters
00:00:00 Opening 00:00:24 The Reality of Living in Latin America 00:00:34 Sweatshops in Central America 00:01:33 Organization of Sweatshops in Latin America 00:02:27 Political and Economic Dynamics of Sweatshops 00:03:44 Future of Sweatshops and Potential Relocation to Africa 00:04:53 Minimum Wage and Worker Mobility in Latin America 00:05:09 Dual Minimum Wages in Latin America 00:08:39 Unveiling the Hidden Challenges of Maquilas 00:09:19 Harassment in Maquilas Workplaces 00:09:51 The Role of Cultural Disconnect in Maquila Management 00:11:56 The Cutthroat Nature of the Maquilas Industry 00:13:49 Companies Avoiding Financial Obligations 00:14:11 Workers Suffering from Company Closures 00:14:13 Workweek and Salary Structure in Latin America 00:15:34 Tax Avoidance and Government Revenue 00:17:50 Tourist Taxes and Their Impact 00:18:22 Government Revenue Sources in Latin America 00:19:02 Retirement Benefits and Social Security 00:21:08 Government-Mandated Bonuses for Workers 00:23:08 Why Many Latin American Workers Stay Off the Books 00:23:20 The One-Time Retirement Payout and Its Impact 00:23:40 Job Security and the Desirability of Government Jobs 00:24:19 Government Jobs and Retirement Packages 00:25:17 The Latin American Social Security System 00:26:30 Adoption of First-World Social Security Systems
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:03] Hi everybody, I'm Johnny Mueller and you're listening to The Expat Files, living in Latin America. The show that tells you what it's really like to live, work, play and or retire in Latin America. I tell it just like it is, not the version they give you in those glossy travel magazines, or the picture they paint for you in those international traveler websites, where they're only trying to sell you something. What's it really like for expats living in Latin America? Well, it's time to take off those rose-colored glasses and find out. So let's get started. Now you've heard all those nasty stories about those sweatshops down in Latin America, especially in Central America. You know, the clothing and shoe sweatshops that were in the news a few years ago internationally, like Nike and the Kathy Lee Giffords Gandal, and those sweatshops down here that produce
[00:49] clothing lines for those talentless, gold-toothed, 20-word vocabulary, misogynist rap and hip-hop guys up in the first world. We've all heard those stories. But once again, the news and the rumors that you hear up in the first world regarding Latin American sweatshops are not necessarily the truth. And the fact is, I personally know some of the owners of these sweatshops, and I've been in and out of them and not on a set-up kind of tour either. I didn't go on the pre-planned happy sweatshop tour that they give you in China, where you have to give a week's notice to the management before you can even walk through the door. That way they can clean it up a bit and threaten the employees into making it look like one big happy family, if you know what I mean. It was so fake, you almost expect them to do the Chinese version of Whistle while you work. But it's not like that down here in Latin America. So let me tell you a little bit first how the sweatshops are organized down here.
[01:37] The major owner of sweatshops in Central America, where most of them are, are South Koreans. And they own hundreds of sweatshops down here, mostly in Central American countries like Guatemala, Honduras, Salvador, Nicaragua, with the majority of these sweatshops being in Honduras because they have one of the lowest minimum wages in Latin America. Now besides the South Korean ownership of these sweatshops, you have quite a few of them being owned or leased by New York guys from the Garment District. In fact two of those guys happen to be very good friends of mine. One of them who just moved all 12 of his sweatshops from Central America to North Vietnam, where the minimum wage is half or less of what it is here in Central America, and the electricity is cheaper too. And those are two of the five major reasons why sweatshops pick up and leave at a moment's notice, and head to places like North Vietnam and Indonesia, since for them it's all about
[02:25] peace work and labor costs. In fact it's not uncommon when the president of a Latin American country announces an increase in the minimum wage, which is always a ploy to get him and his buddies elected or re-elected. Anyway, often times you'll see not too many weeks later, or right around when that new increase in the minimum wage kicks in, suddenly workers will show up Monday morning at their sweatshops, which are called maquilas down here. Anyway, workers will show up on Monday, only to find that the place is completely shut down and abandoned. That happens all the time down here. And that's the kind of seesaw game that sweatshops and politicians play all the time. If the politician even hints at increasing the minimum wage, the sweatshops threaten to leave or actually do so, because there's always other countries around the world offering much cheaper labor, and pretty skilled and nimble workforces too.
[03:14] And in fact I was told by my New York Garment District sweatshop buddies, and as you might imagine, just as a cop doesn't like the word pig, Garment District guys don't like that word sweatshop much. Anyway, those New York guys told me they expect that some years down the road, when China, North Vietnam, and Indonesia get a little bit too expensive because they raise their minimum wages, or unionize, which is another dirty word in that business, when that topic comes up, those New York Garment District guys get a little gleam in their eyes and smile when they say, there's always Africa, like it's the promised land, but not quite yet. And the only reason why they're not moving their sweatshops to Africa right now is that everybody seems to be involved in some kind of genocide or civil war. And those Garment District guys don't want to be kidnapped or shot.
[04:01] That would be bad for business. And in Africa it's not unusual to wake up the next day, only to discover that the old president is in exile or he's been shot, and there's a new guy in office who's changed all the rules on you. And my buddy said that at least in Latin America, the governments are stable enough so that when you sign a contract, if another party takes over, the next government that comes in will honor old contracts so it's all about stability and Latin America is stable. And you can't count on enforcement of contracts and the rule of law anywhere in Africa except the northern African countries that border the Mediterranean and South Africa itself. And that means you can only count on 6 out of 47 African countries. Which is pretty bad odds. So you can say the Makili industry has their eye on Africa, but they won't be moving down there in a big way for about 10 years or so.
[04:47] By then they're predicting China, North Vietnam, and Indonesia will have pulled what the countries in Latin America have done, raising the minimum wage so much that it'd be worth it for them to just pick up and leave. And when I say pick up and leave, that's exactly what they do. They just leave everything behind. Since in the long run, labor is their biggest cost by far, not the machinery. Oh and here's another thing I'm sure most of you didn't know. Down here in Latin America, most countries have two minimum wages, not one. Like you're used to up in the first world. They have a minimum wage for agricultural workers, those on the farm, and a minimum wage for everybody else. And the minimum wage for agricultural workers is about 20 to 30% lower than the other minimum wage that applies to the rest of the people. And of course, just like in the first world, the minimum wage doesn't apply to people who work in the bar and the restaurant business as waiters and waitresses.
[05:35] But back to those maquilas, those sweatshops I've been talking about. As much as you first worlders up there might think it's cruel and unusual punishment for someone to actually go and work in one of those sweatshops. And by the way, we first worlders are the ones that gave those little textile manufacturing and clothing assembly plants the very negative word, sweatshop. Because down here in Latin America, people just look at sweatshops or maquilas as a place they go to work every day. And there's no negative connotation to it at all. When you mention the word maquila in mixed company, nobody rolls their eyes and says, oh, what a horrible system those poor doubles that work there must be suffering horrendously. Let me tell you, it's not like that at all. It's more as if you were talking to someone who worked at a General Motors or Ford assembly plant in Detroit back in the day when they actually did that kind of work.
[06:23] Now when you talk to those guys, they'd tell you their work was mighty tough, especially the guys on the line. A lot of them had calluses on top of calluses, and they'd have muscle fatigue in places they never even thought they had muscles before. And most of them didn't actually hate their jobs either. They were actually kind of proud that they were the one that put that rubber brake pedal pad on every Mustang that came off the line. And they were proud to tell their kids about it, and believe it or not, in spite of what you might be thinking. The people that work at these maquilas are proud of what they do too. When they see some upper middle class woman in a mall wearing guest jeans or toting a diesel or a Gucci bag, they too are pleased that they had a part in making that thing. And they'll tell their kids and their friends about it, even though they work their asses off for only 5 or 10 bucks a day, even though the guy at the Ford plant makes that much dough in about 15 minutes. Well, anyway, he used to, when those jobs actually existed.
[07:11] And again, for all you people up there in the first world who think that working at a maquila is cruel and unusual punishment, you have to remember where most of the workers came from. These people came from the farms, the sticks, where their parents' generation worked with hand tools and a donkey or two. These are kids of agricultural workers who want to buy TVs and refrigerators and cell phones and you can't do that working on your daddy's farm. Because out in the sticks, kids work on their daddy's farm for food and board, not money. So if you want to buy something yourself, you have to work at a city job that pays real money. And a ground floor city job is a job at the maquila. And I shouldn't have to tell you, nobody forces these people to take minimum wage at a maquila. They do it voluntarily and they're standing in line to get the job.
[07:57] So as much as you might hate to hear that, it's true. They're going through the steps of progress that the first world went through 150 years ago during the Industrial Revolution, when kids from the farm came to the city to work in manufacturing plants. And nobody forced them to do it either. They stood in line and waited to get those jobs. And lucky today for the people at the maquilas down here in Latin America, the working conditions are infinitely better than they were 150 years ago. And though they're not great by first world standards, there's no child labor, people don't die of overwork, and they don't work from dusk to dawn and have a 60 hour work week. And amazingly enough, when you walk into a maquila these days, the people don't look miserable, they actually look happy, and they're joking around. Now here's another thing about these maquilas you didn't know. When you interview one of the ladies that works at one of these places, and you ask
[08:45] her, what's the worst thing about working in that maquila? Right away you think they're going to complain about the money, right? Or the fact that it's hot as hell because there's no air conditioning, thus the word sweatshop. And sure, those two items are very high on the list of complaints. But the number one complaint by women, and 95% or more of the people that work at maquilas, are young women. Anyway, young women say that their worst problem is the men that work at those maquilas. They get bothered day and night, left and right, pinched and rubbed and bothered and molested and propositioned. And during their lunch and coffee breaks and when they go home at night, they're accosted even more by these low class guys. And when back at work again, the girls they don't like are the ones that don't play along, they pit against each other.
[09:32] So the girls have to take their crap and play along, or the guys find ways to pile on extra work or just make things tough on you if you don't. In that way, every little maquila operation is in fact its own little soap opera. And the girls needing those jobs are not complainers, they don't like to go to the bus, fearing they're going to get fired for rocking the board or complaining. So they just have to put up with it. But here's the thing, they have to put up with it in maquilas owned and operated by Koreans and other Orientals. But that's not the case with every maquila. Take the case of my New York buddies for example, the guys that own and operate a number of maquilas. They tell me that the best way to ensure that the workforce is happy and they put out a good product on schedule and in a reasonable amount of time, is to get rid of as many of
[10:17] the men as you can. And one guy told me the best and happiest maquilas that he's ever had are the ones that are completely filled with women. That means no men at all, zero. And as far as the heavy work, you just have three or four ladies do it instead of two or three guys. And the workers like it that way, in fact they really appreciate it. But my friend did say that the maquilas owned and operated by Koreans and Orientals, they don't give a damn about any of that. They're pretty much culturally and verbally disconnected from their own workforce. And the maquilas workers just don't like them as bosses and they much prefer when North Americans are running things, which is that good old gringo advantage again that creeps even into the maquila industry. In fact, one of my first world New York buddies says, he personally has become kind of a hero among his maquilas workers because when he kicked out all the men, suddenly his workers
[11:05] were smiling and happy and telling jokes. He said they were lighthearted in a way that he'd never seen before. Now in those maquilas where they do have men, the men are not on the machines or working with the threat. They move around the floor with hand trucks, supplying materials to the ladies as they need it. And they organize the inventory, which is the main problem because every day they come in contact with each female worker at her station, many times supplying her with material, always and forever trying to get into the pants of any young woman that's halfway decent looking. And according to my friend, the maquilas owner, these guys just don't let up. They're like dogs in heat. And most of them have families and wives and kids at home, but it's that macho latin thing again rearing its ugly head in the workplace. So it sounds like a very simple answer. To increase productivity and make the workers happy, you get rid of the guys.
[11:53] But here's the problem, as my first world maquilas buddies tell me. Nowadays the maquilas business is quite cut throat and the New York clothing manufacturers and textile buyers who let out apparel contracts, let's say like Walmart, Penny's, Sears, Macy's, you know, the big ones, traditionally they'd give out these contracts to people like my two buddies down here in the maquilas business, who nowadays are kind of like the middleman between the retailer like Walmart and the actual apparel producer and assembler. And in order to compete with the cheaper maquilas in Asia, what my friends have had to do is either close up shop down here in Latin America and move to Asia or hand the job off to a Korean shop down here in Latin America. And that way as middlemen, they don't have to have a staff or a building or deal with any of the day to day things it takes to run a big maquilas.
[12:40] They just hand over the order from New York, make their piece, and the finished product is turned out in a maquilas down here in Latin America owned by a Korean who doesn't give a damn about his workers, is culturally dislocated from them in the first place, and doesn't care about the morale of the people or what goes on in the maquilas as long as the product gets made on time and within budget. And those kind of maquilas can take a few minimum wage increases and still stay in operation because Korean owners can work on a slimmer margin and can cut side deals with other Korean maquilas owners to keep their maquilas running at 100% capacity by shifting partial orders around within their group. And from what I hear, it's the oriental and Korean owners that give the maquilas a bad name. They are the ones that pick up and leave on a moment's notice when minimum wages are increased or when electric utility rates are raised.
[13:26] They're known for just picking up and leaving and abandoning all their equipment and their buildings. And if you're wondering why they do that, why they don't announce way ahead of time that they're going to close down and pack up all their machinery and ship it out to Vietnam, China, or wherever. Well, that's because if they just pick up and leave, they don't have to pay severance pay, vacation pay, or indemnization, which you're supposed to pay down here in Latin America when you fire or lay somebody off. Not to mention they could skip out on any taxes that might be due to the government for that quarter and any bills that they might owe to local suppliers or the utility companies. It usually works out that the company knows ahead of time it would cost more to pay all that off when the company shuts down than to just close up shop, abandon everything, and open up somewhere else and start fresh. It's a calculation a lot of these guys make when they leave. And the workers are the ones that really suffer.
[14:13] And by the way, speaking of work weeks, the average Latin American has a 44-hour work week. That's standard. Eight hours a day during the week and four hours on Saturday from 8 to noon. And it's almost unheard of to get paid by the hour. Instead, you get paid based on a monthly salary. And you're paid on the 1st and the 15th of the month. The first being called the primero, of course that means first, and the 15th of each month called a quinceana. And the word quinceana has the word quinceana, which means 15 in Spanish, thus the 15th of the month. So when some gringo or foreigner says, hey, why the big line at the ATM going around the block or the big line or cola in Spanish at the bank? What the heck is it? Is it a bank failure? Are people trying to pull their money out? No, big lines like that can only mean it's the first of the month or the quinceana, the
[15:02] 15th of the month, when everybody gets paid. And here on the expat files, we always talk about the fact that the average guy down here makes between $250 to $350 a month. So if an expat or an expat wannabe wishes to start a business down here, he or she always wants to know what other benefits an employer is responsible for when he hires a worker, besides that rock bottom salary. So what other benefits do these guys actually get from either you, the employer, or the government? Well, if you work on the books, which means you pay taxes, well, let me take that back. I don't mean they actually pay taxes, not personal income taxes anyway. And even though there is a personal income tax rate, if you work on the books and collect all your receipts called facturas, which I explained on a previous show, you can write them directly off your income and bring your tax rate down to effectively zero, which is
[15:51] what almost everybody does down here. So if no one's paying personal income taxes, how does the government get money? They get most of their money from VAT, which they call EVA down here. It's just a copy of the value added tax in Europe, the VAT. In most countries, it's from 10% to 14% on every single purchase that you make. But in most Latin American countries, you don't even know what's there because it's added into the price of everything. It's a bit like a state tax in the United States, except for the fact that, for example, if you're in Illinois and there's a 6% sales tax, you know damn well you're getting nailed for 6%, because you know the price of the product or goods, and you pay 6% above the price on the tag, and it's calculated right on your receipt. In most countries in Latin America, they don't do it that way. You just get one price and that's it. That EVA, or VAT, is added right into it, which is kind of a good thing psychologically
[16:40] for the state, I guess. Since you don't get it rubbed in your face every time you buy a pack of gum, at least down here, you're not reminded that you're being robbed 10 or 20 times a day like you are in the first world. Even though, of course, they are picking your pocket. But remember, it's on a very minor scale compared to the first world. And like I said, practically no one but an idiot pays any significant amount of personal income taxes, since the government lets you take all those factura deductions and they don't care where you get your facturas from. So how else does the government make money besides EVA? And if you know anything about statistics, EVA carries with it a multiplier effect. So, anything that you buy that has multiple components or steps in the manufacturing or production process gets taxed every single step along the way. And I won't go into how absolutely criminal that is, but to tell you that nearly everything
[17:27] you buy returns about half of its price to the government. That's half, or 50%. And it's a bit complicated to go into right now, so I won't explain it. Just remember that that's just about the way cancer works. And here's another thing. Every single Latin American country except Venezuela has a big tax at the gas pump, just like they do up in the first world, which makes the price of gas the same or a little bit more down here. And some countries like Costa Rica and Panama have a tourist tax of about 10 to 14% slapped right on top of that EVA I just talked about. So tourists actually have a 25% or more tax rammed down their throats every time they stay at a hotel or eat at a restaurant or visit one of the national parks or tourist sites. But that's only in certain places that are intent on gouging you, like Costa Rica, Panama,
[18:13] and Cancun, and dozens of other well-known first world tourist spots in places like Mexico. In the rest of Latin America and the places off the tourist trail, you'll see none of that. So Latin governments make money off VAT, tourist taxes, and gas taxes. So what else? Well, along with various small licensing and business startup fees, Latin governments make a huge amount of money from guess what? Stupid donations from first world governments like yours. And actually most of it never ends up where it's supposed to go, but into the pockets of government officials, their friends, and their cronies. Look at Haiti after their disaster. Billions upon billions of dollars have gone in and it looks exactly the same, doesn't it? Have you seen any photos of Haiti lately? And Latin governments continue to make money off of IMF and World Bank loans, a never-ending
[18:59] flow of money that's never going to get paid back. And if you want to know more about that, just read Confessions of an Economic Hitman. But let's get back to talking about your average everyday Latin American worker. Besides their salary, what benefits do they get? They have their national health care system, like I've mentioned many times before. But it's so crappy that it's not recommended that any first world visitor like you and me ever step foot in a public medical care facility like that. And you can't even depend on a public hospital to have power 24 hours a day. Not because the electric power grid in the country is faulty in any way, but the power has been cut because the government is behind on paying its own electric bill. Because remember, electric power isn't free. Just because you're the government, that doesn't mean you don't have to pay for your power.
[19:45] You still get a bill at the end of the month that you have to pay, and the electric power companies which are private down here in Latin America, wired everything up first world style and now there are no big power outages like there used to be, which is a good thing. However, that also means they have a first world way of cutting your power when you don't pay the bill. Alright, so what other benefits do Latin American workers get? Ones that are on the books that is. Well they have retirement plans like they have up in the first world, government retirement plans like Social Security, but personally I've never met a retired person down here who gets more than 100 bucks a month from their version of Social Security. The average payout for retirees seems to be between 50 to 75 bucks a month. That sure makes your $1,200 a month Social Security check look like a king's ransom now,
[20:32] doesn't it? And speaking of Social Security checks, did you know that the US government will direct deposit your Social Security check every month into a bank in the country that you're living in, even down here in Latin America? Isn't that cool? You can get your check by direct deposit and live high on the hog down here instead of eating cat food in Cleveland, if you decide to come down here and retire. Which I hope you don't because I rather like keeping Latin America to myself, since if you all come down here and flood the place with dollars, I'll lose my gringo advantage. Okay, but what other guaranteed job benefits do Latin Americans get when they work on the books? They get paid for 14 months out of the year, not just 12. They get 2 months bonus, split in the middle of the year, the first one called Bono Catorce.
[21:19] Catorce means 14, and it comes on the 14th of June, every year. And you'll know when that one's coming up because the papers are just loaded with sales. Bono Catorce sales, retailers knowing that everybody's going to get that month's salary right about that time. And that second month of free pay is called Alguinaldo, which is effectively a government-mandated Christmas bonus. Talk about separation of church and state. And right at that time, there's another round of big sales and advertisements in all the papers and on TV announcing Alguinaldo sales. So that means if you're an employer and you're paying 300 bucks a month to a guy, you'll end up paying him 600 more in total at the end of the year because of that Bono Catorce on June 14th and that Alguinaldo Christmas bonus in December.
[22:05] So what other government-mandated benefits do workers get when they're on the books? And the reason why I say if they're on the books is because it's been estimated that anywhere between 20 and 40% of all Latin American workers work for cash are not on the tax rolls and therefore are flying under the radar. So they're not covered by any of these government rules or regulations like Bono Catorce or Alguinaldo. And if you ask any one of these guys, they prefer it that way. They'd rather be off the books and get in cash. The fact is down here in Latin America, there's a very big and strong contingent of persons who don't trust the government and in fact don't want anything to do with them at all if they can help it. These are people that day in and day out ride the chicken buses, get terrible municipal water service, bad public education and have disgraceful national public health care.
[22:54] And they watch day in and day out their politicians get rich as they make promises they never keep. They know that the government takes their 10 to 14% VAT money and taxes on every purchase they make. And a common man gets almost nothing in return. And that's why 20 to 40% of Latin American workers choose to stay off the books. But by contrast, there is one big reason that a lot of Latin workers do actually choose to stay on the books. And that's because of the law that forces a one-time retirement payout. Actually you get a payout if you retire, if you're fired or you get laid off. But not if you quit on your own volition. And every Latin American country has its own complicated scheme on how you get this retirement payout, though the maximum payout comes after about 20 years of service.
[23:40] And because there's not much job security down here in Latin America, except in the low and middle levels of government, naturally, there's a very small percentage of people that actually make it to that 20 years in any particular company to qualify for that maximum payout. And that's another reason why so many people would give an arm and a leg down here to get a government job. Not only do government jobs pay twice or more of what an equivalent private sector job would pay, they almost never fire anyone. So you can just sit on your dead ass and ride off that 20 years and get a retirement package that's twice what you'd get in the private sector. So it turns out in Latin America, the vast majority of people that actually do get a halfway decent retirement package, by Latin standards that is, work for the government. Private sector people are rarely that lucky, unless they work for a first world transnational.
[24:29] Because naturally, being first world, they obey all the labor laws. And when I recently interviewed some guys in the private sector, one guy got a $14,000 one-time retirement package settlement, and he had 22 years in, while the other guy with eight years got a $6,000 one-time settlement. And both these guys had just retired from jobs at a big cement company in El Salvador, making about $400 a month each. And in addition to that one-time lump settlement, they got the regular government retirement package, too, that everyone gets, who's on the books. And each one of those guys is getting a little under $100 a month from Salvador's version of Social Security. And about that one-time retirement lump sum, well, that comes from a separate government account that each employer has, set up by the Latin American government's Social Security
[25:17] system, which the employer and employee put into every month, like FICA. But it's not the 7.5% that employers have to pay for each employee up in the first world. It's much less than that, somewhere on the range of 2% to 3%, and it's only based on the minimum wage. So if you pay a person over the minimum wage down here in Latin America, say you pay someone $500 a month, and the minimum wage is only $200 a month, for that employee, you only pay their version of FICA on the $200 or minimum wage part. And the Latin government withholds the other half of that employee's FICA, their very low-budget scaled-down version of it, that is, just like they do up in the first world with your Social Security. And that's the fund that you dip into to pay the employee off when he retires, gets laid
[26:03] off or gets fired. And yep, that's one of the strange things about the Latin American Social Security system. If you fire someone, even if you catch them stealing red-handed or screwing your wife, you still gotta give them that one-time payout, and that'll come from that account that's been building up month after month in your Social Security account. Now all these things I've been talking about regarding workers' benefits, if you're on the books, if you've noticed, it seems like an exact copy of what we do up in our first world Social Security system. Because again, I repeat, Latins love anything and everything first world, and even their governments try to copy everything they can that comes from the first world, including our Social Security system. But as you've probably figured out, it's always a pretty bad copy. Not that our Social Security or retirement systems up in the first world are in any great shape. They're all either bankrupt or insolvent, too.
[26:50] But that doesn't matter to Latin Americans, if it comes from the first world, they jump on it. Even if it causes a huge percentage of average working guys to remain off the books because they don't trust another government scheme. Because remember, when third world governments adopted our first world style Social Security system, there's always withholding involved. And when the average guy down here making $300 a month hears that the government's gonna take money out of his check every month for whatever reason, even if they promise a future retirement benefit, well, a huge portion of the common people just don't buy it because they see how government promises are fulfilled. All they have to do is look at that pathetic national health care system. That great big rat's nest was some blowhard politician's big idea, too. You've been listening to The Exped Files, living in Latin America, coming to you each
[27:42] week from somewhere south of the border. And don't forget you can email me on anything at all about Latin America, theexpedfiles at gmail.com. Once again, theexpedfiles at gmail.com. See you next time. Nos vemos.