This is an overview on hiring, wages and making payments for U.S. businesses in Cuba with information on the economic effects of Cuba's restructured education system.

1. Cuban Labor Guide:
Facts on Hiring, Wages and Payments
Drivers Affecting the Cuban Labor Market: Even
though one of the lauded entitlements of Cuba’s socialist
government is the right to a job, the realization that it was
unsustainable for the State to continually employ over five million people in the growing labor
force prompted the opening of the economy to the private sector. This restricted trial began in the
1990s, but was reassessed in 2010 with the elimination of 500,000 government jobs.
Consequently, there was an increase in the unemployment rate from 1.7% in 2009 to 3.3% in
2014 – still extremely low at half that of other developing countries in Latin America, but 3.3%
more than the Cuban economic scheme had allotted for. In response, two profound 2011 laws
allowed for:
1. Privately Owned Micro-Enterprises: The recognition of private ownership began in 1993,
but was held stagnant by regulations that were loosened in 2011.
2. The Buying, Selling and Private Ownership of Property: This both legalized the profession
of a real estate broker, and allowed people to sell and earn investment money for micro-
enterprise start-ups.
In addition, the objective of Cuban authorities was that the private/non-state sector of the
economy would be employing 50% of the total labor force and generating more than 40% of
GDP by the end of 2015; although, it has not yet been reached. Despite these economic
reforms, however, allowances regarding the type and sector of private companies, as well
as income limitations, haven’t loosened enough to prevent the brain drain suffered by the
island nation.
Effects of Restructured Education System: Another entitlement of the socialist regime is the
right to an education. The high-standards and advanced opportunities offered through the Cuban
education system created an extremely proficient and skilled workforce. To this day, Cuba still
has one of the lowest pupil-to-teacher ratios in elementary school at 9:1, followed by only
Luxembourg and Liechtenstein. But with the 2008 economic downturn and approximately 14%
of GDP being spent on education, Cuba acknowledged its unsustainability and was forced to cut
spending. To compare, this expenditure rate was at least 6% higher than all of the countries
categorized on the UN’s 2010 Human Development Index as “Very High”.
According to the Cuban census, the number of university enrollment in every branch of
science (this includes, journalism, art, math, economics, medical science, etc.) dropped
drastically from 2009/10 to 2014/15 due to budget cuts – from 606,863 to 173,298 – a 71% drop
in a country previously known for a free university education for all. Consequently, to focus the
skills of the Cuban labor force on economic areas of need, the government modified the high
school and post-high school education structure by offering Professional Technical Education
degrees. There are two types of these vocational certificates and a select number of career-
specialty options, like an electrician, librarian, mason, or accountant, which are offered
depending on the needs of each region. A Qualified Worker, Obrero Calificado, is a two-year
certificate option that students can select after they complete the general high school

2. Cuban Labor Guide | April 2016
BRIENNE THOMSON 2
requirements and the 9th grade. The certificate for Mid-Technical, Técnico Medio, is a 4-year
program for graduates of 9th grade or a 2-year program for graduates of 12th grade.
To compare with the 71% drop in university graduates, the number of Qualified Worker
certificates earned during the same time period jumped from 9,304 to 38,698; specifically in the
fields of construction, transportation, and energy, all of which have seen a 22-to-24 fold increase.
So, while there has been a drop in university educated, professional workers, the Cuban
education system is still producing a skilled labor force, just at a different level.
Hiring Employees: Foreign companies in Cuba need to go through state run employment
agencies that act as intermediaries in finding workers, establishing wages, collecting payment,
taxes, a commission and distributing salaries. There is however, leeway for hiring select
employees, pending that person is a permanent resident of Cuba or a specialist. However, despite
the low minimum wage equivalent of .25 cents an hour, as of 2015, high taxes and commissions
charged by the employment agencies make the bulk of the cost of labor in Cuba. Currently, an
agency’s commission can be up to 20% of an employee’s salary, although it is generally 10% in
practice.
Employing Foreigners: According to Law 118, Article 28.2, foreign companies, no matter the
make-up; joint ventures or totally foreign capital, reserve the right to employ whoever they see
fit at whatever rate they agree upon for, “top administrative positions or some posts of a
technical nature.” Also, these positions can be filled by non-permanent residents of Cuba.
Wages: The minimum wage in Cuba is the average national salary from the prior year. For 2014,
according to the Cuban census, the average monthly salary was ₱584 CUP or $24 USD. With a
general 8-hour work day, 5-days a week,
earnings are ₱3.48 CUP an hour, which
is equivalent to $0.25 USD. The highest
monthly state salary, an increase made in
March of 2014, is ₱1.600 CUP, or
$116.50 USD, for medical doctors with
two specialties. Given the high level of
education the minimum wage is
exceptionally competitive for foreign investors. [State Salaries Range in USD: $24-$116.50] 1
Employee Incentives: According to Law 118, Article 29.1, foreign companies “could be”
authorized on a case-by-case basis by the Ministry of Foreign Trade and Investment to create an
Economic Incentives Fund for workers based on profits earned. Companies may also give
bonuses or “gratificaciones” to employees; however, they are not deductible from profits and
count as taxable income for employees (Law 118, Article 17). Although, in practice these
incentives are not always reported.
Cost of Labor: For foreign companies in Cuba, approximately 92% of salaries are taken by the
state’s imposed exchange rate; 1 CUC for 2 CUP, instead of 1:24, the retail exchange rate. Also,
businesses must pay 14% of each salary for social security. On top of this, the employment
1
Table Source: ℮
The World Bank (2016). µ
La Oficina Nacional de Estadística e Información de Cuba (2014).
Note: The minimum wage for Cuba is the average salary from the previous year.
Minimum wage for a 19-year old
worker or an apprentice (US$/month)
2013
Dominican Republic℮ $270.30
Jamaica℮ $235.40
Mexico℮ $128.10
Cubaµ $19.42

3. Cuban Labor Guide | April 2016
BRIENNE THOMSON 3
agencies take 5% from each worker’s wage for income taxes and about 10% for commission. For
example, an employment agency charges a foreign company $1 CUC an hour for employee
salaries, (in this case the CUC is fixed 1:1 with the U.S. dollar). This puts the monthly wage, (8-
hours a day, 5-days a week for a total of 21 days a month), at $168 CUC. The employment
agency will then subtract social security, commission, and income taxes, at a total of 29%. In this
case, [$168 – ($23.5 + $16.8 + $8.4) = $119.3 CUC]. The agency will convert the remainder to
₱238.6 CUP, which is the employee’s wage at a coefficient of 2; a massive overvaluation for
paying salaries as compared to the retail rate of 1:24. To give this exchange rate variance a more
familiar comparison, where ₱238.6 CUP equals $119.3 CUC/USD at the 1:2 salary rate, ₱238.6
CUP equals $9.9 CUC/USD if exchanged at the 1:24 retail rate.
NOTE: Using the 2014 Cuban minimum monthly wage of ₱584 CUP, or $24 CUC/USD, a
foreign company would have to pay the agency a minimum hourly wage of $2.03 CUC/USD
before taxes. This would put the minimum monthly cost of labor per worker at $340.70
CUC/USD.
Drafted by: Brienne Thomson (BrienneThomson@gmail.com)