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The ‘minimum wage’ defeat for ten million

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Iris Boutros

Iris Boutros

There have been mixed reactions to this week’s announcement of a new public sector minimum total income of EGP1,200 per month to come into effect in January of 2014. Many are unsatisfied – unsatisfied with the EGP1,200 figure, the target of total income and not wage, or the meeting of the social justice objective. Some see it as a positive step while others see it as more disappointing than that. I see it as something altogether different.

I see it as a defeat for the ten million or so Egyptian workers whose interests have largely been ignored in most of this debate, and whose livelihoods will not be improved by either a public or private sector “minimum law”, be it wage or total income. In my view, this step was taken to succumb to the political pressures of those representing the more privileged rather than sound economic judgement. And what’s worse, I believe this cabinet would have preferred to have made a different decision, one in the better interest of the majority, but could not given the current political climate.

 

The state minimum wage affects few workers

Egypt has about 24 million workers. Just fewer than six million, about one-quarter of all employees, are state employees. So any talk of the state’s minimum earners needs to bring to light that a higher state pay will help a minority of Egyptian workers, a fraction of state employees or only a share of the one-quarter. It brings no immediate positive benefit to the 75% of Egyptian non-state workers, 18 million people, plus the state’s non-minimum earners and certainly not the unemployed. In short, this is a policy move to help the few.

There are many good arguments for helping the few, particularly if they are the worst off or if helping the few will not harm others.  At the very least, the benefits of helping the few by increasing state salaries should be outweighed the harm that it will do to others. It is hard to fully judge how much and how many of the six million the policy change will help given the extent of data released to the public. But it seems the debate should at least consider three things: if the policy change will in fact help in the right way, whether it is helping the worst off, and whether it will harm others.

State employees have been given massive pay raises

Central is the question of whether increasing the minimum wage actually increases incomes, which seems silly but actually it is not given the state’s compensation system. At the heart of the matter is the important fact that base wages take up only 20% of the government wage bill, while 80% is spent on bonuses and other discretionary payments. These bonus payments are neither awarded through an objective, transparent system nor tied to productivity or performance levels. In other words, to achieve a noticeable difference in pay for public workers, the focus would have to be on total incomes, which includes bonus payments and just not base pay.

In the past five years state employees have seen massive increases in total income. Average weekly public salaries increased from EGP303 in the 2006-2007 fiscal year to EGP657 in the 2011-2012 fiscal year, an increase of 117%. The state wage bill increased correspondingly from EGP52.2bn to EGP117.5bn, an increase of 125%. The state minimum wage, however, only increased by about half as much to the current levels of EGP730 per month. The data needed to fully judge how fair these salary increases were distributed among all state employees is not public, but it is likely that these increases benefited state employees in a highly unequal way.

The implications are that past state wage bill increases came with increased, not decreased inequality in the government pay system, and that the bonus system is what ultimately drives total income. An increase in minimum wage is not an easy fix for this misdistribution. At the very least, total income should be the target consideration. And more likely, it’s really the entire system of compensation that needs a serious re-design. The proposed increase to EGP 1,200 total income per month to go into effect in January of 2014 should still help a few, some fraction of the one-quarter, again we don’t know how many. But with the wage bill estimated to be at EGP136.6bn for the last fiscal year, it seems the priority issue for the majority should be to design more comprehensive, fair and sustainable solutions. (As an aside, the state wage bill was EGP37.3bn ten years ago.) The priority focus should not be on changing the minimum wage or total income of only government employees.

State workers are actually the privileged

The state’s lowest wage earners are not even the lowest earners among Egyptian workers. They are actually the privileged. The average public sector worker earns significantly more than their private sector counterpart. According to CAPMAS data, public workers earned an average of LE657 per week in 2012, with private sector worker weekly salary lagging behind significantly at LE397 per week on average. The wage difference in annual income alone amounts to about LE13,500 per year. It’s higher when you consider pay per hour, as the average private sector employee has a 5-hour longer workweek. Ten years ago, private sector weekly wages were 76% of public sector weekly wages on average. Now they are 60%. In other words, public sector weekly wages have been growing at a faster rate than in the private sector as the private sector workers fall behind.

Advocating for a private sector minimum wage would not help either. Just as in the public sector, it is not a quick fix to the private sector labour issues; in fact it would probably have the opposite effect. Of the 18 million private sectors workers, less than eight million have formal employment contracts with the strong pro-worker rights contained within the current labour law. This means that about ten of the 23 million workers in Egypt cannot be helped with even a private sector minimum wage law, not without increases in the numbers of workers that are formally employed. In other words, this majority group of Egyptian labour is more vulnerable, earns less money, and works longer hours and any sort of ‘minimum law’, public or private, wage or total income, will never improve their livelihoods. And either law, public or private, would probably hurt informal workers by inflating labour costs that will further increase, not decrease, labour informality. So their chances of becoming formal sector employees with all the benefits that are offered will decrease.

At the end of the day, in all the talk about minimum wage or total income, there has been no voice representing the majority of Egyptian workers. The interests of these ten million have been excluded, as none of these laws would improve their livelihoods. The new public sector minimum total income law will not help them. Neither will a private sector equivalent. Most signals of this technocratic interim cabinet have been that they themselves do not see these laws as particularly useful for the labour problems Egypt faces. Deputy Prime Minister Hossam Eissa admitted that the cabinet thought it could not wait any longer to make this decision even thought previous statements suggested they thought it was a bad idea. So it bears considering given all the advocacy of the various groups concerning these policies, whether they will actually help the worst off or not.

About the author

Iris Boutros

Iris Boutros

Iris Boutros is an economist and strategist. She focuses on growth, impact investment, and decision-making. Follow her on Twitter @irisboutros

  • prof dr m s s namaki

    The minimum wage will have far reaching ramifications regardless of the segmentation adopted by the author. The minimum wage will increase government budget deficit, stimulate nation wide inflation, reduce labor and capital productivity and worsen Egypt’s competitive posture. Serious exploration of those implications is essential for a proper adoption of a minimum wage.

  • Pingback: Muftah » The Struggle Continues: Social Justice in Post-Morsi Egypt


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