Another minimum wage increase

Sherine Abdel-Razek , Tuesday 16 Apr 2024

The minimum wage in the private sector has been raised for the fifth time in two years, reports Sherine Abdel-Razek

Another minimum wage increase


 The minimum wage for private-sector employees was raised by 71 per cent in the first week of April to LE6,000, setting it at the same level as that of public-sector employees. This is the fifth increase in the minimum wage in two years and the second in 2024.

The hike is to be implemented at the beginning of May and aims at improving the living conditions of private-sector workers and increasing their productivity, according to a cabinet statement.

The private sector, both formal and informal, employs more than 80 per cent of Egypt’s workforce of about 30 million. It was not until 2022 that workers in formal privately owned companies had a binding minimum wage.

In January of that year, the National Council for Wages set a minimum wage of LE2,400. In 2023, this was raised twice to LE2,700 in January and then to LE3,000 in July. At the beginning of this year, it was hiked to LE3,500 and then to LE6,000 two weeks ago. All these figures refer to gross earnings.

Companies that cannot commit to paying the minimum wage due to financial constraints have a three-month period when they can submit a petition to be exempt to a grievances committee headed by the minister of labour.

An accurate count of the number of beneficiaries can only be carried out after the number of applications and of those exempted are known.

However, a quick look at the available data reveals that the scale of the beneficiaries of the minimum wage is limited because micro-enterprises with fewer than 10 workers are excluded. According to official data, these enterprises represent more than 95 per cent of Egyptian privately owned firms.

Exemptions from paying the minimum wage were granted to 22 commercial sectors employing seven million workers in 2022 on the back of demands by the Federation of Egyptian Chambers of Commerce.

While the exemptions were frozen in 2023, they are now on the table again, according to statements by the deputy head of the Egyptian Federation of Labour to media outlets.

Another reason why the minimum wage is difficult to apply in the private sector is that workers in the informal sector — 11.5 million in the 2020 income and spending survey and including farmers, vendors, and house helps — are not included.

This means that the majority of private-sector workers will not enjoy the rise in the minimum wage.

On the company side, the move comes as companies in Egypt witness another devaluation that could raise the cost of raw materials and equipment and a hike in financing costs following the eight per cent rise in interest rates since the beginning of 2024.

Mohamed Fouad, CEO of a US-based consulting company and a former Egyptian MP, noted on Twitter that the Ministry of Labour has issued periodic directions to the labour offices in the governorates explaining the “executive rules” of the increase and how to proceed as well as the penalties of not complying.

If the labour offices in conjunction with the General Authority for Social Insurance have a real desire to oblige the companies to comply with the rules they will do so, he said.

In 2022, when the private-sector minimum wage was first introduced it was announced that the value of fines imposed on non-compliant companies would range from LE100 to LE500 for each worker and be doubled in case of repeated violations.

It is not clear if the same penalty will be imposed now.

Fouad said that the increase would cause problems for labour-intensive companies, as the overall cost of salaries would increase at a time when these companies are burdened by other increases such as of financing costs due to hikes in interest rates, increases in fuel prices, and the effects of the devaluation on their budgets.

Companies that cannot afford the additional labour costs would increase their prices to accommodate them, he said, creating wage-push inflation, which sees a company hiking product prices to cover profit margins.

Wage-push inflation can also cause layoffs, he said.

Instead of raising the minimum wage, the government could consider other options that have been shown to benefit workers, especially poorer ones, according to a World Bank blog.

This presents India’s National Rural Employment Guarantee Act introduced in 2005 as an example. The act targets low-skilled labour of prime age in poor areas and grants at least 100 days a year of guaranteed paid employment to every rural household whose adult members volunteer to do unskilled manual work.

In 2020-21, the programme employed 76 million rural Indian households, a significant proportion of which were headed by women and people from marginalised communities.

According to the blog, “given the size of the informal sector in Egypt, programmes that give business training to the self-employed and micro-entrepreneurs can help a large number of workers in finding decent jobs, as they also have in Peru and Central America.”

* A version of this article appears in print in the 18 April, 2024 edition of Al-Ahram Weekly

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