CAIRO: “Right now the Egyptian government is either unwilling or unable to enforce its labor laws,” said Ragui Assad, a leading scholar and researcher on employment issues in the Middle East and North Africa in an exclusive interview with Daily News Egypt.
In Oct. 2010, an Egyptian administrative court ruled that the state must implement a minimum monthly wage of LE 1,200 for all public and private sector workers, reinforcing a decision made by another court last March.
However, the government’s final decision in November was perceived as a blow to workers and activists alike. Egypt’s National Council for Wages made a decision to raise the minimum wage for the first time since 1984 from LE 35 to LE 400 per month, which many activists who demanded the reforms are rejecting on the grounds that it is close to the poverty line.
Assad, also an associate professor of planning and public affairs at the Humphrey Institute of the University of Minnesota, researches labor policy and labor market analysis in developing countries, the informal economy, community and economic development, and developing countries’ urban planning. He has previously served as a consultant to the World Bank, the International Labor Organization, the Ford Foundation, and UNICEF, and is also a research fellow of the Economic Research Forum for Arab countries, Iran, and Turkey.
Although the government’s decision to raise the minimum wage to LE 400 was a good step, the change would have no real affect on the labor market unless the government’s policies are first reformed to target the underlying problems in the labor sector, he explained.
Assad, however, also warned against raising the minimum wage too high. In 2010, activists and academics proposed a revised minimum wage of LE 1,200 per month based upon research conducted by Ahmed El Naggar, an economist at Al-Ahram Center for Political and Strategic Studies.
“If you put the minimum wage at LE 1,200, it will push more people into the informal sector and will make things worse by creating worse segmentation,” said Assad. “I think [a minimum wage set at LE 1,200] would [cause] the informal sector to [represent almost] 90 percent of the Egyptian private sector workforce, and [would] set back the regulation reforms [that] the government is currently adopting to increase the formal sector.”
Assad added, “When the government is having problems [in terms of] simply … enforcing whether workers have contracts or have social insurance, what makes us think that the government can enforce a LE 1,200 minimum wage?”
The problem with the Egyptian labor market is that it is highly segmented into formal and informal sectors,” Assad stated. “Twenty to 25 percent of the private sector in Egypt is informal, and it goes up to 40 percent if you include the public sector. So, the issue of the minimum wage is quite irrelevant for 75 percent of the workforce that [will not be] covered by the minimum … a large informal sector means that these workers are completely unprotected by the labor regulation framework.
“The reason why there is such a large informal sector is that the government itself decided that enforcing the labor law was not practical,” Assad explained. “For years, most large firms had 70–80 percent of the formal rules but kept for themselves a margin of error where they hired workers off the books — or informally. For smaller firms this margin gets much bigger. And when you get to very small firms — which make up two-thirds of employment — you get up to 100 percent informality.
“There are two ways to increase formalization and you have to do them in tandem,” he said. “You have to increase regulations and make them reasonably enforceable in a private sector economy, and you have to reduce the corruption in enforcing the law.”
However, he added that he could not see “any dramatic improvement in the ability of the government to enforce the law, or even in its willingness to enforce the law.”
“What happens right now is that the labor inspector comes, he gets paid off, he leaves, and the law is not enforced,” he explained.
He stressed that the labor sector should employ the same reforms as those of the government’s successful income tax reforms, which have managed to reduce tax evasions by making it easier for businesses to comply with tax regulations.
Shifting to public sector labor reforms, Assad said that the government has resorted to dealing with the problems indirectly.
Egypt had around 5.7 million public sector workers in 2010, according to CAPMAS, and its civil service bureaucracy is widely viewed as inefficient and corrupt — mainly due to having a large number of underpaid and undertrained staff.
Assad said that, due to the political nature of civil service labor reforms, the government — instead of undertaking the necessary reforms within its bureaucracy — has resorted to employing a more efficient and competent alternative workforce that runs parallel to the existing governmental bureaucracy in the form of consulting agencies that receive private sector pay.
According to Assad, the government has simply stopped recruitment and enforced some early retirement schemes, waiting for the existing, aging civil servants to retire instead of resorting to politically sensitive layoffs or money intensive training programs.
“I think the biggest problem is that this approach has resulted in a dysfunctional bureaucracy, and that is what is putting the brakes on the rest of the economy,” he said. “The political decision has not been made because of the general ‘political timidity’ of this regime [in dealing] with big problems head on.
“There are so many of what I call ‘low lying fruit’ policy changes that can be made [to] improve the situation dramatically, but that are [ultimately] not made because of this political timidity,” Assad concluded. “You can guess why there is political timidity.”