‘One size doesn’t fit all,’ say experts on minimum wage

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By Amir Makar

CAIRO: Rather than imposing a unified minimum wage across the country, experts advise seeking alternatives that factor in regional and sectoral variations as well as imbalances in standards of living, growth and productivity.

While the overall percentage of minimum wage to nominal GDP is in line with comparable economies such as Tunisia and Turkey (around 48 percent), Magda Kandil, executive director of the Egyptian Center for Economic Studies (ECES), says that “there is no harmonization between employment policies and productivity.”

Kandil notes an inverse relationship between excess labor and high productivity, demonstrating certain sectors such as public service or agriculture, which are overloaded with excess employment (6 and 7 million workers, respectively), meanwhile having “limited productivity and unable to absorb more workers.”

“The good news, however,” she says, “is that larger sections of the Egyptian economy can support more employees.”

Namely, Kandil identifies sectors such as retail, transportation and education, in which the gap between average wages and productivity varied between negative 5 to 20 percent, allowing room for wages to grow.

She then contrasts them with others such as financial services, construction and extraction, in which productivity amounted to an excess between nearly 20 up to 35 percent, which allowed room for employment to increase accordingly.

On another scope, Kandil points out regional variations in living standards, noting the higher inflation in Upper Egypt compared with the other urban, rural and desert regions.

Another link is the inverse relationship between rates in opposing regions, for example: high rates for agriculture and low rates for finance in Sharqiya (the governorate with the highest concentration of low paying jobs) opposed to their inverse in Suez (with highest concentration of high paying jobs).

Meanwhile, “Egypt employs a unified policy (LE 683), despite the previously shown variations,” says ECES’s Omneya Helmy.

“International experience shows that there can be positive distinctions in favor of certain economic sectors to provide incentives (such as in India, Uruguay and Japan), or certain regions with high poverty (as in Indonesia and Mexico),” she says, presenting three possible solutions and exits from the “one size doesn’t fit all” dilemma.

The first is placing a minimum wage according to varying standards of living per governorate, ranging from LE 666 to LE 690. The second alternative is placing it according to productivity ranges per sector, the highest being LE 722 in construction and LE 658 in education.

The last alternative is placing minimum wage according to varying standards of living and productivity per governorate, with regions such as the aforementioned Upper Egypt depending mostly on standards of living at LE 686, and better off regions such as Cairo having a minimum of LE 675.

“We have to make sure that this doesn’t get chipped away by time,” Helmy warns though, “[that is] protecting against inflation.” She proposes that minimum wage be calculated by a percentage of average wages compared to nominal EGP, and reviewed every three or five years.

“In times of crisis, such as what we’re going through, it can even be reviewed annually until matters stabilize,” she tells DNE.

She maintains that in all cases, “it needs proper institutional framework,” which can vary according to example, whether by a law, or as in Germany according to a consensus agreement between workers and employers.

Helmy says that there is a foundation to build on presenting some positive aspects, “but they need to be worked on to limit poverty and raise productivity,” particularly encouraging youth employment.

“We conducted many researches at ECES relating to labor market,” she adds, “when trying to distribute workers according to skill in Egypt, we found alarming results.” They showed a huge gap between the average wages of medium-skilled and low-skilled workers, the latter earning much more.

She concludes that the two primary findings were that the returning incentive from education was very low, and that “highly skilled workers depend on [more] luck, according to where they are employed.”

What Helmy and Kandil advise the most are effective short-term policies to reallocate the resources in the market from the regions of excess to the ones that are lacking, and above all, transparency.

“The most important guarantee to the worker is having a labor market that provides him with rights,” says Kandil.

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