Experts debate Egypt’s new minimum wage policy

Deya Abaza, Engy El-Rafaee , Friday 8 Nov 2013

From January 2014 Egyptian public sector workers will have a minimum monthly wage of LE1,200 ($171)

Suez Canal Suez Canal workers strike June 2011(Photo: Reuters)

Experts weighed in on the government of Egypt’s recent decision to raise the minimum wage in the public sector by January 2014 at a debate hosted by the American University in Cairo on Wednesday.

Participants in the debate largely ignored the motion, “should a minimum wage be imposed on Egyptians?” to discuss the interim cabinet’s recently announced policy instead.

In a sudden decision, which it publically admitted was taken because of popular pressure, Egypt’s transitional government announced in September the imposition of a minimum wage of LE1,200 ($171) for public sector employees, starting in January 2014.

Take-home pay will be less than the announced LE1,200, as the government says deductions will be made for pensions, insurance and tax.

The wage rise in public administration is expected to cost the treasury LE9 billion, in addition to LE6 billion for the health sector, during the fiscal year 2013/14, to be doubled next year.

In July 2012, a minimum wage of LE700 ($100) was set in the public sector for the first time since the eighties. Doctors, professors and other professions were excluded.

At least one quarter of Egyptians live in poverty, spending no more than LE3,444 ($500) each year, according to Egyptian state statistics body CAPMAS.

In his introductory talk, debate organiser Ashraf El-Khatib estimated that this move would cost Egypt LE18 billion annually.

It is unclear how the government is planning on financing this, pointed out motion opponent and Mohamed Magdy Farid, member of the executive bureau of the Liberal Youth Front.

 “This year we have the aid,” said Farid, referring to the LE12 billion pledged to Egypt by oil-rich Gulf nations following Islamist president Mohamed Morsi’s ouster in July. “But how will the government finance the minimum wage increase next year?”

If this will be done through tax hikes, it will stifle private sector competitiveness and increase the burden on the poor, which will beat the purpose of a minimum wage increase, explained Farid.

Motion opponent and professor of economics at Cairo University, Aliaa El-Mahdy, highlighted the inflationary risks associated with minimum wage increase.

In Egypt, productivity is not elastic, explained El-Mahdy, meaning that a wage increase is much more likely to cause inflation than a boost in production.

Egypt’s annual urban inflation rose to 10.1 percent in the 12 months to September 2013, up from 9.7 percent recorded in year-to-August, according to the latest figures from the Central Agency for Statistics and Mobilisation (CAPMAS).

But the inflationary pressure from a minimum wage increase can be contained if the government pursues an expansionary policy to enhance production, argued Tamer Wagih, head of the economic and social justice unit of the Egyptian Initiative for Personal Rights (EIPR), one of the motion’s proponents.

On the other hand, Egypt’s heavy reliance on imports for basic necessities such as fuel and food makes it unlikely that raising minimum wage would bring about an increase in local production, argued Farid.

Egypt spent around LE33 billion ($4.8 billion) on imports in the first eight months of 2013, according to the latest report of the state’s General Organisation For Export and Import Control (GOEIC).

El-Mahdy went on to stress the dangers of imposing a minimum wage on the private sector, namely its impact on hiring practices, in a country which already suffers from high levels of unemployment.

Egypt’s official jobless rate reached 13.3 percent of the country’s labour force in the second quarter of 2013, with 74 percent of job seekers aged between 15 and 29 years old, according to state-run statistics body CAPMAS.

El-Mahdy warned against granting Egypt’s public sector workers a minimum wage unmatched by Egypt’s private sector employers, a policy which would be “unjust” and “unconstitutional.”

“This is especially the case given that there are nine million private sector workers in Egypt which do not belong to a syndicate and therefore have no bargaining power,” said El-Mahdy.

Egypt’s private sector has yet to agree on a minimum wage, with many business leaders deeming such an implementation impossible given current economic difficulties.

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