National minimum wage problematic for certain sectors : EFC
View(s):The Employers’ Federation of Ceylon (EFC), in a recent submission to Sri Lanka’s National Pay Commission, the country’s apex employer body, has signalled that a “national minimum wage could distort and create problems to certain sectors which need to be separately considered for fixing minimum wages”.
Putting forward its case, the EFC stated; “The issue of the minimum wage is controversial. Many argue that it is too blunt an instrument to be useful and could have detrimental effects on employment, growth and incentives to work, and that it can negatively impact opportunities for lower skilled workers and the youth. Supporters of minimum wages conversely argue that it is an effective instrument in protecting the lower paid and in combatting poverty. Minimum wages are essentially labour market interventions used by governments, either as an instrument of political macroeconomics or as a social tool. Minimum wages represent the lowest levels of pay, established through a minimum wage fixing system, to be paid to workers by virtue of a contract of employment”.
It also added; “The concept of minimum wage can be broadly distinguished into two categories. First is the adoption of a national minimum wage, which is applicable to all workers across regions and sectors, irrespective of the peculiar capacities of different industries. On the other hand, minimum wages could also be fixed in relation to different industries, as in the case of Sri Lanka in terms of the Wages Boards Ordinance. In such a situation it is envisaged that minimum wages be fixed taking into account the nature of the industry and its peculiarities”.
Further, it also noted; “The general objective for governments introducing minimum wage policies is the protection of low income workers, through the introduction of minimum wages based on country specific factors such as cost of living, welfare policies, labour market conditions, the inflation rate and other economic factors and trends.There are both benefits and drawbacks in relation to the fixation of minimum wages. The benefits include reducing wage inequalities between the bottom and the middle of the earning distribution, poverty reduction, mitigating the effects of possible imbalance of bargaining power between employers and workers. On the other hand, the drawbacks are diverse. Minimum wages are widely seen as having a distortionary impact on the labour market. For example, minimum wages that are set too high can lead to unemployment among low skilled workers. Although minimum wage legislation should be applied to all workers covered, it is difficult to enforce in the informal economy. This is something that we in Sri Lanka need to take into account. The role of minimum wages in many developing countries as a means to establishing a social flow is therefore much more questionable”.
Veto powers
Commenting further, the body also stated; “In our view, the most serious concern in relation to the current minimum wage fixation mechanism is because there is no proper direction on the part of the presiding authority in terms of giving information to members and the members appointed to the Wages Board (especially the nominated members) who have virtually ‘veto powers’ in terms of deciding on a minimum wage have no understanding whatsoever (in most cases) of the industry or the challenges facing the industry before determining a particular minimum wage for that industry. In other words, it is our view that it is not the mechanism per se but the manner it is being implemented which is most objectionable at present”.
The EFC noted that; “The Wages Boards Ordinance is one of the oldest pieces of legislation that has been enacted for the regulation of the wages and other emoluments of persons employed in trades, for the establishment and constitution of Wages Boards and for other purposes connected with and incidental to the matters aforesaid. In terms of the Wages Boards Ordinance, the Minister of Labour and Labour Relations is empowered to establish a Wages Board in respect of any particular trade. Currently, there are 44 Wages Boards that have been established under the Wages Boards Ordinance. In terms of section 9 of the Wages Boards Ordinance, the Minister is empowered to appoint Employer representatives and Worker representatives engaged in such trade and nominate members in respect of every Wages Board”.
“Section 27 of the Wages Boards Ordinance makes it incumbent upon every Wages Board to take into consideration the circumstances pertaining to particular branches of the trade or particular areas and determine different rates of wages, or make such provision for workers engaged in such trades. This provision casts a huge responsibility on the part of every Wages Board member to be conversant with the issues and challenges relating to that industry or trade at any given time. On the other hand, the Commissioner General of Labour, being the Chairman of every Wages Board, must ensure that every Wages Board is properly guided and members are furnished with sufficient information of the industry before determining minimum rates of wages for that industry. This is very clearly implied by the obligation cast under section 27 of the Wages Boards Ordinance,” added the EFC.
As such, the EFC was of the opinion that the “Sri Lankan Private Sector needs a minimum wage fixation mechanism for lower categories of workers as envisaged under the Wages Boards Ordinance subject to a restructure of the composition of the Wages Boards. The Wages Boards trades need to be simplified and also widened in order to include almost all workers in industry excluding the white-collar employees. We propose that the current structure of 44 Wages Boards trades be limited to the following classification: a) Wages Board for Services trade; b) Wages Board for Manufacturing trade; c) Wages Board for Plantation trade; d) Wages Board for Hotel and Catering trade; e) Wages Board for Wholesale and Retail trade”.
Protest by workers
Difference between wage and earnings
At the same time, the EFC also recommended to “[categorise] the workers as factory/general workers – Grade 1 to 3 or classify them as unskilled, semi-skilled or skilled”. However, most important of all, the “Wages Boards should be constituted with proper representation from industry and workers. It is even more important that members nominated by. Minister of Labour and Labour Relations have a proper understanding of industry and the private sector in general. The Department of Labour must guide each Wages Board by furnishing information with regard to the different industries”.
It was also of the view that “[in] the Sri Lankan context, it is extremely important to distinguish between the ‘wage’ and ‘earnings’ of an employee. This distinction needs to be very clearly highlighted in the context of wage fixation in Sri Lanka. Over and above the basic wage that an employer grants a worker, on which superannuation benefits are paid, there are many other forms of incentives/bonuses/allowances, which are given to employees to enhance their performance/productivity. Therefore, the concept of a minimum wage in terms of the Wages Boards Ordinance cannot be considered in isolation. We need to consider other benefits, both monetary and non-monetary that are granted to employees, which form part of the total earning package”.
“For example, in the apparel industry, in addition to the basic wage, there are many other incentives that are usually granted, such as attendance bonus, production bonus, transport, subsidised meals, etc. All these have to be taken into account in terms of ascertaining an employee’s ‘earnings’. Currently, the minimum wage of a designer in the apparel industry is Rs. 10,530 plus Rs. 1,000 (BRAWA) (US$ 89 approx.) excluding the other allowances and bonuses. A machine operator in Grade 3 receives a minimum wage of Rs. 9,075 plus Rs. 1,000 (BRAWA) (US$ 78) which, once again guarantees a minimum wage of over Rs 10,000 per month. In addition, there are many other allowances, incentives and benefits granted to them. The minimum wages in several industries were increased through the respective Wages Board trades last year. In most cases, the increase was as much as 40 per cent,” added the EFC.
Meanwhile, the EFC also indicated that the “Ten Year Horizon Development Framework (Mahinda Chintana) in its labour policy clearly articulates the need to enhance productivity. Employment generation is also recognised in this policy as one of the key policy directives. A counter-productive wage policy or the fixing of a minimum wage can be detrimental to create employment opportunities. In other words, it could have a direct negative impact on employment. In the Sri Lankan context, it is extremely important to understand that employers in the private sector need to give something more than the wage in terms of incentives, bonuses, etc to ensure better efficiency and higher productivity. The most common example that can be given in this regard, which is peculiar to the Sri Lankan employment culture, is the incentive/bonus payments granted by certain employers with regard to attendance. Employees are granted payments in addition to the monthly wage simply to require them to be present at work regularly. Therefore, considering the minimum wage stipulated by law in relation to a particular Wages Board in isolation is not possible. We need to look at the total earning package of an employee in a given situation”.
Govt: Don’t intervene in wages
It also concluded that the “government must never intervene in private sector wages. The Budgetary Relief Allowance of Workers Act No.36 of 2005 has created so many anomalies that are having negative effects on staff morale and performance even today”. While also suggesting that the “public sector wage fixing mechanism should be totally restructured and aligned to modern concepts of performance management. The inability to do so has been one of the major drawbacks for the public sector, as well as for the private sector, as it creates movement of highly skilled and competent professionals from the public to the private sector and also creates impractical expectations in the minds of lower categories of workers in the private sector”.
The EFC also signalled; “The concept of a ‘living wage’ and an ‘affordable wage’ vis-à-vis the employer can be different, depending on the economic factors affecting the country. It is not reasonable to burden the employer with the responsibility of granting wages in line with cost of living increases”. It also opined, “[basic] needs of workers and their families are diverse and potentially difficult to define and measure”. Adding; “We have noticed a progressive move towards moving out of Cost of Living payments in the private sector collective bargaining agreements ever since the COL index began to change in May 2008. We do appreciate that COL and inflation do have an impact on the worker. It also has an impact on the Employer. Therefore, although it would be proper to note the increasing trends of these elements, we cannot expect wages to be increased in similar proportions. This is the fundamental issue that many people do not seem to accept”.
On the other hand, while the EFC reiterated that a “comparison of minimum wages in the regions would not be prudent as the cost of living and the economic factors affecting each country would be different to each other. However, in the South Asian contex it is clear that the Sri Lankan minimum wage in the apparel industry is higher than Bangladesh, Vietnam, and even in countries like India. Productivity is a concept that most countries have recognised in fixing legal minimum wages”.
Highlighted was in; “China, there is no separate minimum wage legislation. Gross wages have six components recognised by law. These include hourly wages, piece rate wages, bonuses, allowances, subsidies, overtime payments and the wage paid in particular cases. In addition, the law also recognises that the determination and readjustment of the standards of minimum wages should be made with reference to labour productivity. There are several minimum wage rates for different regions. In Beijing the minimum wage is 960 Yuan (US$ 165). In Shanghai, it is 1,120 Yuan and in Jiangxi between 500 to 700 Yuan”.
Also, “In India the Minimum Wages Act provides for two alternative methods for fixing of wages at the central government or State levels. In accordance with the Minimum Wages Act, the appropriate government may set minimum wage rates for scheduled employments by appointing a committee to hold inquiries. The government must consult all relevant advisory committees before revising any minimum wage rate. Minimum wage rates can also be fixed for different skills and occupations. The current national floor level minimum wage recommendation is Rs. 100 per day. Data suggests that the minimum wage rates may be lower in some regions”.
Pakistan system complicated
And, “The minimum wage system in Pakistan is somewhat complicated although it has a National Minimum wage. The minimum wage for an unskilled worker in Pakistan is Rs. 7,000 pm (US$ 66). But, as the Punjab government website states, Punjab state also fixes minimum wages that differ between industries and skills. In Bangladesh the Labour Act of 2006 sets a procedure to fixing industry minimum wages. This statute stipulates that a Wages Board should take productivity into consideration in fixing minimum wages. The minimum wage in the ready-made garment sector in Bangladesh is approximately US$ 67 per month. This wage is much less than the minimum wage in Sri Lanka applicable in the apparel industry, which is approximately US$ 78 to 89 per month”.
The EFC also showcased a number of other countries, including the Philippines, where “regional tripartite wages and productivity boards determine the minimum wage rates applicable to agriculture and non-agriculture employees in their respective regions. Minimum wages are also fixed on a tripartite basis in Argentina, Thailand and Turkey. Another striking feature in wage fixation in other countries is that a special procedure is adopted for wage fixation in the agricultural sector. For example, in the United Kingdom, a special procedure is adopted to fix minimum wages in the agricultural sector through the Agricultural Wages Board, which is a tripartite body. However, only Scotland and Northern Ireland still have such a body as the Board for England and Wales was abolished in 2013”.
About Singapore, it noted, “no minimum labour statutory wage [was] prescribed. The National Wage Council guidelines are intended to be applied by all employers and employees as defined by the Employment Act. The NWC takes into account: a) Growth in the national economy; b) Movements in the total and basic wage rates; c) Recent and anticipated national productivity levels. There are special categories exempted from the NWC which are seamen, domestic workers or any person in managerial or executive grade”.
Finally, “In Malaysia, the National Wages Consultative Council Act of 2011 empowers the National Consultative Council to advise the government on all matters relating to minimum wages. The current minimum wage is RM 900 (US $ 272). It is stated that this minimum wage, which was stipulated in 2012, is only RM 100 more than the poverty line wage in Malaysia. In Vietnam, minimum wage rates vary according to the location and nature of the employer. An employer has the right to select the method of payment of wages calculated by reference to time (hours, days, weeks or months) or on the basis of a product produced or a completed piece of work, provided that the selected method is applied for a fixed period of time and the employee is notified of the method. In the case of State employees, the minimum wage is around VND 830,000 per month (approximately US$ 41). In respect of employees in foreign owned companies/international organisations/foreign workers, it ranges between VND 1,100,000 to VND 1,550,000 per month (approximately US$ 55 to US$ 77)”.