Minimum Wages Series: Part 2
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National Minimum Wage v Sectoral Minimum Wage
A system based on sector collective bargaining wage has the advantage of reflecting the payment capacity of most employers across their respective sectors. This also minimises cases of non-payment of wages and wage related disputes. Some however would argue that the system may prove to be more difficult to monitor and enforce from a central point.
The more the complex a minimum wage system is, and the sectoral, occupational and geographical rates it involves, the more difficult it is to monitor, particularly in countries where the labour administration services have very limited resources. This is opposed to the national minimum wage which can be easily monitored due to uniformity across all sectors.
Recently in Zimbabwe there have been various attacks on the constitutionality and conduct of NECs by some employers. They argued that the compulsory paying of levies imposed upon them infringes their right to freedom of association. Cases of Econet Wireless Zimbawe, NetOne Cellular Private Limited and Harare Municipality are some of the outstanding cases in this regard.
This might be just but a glimpse of the inefficiency of the wage determination at Sectoral level. The Government has nevertheless maintained that NECs are not only legal bodies but they are also necessary in the labour market for the setting of minimum standards within workplaces.
On the other hand, fixing of minimum wages at national level might prove to be disadvantageous to some employers as their capacity to pay might be less than the gazetted wage. This inevitably results in massive retrenchments and high unemployment.
Though, minimum wages are set up to promote equity and reduce poverty among workers, a balance has to be struck in order to save jobs. Extreme caution has to be taken since unrealistically high wages may actually promote high levels of poverty within an economy and thus defeating its whole purpose.
Critics to this school of thought argue that by setting higher minimum wages, there will be increased disposable income in the economy and hence an upsurge in the demand for goods leading to economic growth.
Minimum wages set at the national level may result in a very rigid labour market which is out of touch with current economic realities. Adjustments in the national minimum wage would be characterised by bureaucracy and delays as wide consultations to all stakeholders are time consuming. In contrast, sectoral fixing of minimum wages allows for time to time adjustments of wages, taking into account fluctuations in the cost of living and the economic situation.
As a result of rigidities, an economy becomes less competitive especially in the eyes of potential foreign investors.
In addition, given the Zimbabwean context where wages are currently set at sectoral level, coming up with a ‘one size fits all’ type of minimum wage would prejudice the employees whose sectors are already offering a minimum wage above the gazetted wage.
This scenario would still be welcomed by those who would be earning below the gazetted wage though there is an unavoidable risk of massive retrenchments and company closures in such sectors. It is clear that the national minimum wage does not have the capacity to reflect differences in sectors’ productivity.
Assuming that the country desires to set a national minimum wage, the greatest challenge would be to come up with an amount that ensures better living standards whilst guarding against the possibility of massive job retrenchments, delays in wage payments and company closures among other things. The major question would be, “What would be the benchmark from which the wage would be derived?”
In Zimbabwe, the collective bargaining process is benchmarked to some extent by the Poverty Datum Line (PDL).
The PDL basically denotes the cost of a given standard of living which must be attained if a person or household is deemed not to be poor. Contention always arises between the employers’ and workers’ Organisation about the components of the PDL.
Workers Organisations argue that the wages should be equivalent to the PDL of a five member household whereas the Employers uphold that in modern families there are usually two or more income earners hence the need to divide the PDL by at least two or rather to use per capita PDL in order to reach at the minimum wage.
Productivity Based Wages
Economic experts advocate for minimum wages set based on the productivity of the individual firms and employees. Productivity based wages allow for realistic wages that reflect the payment capacity of the individual firm hence ensuring growth.
Economic theory has it that, the cost of hiring an additional employee should be equal to the additional revenue which that worker contributes to the organisation. If the cost of hiring an additional worker is greater than the additional revenue, then the firm will has to either lay off some of the workers or reduce the wage rate.
Productivity based wages are especially feasible in Zimbabwe given the harsh economic environment prevailing. The July 17 chaos served to expose the complexity of the trap employers were caught up in as a result of the rigidity of labour laws particularly on retrenchment.
The current productivity levels within the firms are very low due to a number of factors chief among them according to employers being the labour laws. Efforts are in place to ameliorate the situation in the labour market and the Labour amendment act no 5 of 2015 is a notable stride towards this end.
Wages should therefore be adjusted accordingly in order to match the reality obtaining in the economy. Restoration of competitiveness of the local products is anchored on improved productivity within the economy.
National Minimum Wage v Sectoral Minimum Wage
The more the complex a minimum wage system is, and the sectoral, occupational and geographical rates it involves, the more difficult it is to monitor, particularly in countries where the labour administration services have very limited resources. This is opposed to the national minimum wage which can be easily monitored due to uniformity across all sectors.
Recently in Zimbabwe there have been various attacks on the constitutionality and conduct of NECs by some employers. They argued that the compulsory paying of levies imposed upon them infringes their right to freedom of association. Cases of Econet Wireless Zimbawe, NetOne Cellular Private Limited and Harare Municipality are some of the outstanding cases in this regard.
This might be just but a glimpse of the inefficiency of the wage determination at Sectoral level. The Government has nevertheless maintained that NECs are not only legal bodies but they are also necessary in the labour market for the setting of minimum standards within workplaces.
On the other hand, fixing of minimum wages at national level might prove to be disadvantageous to some employers as their capacity to pay might be less than the gazetted wage. This inevitably results in massive retrenchments and high unemployment.
Though, minimum wages are set up to promote equity and reduce poverty among workers, a balance has to be struck in order to save jobs. Extreme caution has to be taken since unrealistically high wages may actually promote high levels of poverty within an economy and thus defeating its whole purpose.
Critics to this school of thought argue that by setting higher minimum wages, there will be increased disposable income in the economy and hence an upsurge in the demand for goods leading to economic growth.
Minimum wages set at the national level may result in a very rigid labour market which is out of touch with current economic realities. Adjustments in the national minimum wage would be characterised by bureaucracy and delays as wide consultations to all stakeholders are time consuming. In contrast, sectoral fixing of minimum wages allows for time to time adjustments of wages, taking into account fluctuations in the cost of living and the economic situation.
As a result of rigidities, an economy becomes less competitive especially in the eyes of potential foreign investors.
In addition, given the Zimbabwean context where wages are currently set at sectoral level, coming up with a ‘one size fits all’ type of minimum wage would prejudice the employees whose sectors are already offering a minimum wage above the gazetted wage.
This scenario would still be welcomed by those who would be earning below the gazetted wage though there is an unavoidable risk of massive retrenchments and company closures in such sectors. It is clear that the national minimum wage does not have the capacity to reflect differences in sectors’ productivity.
Assuming that the country desires to set a national minimum wage, the greatest challenge would be to come up with an amount that ensures better living standards whilst guarding against the possibility of massive job retrenchments, delays in wage payments and company closures among other things. The major question would be, “What would be the benchmark from which the wage would be derived?”
In Zimbabwe, the collective bargaining process is benchmarked to some extent by the Poverty Datum Line (PDL).
The PDL basically denotes the cost of a given standard of living which must be attained if a person or household is deemed not to be poor. Contention always arises between the employers’ and workers’ Organisation about the components of the PDL.
Workers Organisations argue that the wages should be equivalent to the PDL of a five member household whereas the Employers uphold that in modern families there are usually two or more income earners hence the need to divide the PDL by at least two or rather to use per capita PDL in order to reach at the minimum wage.
Productivity Based Wages
Economic experts advocate for minimum wages set based on the productivity of the individual firms and employees. Productivity based wages allow for realistic wages that reflect the payment capacity of the individual firm hence ensuring growth.
Economic theory has it that, the cost of hiring an additional employee should be equal to the additional revenue which that worker contributes to the organisation. If the cost of hiring an additional worker is greater than the additional revenue, then the firm will has to either lay off some of the workers or reduce the wage rate.
Productivity based wages are especially feasible in Zimbabwe given the harsh economic environment prevailing. The July 17 chaos served to expose the complexity of the trap employers were caught up in as a result of the rigidity of labour laws particularly on retrenchment.
The current productivity levels within the firms are very low due to a number of factors chief among them according to employers being the labour laws. Efforts are in place to ameliorate the situation in the labour market and the Labour amendment act no 5 of 2015 is a notable stride towards this end.
Wages should therefore be adjusted accordingly in order to match the reality obtaining in the economy. Restoration of competitiveness of the local products is anchored on improved productivity within the economy.
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PRODUCTIVITY