Minimum wage revisited

Pakistan has an acceptable concept of minimum wage, just like many countries. The reason for imposing minimum wage is primarily to ensure that employers are compelled to pay minimum wage to their employees. In the past, the Federal Finance Minister would announce it in the Federal Budget presentation in the National Assembly.

Nowadays, after the 18th Amendment, all four Provinces have their own tripartite minimum wage Boards where a consensus evolved. Although the Finance Minister still announces the minimum wage, but only for Islamabad Capital Territory, but usually all four Provincial Boards match the newly announced minimum wage. The Minimum Wage mandated by the government or even by the Boards is not a guarantee of a just, living, or fair wage.

The leaders of Workers’ Federations continue to carp about non-enforcement of the minimum wage threshold, and rightly so. Employers shy away from paying these to most of the lower category of workers and this has created a challenging situation for business-oriented organisations.

A conservative estimate is that at least 40 percent of employers in the formal sector and over 85% in the informal sector do not pay minimum wage.

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.” It goes without saying that in Collective Bargaining Agreements between employers and workers, the minimum wage may be higher than the National minimum wage.

In today’s tough economic situation, with prices of commodities rising, with utility rates hitting the roof, with transportation cost escalating, and the decrease in inflation rate still not filtering down to the markets, the need for more than the minimum wage is imperative. Employers counter this with their claim that enforcing minimum wage would result in retrenching a number of unskilled or semi-skilled workers.

To some extent this is correct because thousands are ready to work at lower than the minimum wage. The demand-supply equation is skewed against the workers, especially, unemployed workforce. The potential effect of minimum wage on employment is borne by unemployed workers or those who were retrenched due to the increase in minimum wage.

Psychologically, as well as financially, the employers generally resort to decreasing the number of unskilled workers by replacing them with fewer skilled workers or introducing new processes or methods that replace unskilled workers. Youth, especially newcomers, and women workers tend to be more vulnerable when minimum wage is rationalized.

However, there is scant empirical data to substantiate this argument. More often than not, enterprises gradually succumb to paying the minimum wage. As the economy grows and jobs are generated, employers have to compete for available labour, driving up wages. Some economists suggest that there should be no official minimum wage system.

The mechanism works best if wages are set by supply and demand, not by any other factor, such as the present prevailing system. If the government is not involved in fixing a minimum price for automobiles or even tomatoes, it should not mandate the lowest amount employers must pay workers.

In today’s tough economic situation, many industries are semi-paralyzed; closures, reducing shifts, no new investment, and difficulties in demand for their products as well as slowing down of account receivables. Increasing the selling prices of manufactured products has become counter-productive because high prices usually reduce demand for the products.

Many manufacturers are between a rock and a hard place. It is economic growth that increases tax revenue and enables the government to introduce social safety nets for the marginalized population. At the same time, industries and commercial enterprises move away from labour-intensive system and introduce technology in the organization.

This move also impacts demand for unskilled and low-income workers. SMEs are also becoming technology-savvy and, despite their penchant for not paying even minimum wage, they prefer to invest in technology.

A social activist has started a Whatsapp group titled “Justice for the Voiceless” in which he posts photos and interviews, mostly of uniformed guards working outside bank branches. According to him, these guards are paid about 50 percent less than the minimum wage and that too for a 12-hour shift. His complaint letters are addressed to bank presidents but what he should do is to vigorously pursue the cases of these guards with Federal Ministry of Interior as well as All Pakistan Security Agencies Association.

APSAA members are the ones paying these guards a pittance. APSAA website states that “few private security companies joined hands to form a common platform, with a view to looking after the welfare of their employees.” The only consolation is that most of these guards line up for free lunch and dinner that NGOs provide daily at designated places all over the city. Otherwise, these guards would go hungry or run out of money within 15 days.

Where do the many Workers’ Federations stand on the issue of minimum wage? Undoubtedly, they are very concerned and raise this subject in meetings as well as street protests, but now mostly rhetorical. It goes without saying that they should play a prominent role in ensuring widespread compliance by companies but there are so many issues that these Federations have to handle that the intensity of their protests is diverted.

Nowadays, these Federations as well as representatives of employers are engrossed in formulating a consensus on the draft of Sindh Labour Code whose architecture was the handiwork of an Australian consultant who probably has no idea of the culture and traditions of Pakistani industrial relations.

A retired bureaucrat and a labour economist assisted him, both well experienced, but they allegedly just seconded the recommendations of the foreign consultant. An essential Labour Code but that has created genuine grievances among social partners while government is just a silent bystander in this.

It is the social, moral, and economic obligation of all employers, formal or informal, to seriously consider the needs of workers and their families.

In informal discussions among employers, most of them are adamant that they will not pay minimum wage at this stage to unskilled helpers as well as chowkidars because of dwindling activity in their enterprises. They added that despite this economic situation, they are maintaining their labour strength. The general opinion is that the Sindh Labour Department should defer inspection of payment ledgers at least till end of June 2025. Meanwhile, just accept what American economist Thomas Sowell once said that “The real minimum wage is zero.”

Copyright Business Recorder, 2024