Minimum wage should implicate a subsidies cut: ILO advice to Egypt

Ahmed Feteha, Monday 30 May 2011

Experts ponder how Egypt can implement a fair but sustainable minimum wage

Egyptian workers' long struggle for a minimum wage should reap fruit in the coming few days (Photo AP)

In the wake of the Egyptian revolution, the issue of a fair minimum wage has gained ground, tied as it is to the notion of social justice. But with economic rights, a strategy to improve the country's economy must also be put in place.

“Minimum wage application is just one link in a long chain; it does not stand by itself,” says Dorothea Schmidt, senior employment expert at the International Labour Organisation (ILO).

Estimates of the anticipated minimum wage vary so far between LE450 and LE800 and will be set for both public and private sectors.

Schmidt clarified that setting a minimum wage will not be economically sustainable if it is not complemented by growth in productivity, referring to the Egyptian public sector with its six million employees.

ILO employment policy director Azita Berar Awad indicated that raising the minimum wage lures a better calibre of employee to the public sector; thus improving productivity.

Schmidt also cited Asian economic powers, specifying China, as countries that reformed their public sectors while integrating a minimum wage rate.

Minimum wage has been a heated issue of debate, especially after the Egyptian revolution which called for better living conditions and social justice.

Ahmed El-Boraie, minister of manpower (labour) and immigration, said yesterday that a new minimum wage would be announced within days. 

Schmidt explained that any minimum wage should be accompanied by cuts in other measures related to social security from the government, like food food and energy subsidies.

“Subsidies the government provide should be revisited and decreased after application of the new wage rate,” she added.

However, there haven’t been any talks about changing subsidy structure from Egyptian officials.

The issue of the informal economic sector also surfaces when debating minimum wage.

Some say setting a high minimum wage in a market where labor supply exceeds demand will entice employers to pay lower wages informally to employees.

“International experience tells us that enforcement is the way to face this problem. There is no other way,” Awad confirmed.

Awad used Brazil as an example of a country where minimum wage was successfully increased. “A direct result of applying the minimum rate [in Brazil] was the increase in consumption which in turn boosted the economy.”

She highlighted that  periodic revisit of the minium wage is essential or it will turn obsolete. The last time Egypt updated its minimum wage was in 1982, were it was set at LE34.

As for setting a maximum wage rate, Awad seemed unsure about its viability in Egypt.

“There is an international debate on setting a maximum wage limit; this issue is not as clear as minimum wage,” she added.

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