Determining minimum wages for workers

Bangladesh should consider a law for fixation of minimum wage and establish a permanent wage board which will study productivity and skills of the workers based on expectations and economic condition and other social, political and market environments, writes M S Siddiqui Determination of wages and salary is one of the most important phases of employee-employer relationship. It differs in different economies, regions and cultures. It depends on a number of country-specific factors, such as labour market conditions and variation in workers’ productivity across occupations, industries, regions etc.

The policymakers need to reconcile two opposite kinds of considerations. There are conflicting ideas surrounding the minimum wage. A moderate minimum wage is seen playing an important role in ensuring fair wages paid and bolstering the incomes of families with low-wage workers. On the other hand, high minimum wages can destroy the jobs and have a limited impact on poverty on families having no working members. A fully enforced minimum wage to stabilise living standards do increase cost of production.

In return, lay-off and prices will rise which hinder a country’s world competitiveness. Therefore, striking a balance between optimal level of economic expansion and appropriate employment is needed while pegging standards of living. Wage needs to be high enough to secure some socially-accepted standard of living. On the other, it should not be too high in order not to price low-productivity workers out of employment.

Evidence demonstrates that such a balance can be struck if the minimum wage is set at a moderate level so that it does not cause significant employment losses, while keeping low-paid workers out of poverty. Adam Smith (1776) stated in The Wealth of Nations that labour must receive a suitable share from the benefit from his or her contribution so that he/she can live properly in the society. The minimum wage should not be thought of as an effective tool to reduce poverty as it is not well-targeted at the poor. Instead it should be viewed as a tool to ensure a more fair distribution of wages. Hence, setting the minimum wage is a delicate balancing act.

A fair calculation of minimum wages cannot be worked out unless it is based on regular, reliable and timely statistics on a variety of data items, including income, wages, prices and the characteristics of wage-earners like skills and sex. Analysis of minimum wages inevitably raises contentious theoretical, empirical and policy issues. Bangladesh has no statistics, particularly any study on productivity and skills of workers. The concept of minimum wage is expressed in the provisions of the 1928 International Labour Organisation (ILO) Convention on the minimum wage.

But this aim may be reached in different ways. The intended objectives of establishing minimum wages are to prevent the exploitation of workers by employers, to promote a fair wage structure, to provide a minimum acceptable standard of living for low-paid workers and, eventually, to alleviate poverty, especially among working families (ILO, 1992). The ILO defined minimum wage as the lowest level of remuneration permitted which in each country has the force of law and which is enforceable under threat of penal or other appropriate sanctions.

The United Nations has many conventions and declarations regarding minimum wages. Article 7 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) states remuneration must be adequate to provide workers with a decent living for themselves and their families. Article 7 of the ILO Convention No. 131 on Minimum Wage Fixing (1970) explains all signatory member- states of ILO are required to implement minimum wage mechanisms at respective national levels. Article 7 of the ILO Convention No. 131 on Minimum Wage Fixing (1970) and its accompanying Recommendation No.

135 articulates that the minimum wage should always be set above the poverty line with the intention of ensuring survival of not only the worker but also his/her family. The objective of minimum wage fixing, as set out in ILO Minimum Wage Fixing Convention, 1970(No. 131) and its accompanying Recommendation No. 135, is to give wage-earners the necessary social protection in terms of minimum permissible levels of wages. To calculate minimum wage, the following six criteria should be taken into consideration as formulated by the ILO and can be found in their Recommendation No.

135: n the needs of workers and their families; n the general level of wages in the country; n the cost of living and changes therein; n social security benefits; n the relative living standards of other social groups; and n economic factors, including the requirements of economic development, levels of productivity and the level of employment. Many individual countries still employ various criteria to determine minimum wage. These factors can be purchasing power parity, assurance of a decent living, inflation and other factors.

Usually, inflation will be the deciding factor for most countries. Another method of attaining the poverty income line (PLI) is by calculating two-third of a country’s median income. The median income is obtained by halving the country’s total income. This method is used by countries like Australia and Britain. As for example, all countries of North and South America have passed legislations which specify some type of statutory minimum wages. However, there is a wide variation in the stated objectives of such legislation.

Some examples of the explicit objectives of minimum wage legislation include the following: n guaranteeing that every employee receives a wage which provides a certain basic income and standard of living (Canada and the United States), n obtaining for the employee a fair share of national income and ‘fair participation’ in the results of economic growth (Argentina and Costa Rica). n providing a basis for the expansion of production and employment by increasing demand (Argentina, Brazil and Peru),

n increasing the productivity of employees by increasing their standards of living, health, and satisfaction (Colombia, Brazil and Peru), n serving as a transitional alternative until a more comprehensive form of wage regulation is developed (Mexico, Uruguay, Jamaica, and Trinidad and Tobago). There are at least three types of minimum wage regulating agencies in other countries. The first type of agency is consultative as in Cuba. The Ministry of Labour fixes the minimum wage after consultation with workers’ representatives.

In Canada, minimum wages which apply to workers under the federal jurisdiction are set by statute and administered directly by the Minister of Labour. A second type of minimum wage-regulating mechanism consists of a tripartite body responsible for recommending minimum wage rates to some legislative body. Puerto Rico and the Virgin Islands both have tripartite industrial committees to recommend minimum hourly wage rates. A third variant of minimum wage regulating mechanisms involves a tripartite body responsible for fixing minimum wage rates.

Each Canadian province has a single wage board presided over by a government official. These boards issue general orders which set rates applicable to the majority of workers and special orders which set higher rates for particular industries or occupations. In Argentina, a single national minimum wage is determined by law and automatically adjusted for changes in the cost-of-living index by a decision of the National Minimum Wage-Fixing Council. Another significant method of wage determination in the Americas, collective bargaining, is somewhat related to the regulatory mechanisms.

The representatives of both employers’ and workers’ organisations take an active part in the negotiations leading to the adoption and promulgation of minimum wage rates by wage boards and government authorities. The US federal minimum wage originated in the Fair Labour Standards Act (FLSA) passed on June 25, 1938. In most European countries, in contrast, an institutionalised consultation process exists where employers’ associations and trade unions are involved in minimum wage development and make recommendations to the government on the periodical increase thereof.

A particularly developed model of this second type is the Low Pay Commission in the UK: a three-party collaboration between employers’ associations, trade unions and academics that makes annual recommendations on minimum wage increases on the basis of comprehensive studies. Finally, there is the fourth type found in the Benelux countries and France, and, in recent years, in Poland. Minimum wages are index linked; the respective minimum wage level is automatically adjusted to price and/or wage growth. This indexing is normally carried out in combination with political considerations.

Today, in majority of the countries worldwide, a legally-binding minimum wage is an established method of political regulation of the labour market. Although minimum wage laws can set wages, these cannot guarantee jobs. In practice they often price low-skilled workers out of the labour market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. This means that an unskilled youth who produces Tk 10 worth of goods in an hour will have a very difficult time finding a job if he must, by law, be paid Tk 15 an hour.

There are no agreed criteria of minimum wage in Bangladesh. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) came out with a proposal and labour unions have another proposal and a think-tank Center for Policy Dialogue (CPD) suggested another proposal of minimum wages. The process is apparently a tripartite negotiation between employers, workers and the government within the wage board. The Wage Board members have decided to visit a few countries to gain knowledge on procedures of fixation of wages. This is not a new idea and is available in many documents.

The visit is questionable. They cannot submit their report before November 2013 since they will remain abroad for obtaining ‘experiences’. Bangladesh should consider a law for fixation of minimum wage and establish a permanent wage board which will study products and skills of workers. There should also be a study on demand and supply of workers, minimum requirements of workers based on expectations and economic condition and other social, political and market environments. The writer is pursuing PhD in Open University, Malaysia. [email protected] com.