Monday, May 17, 2021

Will the hike in minimum wage bridge the income disparity gap?

There is no doubt that setting an appropriate minimum wage is a daunting exercise, given the need to maintain a balance of equally important and competing factors in the economy. According to the International Labour Organization (ILO), a minimum wage rate is intended to protect vulnerable employees who sit at the bottom of the wage structure from exploitative earnings. Economists believe that low earners have to be protected because they lack economic power while their collective interests are not adequately represented.

While it supports the adoption of a minimum rate policy, the ILO has also cautioned that protection of vulnerable employees must take into consideration the requirements of economic growth and development, as well as the need to not only protect existing jobs but also generate new ones. One downside of increasing minimum wage is the likelihood of businesses substituting their employees with machines in an attempt to save on labour costs. Even worse, industries could collapse under the weight of surging and uncapped operational costs if minimum wages are set too high. It is for this reason that the balanced approach should take priority, with its benefits minimizing the downside.

Still in support, the European Commission has posited that set appropriately, minimum wages can help prevent in-work poverty and ensure decent job quality. However, setting appropriate minimum wage rates remains an economic conundrum to date. Effective July 1st 2015, government has approved a six percent upward adjustment of the minimum wage rates across board. The announcement was made by the Ministry of Labour and Home Affairs last week. The Ministry further warned employers in the affected industries/trades to comply with the new minimum wage rates, saying failure to comply would amount to violation of the Employment Act, which is punishable by law. At the minimum wage rate of P5.15, a construction worker who works eight hours a day for 22 days (176 hours) will earn P906.40 per month. This represents an increase of P114.40 from the P792 earned in 2014 at a minimum wage rate of P4.50.

A schedule of minimum wage rates

TRADE/INDUSTRY Hourly minimum wage (2014/2015) Hourly minimum wage (2015/2016)

Building, Construction and Quarry Industries P4.50 P5.15
Wholesale Distributive P4.50 P5.15
Manufacturing, Service and Repair P4.50 P5.15
Hotel, Catering and Entertainment P4.50 P5.15
Garage, Motor Trade and Road Transport P4.50 P5.15
Retail Distributive P4.00 P4.58
Watchmen (employed in above industries) P3.80 P4.35
Security Guards P4.50 P5.15
Domestic Service Sector P2.50 P2.86
Agricultural Sector P500 per month P580 per month
(Source: Ministry of Labour Home Affairs and BITC)

It however remains a sad reality that the six percent upward adjustment is nowhere close to bridging the gap in the standard of living between minimum wage employees and average workers. This gap stretched significantly as a result of the wage cap. Former Research Fellow at Botswana Institute of Development Policy Analysis (BIDPA), Professor Roman Grynberg has previously posited that Botswana has done poorly in terms of protecting the wages of its weakest workers. Between 1993 and 2014, the minimum wage increased from P1.25 to P4.50 per hour (excluding agricultural workers and domestic workers).

According to Professor Grynberg, government capped minimum wages in an attempt to minimize the effects of the 2008/09 economic meltdown. This was until 2012 when government awakened to the reality that the standard of living of vulnerable workers had fallen significantly in the face of rising inflationary pressures (7% to 10%). A report titled Decisions for Life, which covers 14 countries including Botswana, estimates that government’s restraint led to real wage growth of less than 1.3 percent yearly on average, plunging to negatives between 1980 and 2003. The report also asserted that from 2008 onwards, the minimum wage rate did not provide a decent standard of living for workers and their families. It estimated that the minimum wage was about 20 percent of the 2008 average wage in the formal sector. Prior to the recent adjustment, Botswana increased the minimum wage rate by eight percent across the board and 10 percent for the Agriculture sector in June 2014.

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