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Tuesday November 30, 2021

Minimum wage not enough to live off in Pakistan

July 15, 2017

LAHORE: Increase in minimum wage is announced in every budget since 2008, which means that the minimum wage has increased by Rs10,000 in last ten years. Still, even those getting minimum wage find it difficult to balance their monthly budget.

This brings into question the criteria for increasing minimum wage; as a constant increase by the same amount every year means that in percentage terms the increase is decreasing every year. When the minimum wage was Rs4,000 per month, an increase of Rs1000 meant that the minimum wage increased by 25 percent.

An increase of Rs1,000 on last years’ minimum wage of Rs14,000 meant that the minimum wage in percentage term increased by around seven percent. Another important point would be that an experienced worker, who was being paid Rs4,000 in 2008 would now be paid Rs15,000 since businesses equate the increase in wage with yearly increment, not a reward on the basis on experience.

Ironically, a new recruit in private service was entitled to the same minimum salary of Rs15,000. In other words, a person who has no experience, and the one who has worked for 10 years were being paid the same wage.

Simply put, the current wage system is a disincentive to productivity. Why would a person work hard and increase productivity if at the end of the day his rewards were the same as that of a raw hand?

These things apart, let us analyse what impact the minimum wage has on the monthly budgets of the families.

We all know that in majority of the cases, the family is dependent on a single bread earner who earns a minimum wage. There were two ways of analysing the bare minimum monthly expenses of a family.

One is on the basis of the percentage expenses on various counts given in the Consumer Price Index (CPI) of the government, and the other is to calculate these expenses as per current prices. It is worth noting that in both cases, the minimum wage is not enough to cover the expenses.

The average size of a family in Pakistan is 6.5. The minimum wage bread earner has to feed them, provide them shelter, bear utility charges and take care of their education and health needs.

If we look at the percentage that the government has assigned to each necessary expense in the CPI inflation basket, it will be found that food accounts for 40.3 percent of the total expenses of a family.

House rent consumes average 23.4 percent, transport 7.3 percent, education 3.5 percent, energy 8.7 percent, and all other expenses including apparel and textiles, entertainment, healthcare and household expenses account for the remaining 16.8 percent.

This means that the worker would have to spare Rs6,045 for food, Rs3,610 for house rent, Rs1,095 for transport, Rs475 for education, and Rs1,335 for meeting fuel and energy needs of the family. He will be left with Rs2,440 to cover the other 16.8 percent expenses relating to healthcare, apparel, entertainment, etc.

With these allocations made according to CPI inflation basket he would not be able satisfy the genuine needs of his family. Every economist agrees that the food needs are the largest monthly expense of the poor. The poorest consume 80 percent of their income on food that declines as the affluence increases.

In reality, the spending of the poor are not in line with the official statistics state. It also contradicts the other government data on nutrition.

According to government statistic, an average Pakistani consumes 110 kilogram of wheat per year or 9.166kg of flour per month. A family of 6.5 would thus consume 59.58kg wheat flour per month, which would cost Rs2,979 at Rs50/kg.

The family would require 4kg of edible oil at 20 grams per person per day. It would cost the family Rs800 per month. Assuming that the family consumes minimum quantity of vegetable like onion, ginger, garlic and one main vegetable after alternate day even then it would add a burden of Rs2,250 on the family budget at Rs75 per day.

Another Rs1,000 would be needed for pulses, spices, salt, etc; and Rs1,200 per month for half litre milk daily. Assuming that the kitchen fuel is natural gas, he will have to bear a monthly bill of Rs300. In case it is LPG, kerosene oil or coal the cost would be much higher.

The above expenses on food are barest minimum in which the family is deprived of quality foods like meat, mutton, fish or chicken meat, eggs, butter or fruits, sugar or tea. Despite this the food expenses listed above total Rs7,529 which is almost 80 percent of current minimum wage of Rs15,000.