Increasing minimum wage. Yes!, but put in place support and complimentary initiatives – Government urged

The increase in minimum wages is a positive initiative for workers as they will enjoy higher disposable incomes and thus better options and standards of living. However, it is too over ambitious to subject the same increase across all sectors as sectors differ in terms of performance and market size, observes Consumer Unity and Trust Society (CUTS) International.

Government has revised the minimum wage for domestic and general workers and shop keepers. Shop workers whose minimum entitlement was K 419, 000 has been adjusted upward to K 1, 132, 636 which will also be the minimum wage for transport officers. Shopkeeper with an upper grade who used to get 990, 000 will be entitled to K 1, 653, 938. Domestic and general workers on the other hand who were entitled to about K 250, 000 will now have a take home of about K 522, 000.
There are high possibilities that this development will be received as an incentive for unskilled and unemployed workers to find formal employment assuming that it does not suffocate business. In a situation where this works, it will lessen government’s social welfare burden as a certain level of people who are assisted on welfare projects and schemes will graduate.

However, minimum wage increases customarily have an adverse effect on employment levels for low skilled workers in sectors such as domestic help and retail business. For many average families the first response to this increased cost will be to lay off domestic workers and utilize extended family options to meet this need. This loss in employment however cannot be avoided. Government may only mitigate this loss by providing additional allowances to those in formal employment where it may be possible. Further, if the minimum wage is increased in a way that it is not commensurate with the prevailing economic situation, it can discourage employers from hiring new employees.

This prevailing climate for wages differs from sector to sector. Considering the cases of the retail and transport sectors, some large conglomerate retail outlets may afford such a wage push considering their profit margins. However, for the transport sector where an average taxi driver is currently getting approximately K500, 000 per month from a cashing of K2, 000, 000, an increase in salary to over K1 million makes his job unsustainable at prevailing transport sector prices. Therefore, Government should consider reviewing this wage increase on sector bases.

On the other hand, the retail sector may retain employees but are likely to pass on this labour cost to the consumer through hikes in prices of goods or services. The guaranteed minimum wage can represent an expense that a small business may not be able to afford. If that is the case, small businesses will attempt to downsize by laying off workers. Further, this development has the potential to double hit a certain section of society especially those in the middle income bracket. Firstly, through an increase in costs for their domestic workers and secondly, they will face higher prices on the retail front as a ripple effect of the increases in labour costs.

In view of the issues raised above, Government needs to put in place an effective and supportive system which will positively cushion the negative effects resulting from this decision. It would be beneficial for Government to review this wage increase on a sector by sector basis. It is therefore important for government to expedite the process of reducing the cost of doing business in order to mitigate the increase in labour costs to business operations and reduce this upward pressure on retail prices. This can be addressed through tax incentives or reducing the cost of other business inputs such as energy and finance.