Curse, blessing of minimum wage

PETER Sichinsambwe.

THE topic of minimum wages in Zambia is a highly emotive one – given the high levels of income inequality that are present across the economy.During the Labour Day celebrations last month, President Edgar Lungu directed the Ministry of Labour and Social Security to expedite the process of revising the minimum wage and Conditions of Service Act 2012, so as to ensure that workers have decent wages and could provide basic needs for their families.
The problem of unemployment and low income is real and to protect workers from exploitation, government legislation is needed. A minimum wage is an artificial wage imposed on the market by the government in order to ensure that workers are paid their righteous wage for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract. This is a form of direct government intervention to regulate the economy for macroeconomic stability.
Zambia’s official standard unemployment rate currently stands at 12.6 percent, whereas the combined rate of unemployment and potential labour force (i.e. national unemployment rate) was estimated at 41.2 percent. Youth unemployment rate is estimated at 16.3 percent.
The Minimum Wage and Conditions of Employment Act was last reviewed five years ago. Currently, the minimum wage is determined by the category of employment. The minimum wage for domestic workers is at K522, shopkeepers K1,132 and formal general workers in five separate categories are between K1,132 and K2,101 respectively. According to the Jesuit Centre for Theological Reflection Basic Needs Basket for March 2018, for a family of five living in Lusaka stood at K5, 575. JCTR has attributed the hike in the cost of living to poor rainfall patterns, and extension of the fishing ban, reduced supply of agricultural products on the market and high fuel prices.
Increasing the minimum wage undoubtedly would come at a significant cost in Kwacha terms for employers, but would the positive effects outweigh any negative effects?
The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection.
Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women, by promoting the right to equal remuneration for work of equal value.
In 2012, the Minimum wage was revised within the manufacturing, wholesale, retail and agricultural sectors and there was no significant loses of employment in these sectors. The small negative effects on employment in a few economic sectors neither threatened macroeconomic balance nor hindered economic growth. That was an acceptable trade-off for a policy with significant positive contributions to household real disposable income, poverty alleviation, income equality, and economic growth.
The expected new minimum wage comes amid extremely low levels of economic growth and investment. Zambia’s rate of economic growth has diverged from that of the global economy as domestic policy mistakes have reduced the competitiveness of the economy.
In economic theory, the unit labour cost increases if real wages increase without a corresponding increase in labour productivity. This means that the adjustment of salaries from their previous level to the new minimum wage level would effectively raise the cost of production. As a result of this increase in the cost of production, employers would want to employ more experienced or productive employees as they will cost the same as an entry level employee if both are at the minimum wage level.
The relationship between skills and employment is well established in Zambia. So, too, is the relationship between investment, economic growth, and new job creation. If the minimum wage imposed is excessively high considering Zambia’s current economic growth environment, this could hurt jobs creation and protection.
The effect on gross domestic product (GDP) also needs to be taken into account as ultimately the economy needs to grow to create jobs. The risk of the new minimum wage is that it is going to reduce levels of labour market absorption and participation while raising inflation and undermining entrepreneurship.
The idea of higher minimum wages is attractive to the common citizen, care must be taken to not fall into the trap of making populist policy decisions to simply appease people in the short term. Achieving long term economic growth is the ultimate goal as it will lead to job creation.
Minimum wage systems should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises.
The effectiveness of minimum wages depends on many factors, including the extent to which they afford protection to all workers in an employment relationship regardless of their contractual arrangements.
The efforts of attaining fiscal fitness, better social protection, and a simpler and fairer way to expand the tax system must be expedited and implemented effectively and promptly, these measures will provide a strong platform for enhancing the economic and social trajectory. The Government should minimize unplanned expenditures and halting the accumulation of arrears; enhance domestic resource mobilization and refocusing of public spending on core public sector mandates. Improving Zambia’s economic and fiscal governance requires raising the levels of accountability and transparency in the allocation and use of public finances through policy consistency to raise confidence for sustained private sector investment.
Lastly government should prioritize creation of decent jobs which ensure that workers enjoy their rights at work, enjoy social security coverage which includes having social dialogue mechanisms at their work places as stipulated in the Seventh National Development Plan and enactment of strict laws in the employment and labour sector that will protect workers from being exploited.
If the right decisions are made implemented and adhered to; 2018 could be a year of real progress and steer the country on a path of sustainable development and inclusive economic growth.
God bless this great country Zambia and its leadership.
The author is a Lusaka-based economist/chartered accountant.

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