Money Matters

Determining the pay

Money Matters
By Majyd Aziz
Mon, 05, 22

Minimum wage has always been a contentious and much debatable issue in industrial relations. The dispute has oscillated between employers, workers, policymakers and economists for ages. Employers and workers pragmatically want this to be their domain but politicians, hankering for broad public appeal, often attempt to encroach and unilaterally announce increases in minimum wage. This unwarranted step muddles the situation and leads towards unnecessary and needless litigation. Minimum wage has over the years been the bone of contention among all stakeholders. According to ILO, more than 90 percent of the world’s countries have minimum wage laws and hence minimum wage policies are widely implemented.

Determining the pay

Minimum wage has always been a contentious and much debatable issue in industrial relations. The dispute has oscillated between employers, workers, policymakers and economists for ages. Employers and workers pragmatically want this to be their domain but politicians, hankering for broad public appeal, often attempt to encroach and unilaterally announce increases in minimum wage. This unwarranted step muddles the situation and leads towards unnecessary and needless litigation. Minimum wage has over the years been the bone of contention among all stakeholders. According to ILO, more than 90 percent of the world’s countries have minimum wage laws and hence minimum wage policies are widely implemented.

ILO has established a set of eight criteria for establishing a minimum wage. It is important that these should be seriously considered by tripartite stakeholders before coming to an agreement. These are inflation (cost of living), prevailing economic conditions, current wage levels, employee productivity, worker's decent living needs, the employment rate, employer capacity to pay, and social security benefits.

In Pakistan, in the past and more recently, the federal finance minister, and after the 18th Amendment, the provincial finance ministers announce increases in minimum wage ostensibly to assure that they were and are the bearers of happy tidings for the workers. Minimum wage announcements in the past also included cost of living allowances, etc to mitigate the difficulties faced by low salaried workers. Despite initial hue and cry, the employers meekly succumbed to the decisions and paid the ordained minimum wage.

After the 18th Amendment, the provinces formed Minimum Wage Boards whose membership included the tripartite stakeholders, ie employers, workers and government. The board members would thoroughly and forcefully debate and deliberate and would develop a consensus. This exercise was and is practical and results in all stakeholders taking ownership of the consensus. This worked superbly until the political leadership decided to earn political mileage by ignoring the decisions of the boards or without consulting trade organisations by announcing on their own the increase in minimum wage. Ergo, litigation.

If the federal or provincial governments do want to set the minimum wage, then it should be done after a genuine process of consultation and social dialogue with representatives of workers and employers, understanding their point of view and, as much as possible, taking cognizance of their concerns. Since there are Minimum Wage Boards, this can be realised under this framework. It is generally an accepted norm that when both employers and workers are included in the negotiation process, it is likely to lead to more balanced results and, more often than not, higher levels of compliance. Notwithstanding the fact that negotiations and consultations with workers and employers can be complicated, the government can also take guidance from experts to arrive at an agreeable middle ground. In this manner, the governments are comfortable that they are fully involved in determining the minimum wage and therefore can earn the political mileage that they desperately crave for.

The finalisation of the minimum wage should be based on the economic and social environment and less on populist dynamics. The ground realities must be considered and taken into account while superfluous and redundant arguments must not be allowed to sway the decisions. At this juncture, when the nation's economy is fragile, macro indicators are depressing, and rapidly heading towards a meltdown, the debate on minimum wage has become more prominent. Although the government is providing subsidies and there are social safety nets in place, the real situation is that the low wage workers and the low income citizens are unable to bear the rising inflation as well as the cost of utilities. Moreover, the government does not have the critical mass to provide much-needed economic relief to the citizens nor does it have the fiscal space to continue with subsidies, welfare projects and social initiatives. The situation becomes further threatening when unemployment figures begin to rise. Naturally, the sky falls first on the marginalised sector of the population. Strikes, riots, and protests are often an outcome of the dreadful situation.

High rate of non-compliance has negative consequences not only for workers and their families, whose rights are violated, but also for compliant employers, as it gives non-compliant enterprises a dishonest cost advantage. Non-compliance is more widespread in rural than in urban areas, and in the informal economy than in the formal economy. Women, disadvantaged ethnic groups, and underprivileged social sector are often victims of wage inequality. Minimum wage is often considered positive on three grounds. Firstly, it empowers employees who have little or no negotiating or bargaining powers. Secondly, it sets a wage floor and thereby contributes to social norms and traditions. Thirdly, it increases the attraction for supplying labour into the economy. Therefore, while establishing a wage floor, it is imperative that a mechanism is in place to ensure that a revisit of the existing minimum wage is done every two years.

It must also be understood that there should be a uniform national minimum wage agreed by stakeholders from all provinces. It must also be understood that minimum wage should not be increased too much in one go since this may lead to non-compliance by employers. It must also be understood that despite enlightened thinking, minimum wage floor is generally still too low to meet the decent standard of living needs of workers and their families. It must also be understood that minimum wage does lead to high levels of non-compliance. It must also be understood that an established minimum wage can be the base to protect workers with the least bargaining power, including youth, women and those who are unskilled or least skilled. Therefore, minimum wage is an important facet in employer-worker bilateral relationship.

The rationales, the principles, and the ramifications of the debate for minimum wage will continue, not only in Pakistan but in most of the countries. Maria Echaveste, President and CEO of the Opportunity Institute in USA, stated that “I know firsthand that many employers who comply with other labour standards still hire the undocumented. Many businesses pay the minimum wage and have barely tolerable working conditions because there are sufficient undocumented workers willing to accept those terms. If we care about low-income workers in this country, we need to create pressure to improve their economic condition by reducing the supply of unauthorised workers”.


The writer is former president of the Employers Federation of Pakistan