As part of its pursuit of social justice, Egypt's interim government has decided to set a minimum wage of LE1,200 a month. Last week, Prime Minister Hazem Al-Beblawi announced at a press conference that the cabinet's decision on the minimum wage would be implemented starting in January 2014. Public-sector minimum wages would increase from LE700 to LE1,200 next year, he said. However, the decision has been disparaged by many economists, activists and members of the business community. While many deem the figure as being still too low, business groups frown upon it as an extra burden, saying that the decision will be impossible to implement under current economic conditions. Some fear that the already sluggish economy, still staggering from the effect of three years of recession, may be further hindered by added financial pressures on the private sector. Many businesses have resisted the imposition of a minimum wage on the private sector, arguing that it does not take into account the negative impact of this on the labour market and saying that it will ultimately raise unemployment. They have called upon the government to tie wages to production, the number of working hours and standards of living in governorates across Egypt, in addition to considering the differences in wages between jobs and professions. Since discussions in the National Wages Council (NWC) have not reached agreement on a specific figure for the minimum wage or the means to apply the decision in the private sector, this decision has been postponed pending further discussion within the business community. The decision, however, was commended by other figures, although social rights activists expressed concerns about it. Minister of Social Solidarity Ahmed Boraei stated that the cabinet was meeting the revolutionary demands for social justice and human dignity by setting the minimum wage. Minister of Manpower Kamal Abu Eita said that the figure was the maximum that could be set given the difficult economic circumstances. He added that a decision has been made to restructure salary increments as a whole based on experience, proficiency and training. Egypt's current budget allots LE172 billion for spending on public-sector pay, at a time when the country is suffering from a budget gap of LE240 billion, or about 14 per cent of GDP. Fatma Ramadan, a member of the Egyptian Federation of Independent Trade Unions' executive office, said that “the wage system as a whole needs to be improved. We need to set a minimum basic salary in comparison to a variable salary,” adding that the new minimum would not necessarily improve wages. “Employers consistently reduce the basic wage and increase variable payments, such as allowances and bonuses. The basic wage only constitutes about 22 per cent of the gross salary in some cases,” she said. “The aim of setting a minimum wage is to achieve a balance between wages and prices that will ensure a dignified life for workers.” According to official data, the number of employees in the public sector increased by two per cent in 2012/13, to reach 5.545 million, compared to 5.439 million one year earlier. 71 per cent of Egypt's total labour force, or 27 million, works in the private sector. The data also says that a quarter of Egyptians are living in poverty and defines poverty by per head expenditure of below LE3,076 annually, or LE265 per month. Ramadan described the new decision as “vague”, saying that it was merely an announcement and was not backed by a law that would also guarantee an increase in pensions. No mention had been made of the resources to be used in funding the minimum wage. “Will they be extracted from the underprivileged sectors by cancelling subsidies for certain commodities, or reducing expenditure on health and education,” she asked. “Or will the government impose more taxes?” Both a maximum and a minimum wage are means by which wealth can be redistributed within a society. Advocates argue that a maximum wage could limit inflationary pressures within the economy, similar to the way a minimum wage could limit deflation. If these theories are true, implementing both could achieve an economy with wages that would not rise or fall too precipitately. In 2011, the then prime minister Kamal Al-Ganzouri set the minimum wage at LE700 a month, including bonuses and stipends, benefiting 1.9 million employees at a cost of LE7 billion. The commander-in-chief of the Armed Forces at the time, Field Marshal Hussein Tantawi, issued a decree, published in the Official Gazette, that stated that the maximum income of an employee within a state authority could not be more than 35 times the income of another employee within the same authority. This was supposed to be put into effect on 1 January, 2012, but was delayed. In 2010, the NWC set the minimum monthly wage at LE400, and at the same time the Egyptian Centre for Economic and Social Rights (ECESR), an NGO, launched a campaign promoting the establishment of a minimum monthly wage of LE1,200. This figure was based on the ECESR's calculation of the daily cost of a worker supporting a family of four on $2 per day for a month, the World Bank's definition of moderate poverty. As the government has not imposed a maximum wage rate, economists now worry that any sudden rise in incomes could drive inflation upwards and put pressure on the economy, given that the beneficiaries of the minimum rate have a tendency to direct all extra income towards consumption. Prices may therefore hike on expectations of higher purchasing power. Annual inflation had declined to 9.7 per cent by the end of August 2013, driven by a slight rise in the value of the Egyptian pound against the dollar. Economist Abdel-Khaleq Farouk criticised the minimum wage decision. “The decision is inane. It is not a serious decision that can be implemented,” he said. “It is deception on the part of the government to try to gain public opinion, and at the same time to avoid a split among its members, as some had been threatening to resign if such a decision wasn't taken.” He added that the decision involved a number of traps, mainly because it had been postponed in terms of implementation until January of next year. “By January, the interim government may not be in power. It is basically throwing the ball into the court of the next government.” However, even assuming the good intentions of the interim government, Farouk, an expert on public administration and a former member of the NWC, said that almost 70 per cent of public sector employees already received the specified figure of LE1,200 per month, apart from around 30 per cent of employees in local administration. Increasing their salaries to reach the minimum wage would cost the treasury around LE400-500 million per month, or about LE3 billion a year, from January 2014 until the end of the fiscal year on 30 June. Such a decision would upset the government apparatus, he said. “As the minimum wage will be applied to all workers, regardless of seniority on the same grade, people who have been working for seven or eight years will receive the same amount as the newly appointed,” he added. Farouk said that if the government had been serious about implementing such a decision it should have considered restructuring the public-sector payment scales and financial gradients. The government had not put a cap on the maximum wage, pointing to a certain bias on its part, he said. Farouk said that the decision was not viable because it failed to explain how the minimum wage would be financed in the deficit crisis. “We don't know the real cost of implementing such a decision,” he added. He criticised the fact that some members of the NWC, who represent business groups, have been resisting a minimum wage, arguing that it would increase their costs. “They are dodging the minimum wage as it will cut their profit margins,” he said. Some industries, such as cement and steel, were making 200 per cent profits. “Cutting 20 per cent off this enormous profit margin to improve workers' wages would not hurt. But the authorities are weak. The government does not monitor the industrial sector to evaluate the actual costs of production, and it does not know real profit margins.” For her part, Ramadan said that in order to find a proper figure for the minimum wage, which she estimates at not less than LE2,000, studies should be conducted and the real figure of inflation revealed. “Salaries ought to be linked to a basket of commodities. And the maximum wage should only exceed the minimum by 15 to 20 times,” she said.
