Cuba’s Retired Population Struggles With Economic Reforms
Cuba’s Retired Population Struggles With Economic Reforms
The institutional reform process begun by Raúl Castro in 2008 to strengthen a weak Cuban economy has received considerable attention both within and outside of Cuba. The government has established microcredit, bank accounts, cooperatives, and wholesale markets for the non-state sector. It has encouraged workers to move from state to private sector employment and has issued almost 500,000 licenses for individuals to start small businesses in the private sector. The government also instituted a new taxation system in 2013 to raise revenue required by the state. Experts on the Cuban economy consider these reforms a step in the right direction.
Many Cubans, however, have not benefited from the reform process, including Cuba’s disproportionately large and fast-growing older population.
The reform process poses severe economic challenges for retired persons, particularly those without relatives abroad to assist them financially. Their pensions average about $11 per month, which is too low to provide a minimum standard of living. According to Cuba's National Office of Statistics, there will be more pensioners than workers in Cuba by 2025. Addressing this impending crisis, one of the first reform measures introduced by Raúl Castro in 2008 was to raise the retirement threshold by five years—to 60 for women and 65 for men—as part of a larger effort to reduce government expenditures given the country’s dire economic situation.
Certainly, some Cubans have benefitted from the reform process. The government issues licenses to work in the private sector mostly to service-sector workers who sell and prepare food, transport cargo and passengers, and sell agricultural products on the street. Most private sector employees make more money and have better living conditions than those who work for the state. The government has also permitted the growth of new worker cooperatives in which workers can retain a proportion of their wages.
In January 2013, Cuba eliminated the requirement that its citizens obtain exit visas before traveling abroad, which has made it much easier for Cubans to travel outside the island and stay there for an extended period of time. Increasing numbers of Cubans work while residing abroad and send remittances to their families back home. These remittances have helped some households to establish a small business in the private sector, purchase or repair a home, or make some other private investment. The Obama administration has lifted restrictions on how often Cuban Americans can visit their relatives in Cuba and on how much money they can send them. Remittances now reach 62% of Cuban households, sustain about 90% of the retail market, and provide tens of thousands of jobs.
However, the government is still far from its goal of converting 1.5 million state workers to the private sector. Only about 9% of workers are licensed small business owners. Many state employees have been dismissed from their jobs and have not found work in the private sector.
The retired persons I have interviewed report they have not benefitted from the reforms and say they have become worse off economically due to the rising cost of food and services. Not only did the reform process increase the age of retirement for both men and women, but it also eliminated many items from the ration booklet that Cubans use to purchase food and other necessities at subsidized prices, which is hugely problematic for older persons on fixed incomes. Additionally, government plans to end subsidies to state-run cafeterias, limit contributions to social security, and reduce the budget for the health care system will disproportionately affect retired persons.
However, the government still intends to retain a social safety net for older persons and other high-risk groups and plans to maintain support services for the elderly through increasing fiscal revenue through taxes and improvements in the allocation of scarce resources.
The economist Carmelo Mesa-Lago reports that social security pensions for retirees have significantly lost their acquisitive power at the same time as food prices have soared. More than 20% of persons 60 years of age or older carried out some type of work in according to a national survey of older persons in 2010. Half returned to work after they had retired. Sixty percent reported that they experience hardship living off their income; 37% reported it is impossible to live off their income, and half reported feeling fear or uncertainty concerning their future economic situation. The vast majority of older persons depend on family support, work done on the side, or on assistance by family living abroad. But many Cubans have no family outside of Cuba. Furthermore, the survey indicated that only 6% of older Cubans received economic assistance in the prior month from family living abroad.
Adding to these economic pressures is the dual currency system. Most Cubans receive salaries in Cuban pesos, as do retirees. However, they must purchase an increasing number of food items, goods and services in an alternative currency, the Cuban convertible peso (CUC), which is worth approximately 25 pesos.
Elena, a 63 year-old woman living in Havana, is a retired person who has felt the negative effects of the economic reforms. She lives in a two bedroom walk-up apartment with her husband Rafael, 68, her 42 year-old daughter Luisa, and Luisa’s 11-year-old son, David, whose father Ramón left Luisa and moved to Germany six years ago.
Before retiring last year, Elena worked at a government tourism agency for over 25 years. Rafael worked for 30 years as an accountant in an office responsible for the quality control of manufactured items, and retired seven years ago. He subsequently returned to this job on a yearly contractual basis out of economic necessity. The biggest problem that Elena and her family face is that their pension income, despite the addition of Rafael’s salary, is insufficient to meet the cost of food and other necessities. Neither Elena nor Rafael has friends or relatives abroad.
Although she urgently needs to supplement her monthly pension of 430 pesos ($18), Elena does not want to take a state-run job that might pay her less than she receives from her pension. She looks for work daily and hopes to find employment at one of the many privately owned paladares (restaurants), beauty parlors or other small businesses that have opened in her neighborhood since the reform process began. Rafael’s pension of 305 pesos ($13) is even lower than Elena’s, because he retired before the government instituted a more generous social security plan several years ago. Social security pensions for retirees increased nominally in 2008 after Rafael retired, but the average pension adjusted annually for inflation is less than 54% below its level in 1989 and, as noted before, has significantly lost its acquisitive power according to Mesa-Lago. Rafael also receives 385 pesos ($16) monthly from his job. Luisa is currently not working and depends on the $50 a month that Ramón sends from Germany, which covers little more than the cost of food for David and his mother.
Elena and Rafael estimated basic household expenses to be $75 but their combined income is only about $47. These expenses include but are not restricted to the required installment on their refrigerator ($2.50), telephone, electricity and water ($6), medicine ($3.30), vegetables (over $5), other food staples like bananas and sweet potatoes ($3.60), fruit ($4.75), hamburger, chicken and other food items ($24), cooking oil ($2.50), bread ($4.50), and cleaning materials like soap and detergent ($6.00).
The family faces a monthly shortfall of about $28, not accounting for the occasional expense on clothing, shoes, toiletries, or house repairs. They are restricted to spending money on only the essentials. And with no remittance income from friends or relatives abroad, Rafael and Elena lack the capital to start a small business. Elena tried selling small packages of coffee outside the official system, but had to stop when she no longer was able to obtain coffee from an intermediary. At 68, Rafael lacks the motivation to start a small business. “Rafael and I try not to think about our economic problems too much. I tell myself we are not the only ones in this situation and I do not want to give myself a heart attack, but it is hard not to worry,” she said.
Rafael is frustrated that he has to work at his age, but he is resigned to doing so. Elena said she worries that Rafael, an introvert, is suffering emotionally, because he holds this emotions within, unable to express his feelings about needing to work and about his growing disappointment with the revolution for not providing a better life for families like his.
The majority of pensioners, like Elena, has not benefitted from the reform process and struggles economically. The dual economy is a financial drag on countless households like hers and has contributed to a decrease in the welfare of retired persons in particular. Moreover, retired persons who do not have family living abroad to send them remittances and who do not participate in the informal economy face especially difficult economic challenges. And even if they do have access to the private sector, many retired persons lack the will to start a private business given their advanced age.
Cuba faces a particular challenge in finding ways to economically assist its retired population that is only predicted to become more drastic over time. Older retired Cubans like Rafael and Elena are forced to return to work for their family to survive financially. The salary earned from returning to work combined with pension income may be insufficient to cover basic food costs, but not other necessities such as clothing, as Elena’s case illustrates.