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EGYPT: Minimum Wage Not Enough

Cam McGrath

CAIRO, Feb 4 2010 (IPS) - A stalemate between labour unions and business associations is preventing Egyptian authorities from setting a minimum wage that could improve the lot of millions of citizens living in poverty.

Egypt’s minimum wage has been 35 Egyptian pounds (6.50 dollars) per month since 1984. When bonuses, incentives and annual increases are included, the minimum monthly salary of government employees and public sector workers reaches 289 Egyptian pounds (53 dollars). Some private sector employees earn much less.

“Our salaries have not kept pace with inflation,” says Mohamed Bayoumi, a department store clerk who supports his family on just 300 Egyptian pounds (55 dollars) per month. “When we complain, our managers say we are lucky to have jobs.”

Studies have determined that Egypt’s minimum wage – even with all incentives and bonuses included – is too low to meet basic living expenses. Economists point to a sharp deterioration in real pay over the past two decades that has driven many families below the two dollars per day median poverty line.

“When minimum wage is related to per capita GNP (gross national product), it appears that this rate has decreased from nearly 60 percent in 1984 to 19.4 percent in 1991/92 and further to 13 percent in 2007,” a study issued last June by the Egyptian Centre for Economic Studies (ECES) concluded. “When the ratio of minimum wage to per capita GNP is compared to other countries, it appears amongst the lowest.”

Egypt’s minimum wage is just 13 percent of per capita GNP, the study said. By comparison, the rate is 26 percent in Spain, 51 percent in France and 78 percent in Turkey.

Egypt established the National Council for Wages (NCW) in 2003 to ensure that salaries are aligned with the cost of living. The council has the power to set a minimum wage, but has been rendered toothless by internal divisions and the lack of political will.

“There is a big problem in reaching a consensus on the issue,” says council member Abdel Fatah El-Gebali. “The trade unions want to set the minimum wage around 1,200 Egyptian pounds (222 dollars) per month, while business associations want a maximum of 400 Egyptian pounds (74 dollars).”

The authors of the ECES study recommended setting the minimum wage at 733.2 Egyptian pounds (136 dollars) per month. They argue that in most countries the minimum wage represents about 25 percent of per capita GNP. Their proposed wage factors in Egypt’s per capita GNP, average household size, percentage of household members employed and ratio of dependents.

Analysts say the NCW’s foot-dragging in setting a minimum wage is to the advantage of employers, who some have accused of exploiting cheap labour and weak enforcement of workers’ rights to maximise their profits.

Mohamed Hussein, a career counselor and resident of a low-income neighbourhood in Cairo, hopes the NCW will agree on a figure soon, but fears a revised minimum wage could result in higher unemployment. He says employers accustomed to cheap labour would have to decide between raising workers’ salaries and hiring off the books.

“A minimum wage will help workers in the formal sector, but it could also create a larger informal sector,” Hussein says. “Business owners will find ways to work around the law.”

Economist Samir Radwan agrees that some business owners might seek to circumvent the minimum wage to cut operating costs. But the primary employer affected, the Egyptian government, would be under close scrutiny. Over five million Egyptians work for the government, and 1.3 million in the public sector, in a population of 82 million.

Radwan says establishing a fair minimum wage would improve the lives of Egyptian workers, especially unskilled labourers and low-level civil servants.

“There is no doubt that it should improve income distribution,” he tells IPS. “If (the minimum wage is) increased, there will be an immediate impact to the lowest level of wages – the poorest of the poor. This will create a ripple effect, as the brackets above the minimum will increase as well.”

Opponents, including some of Egypt’s most prominent businessmen and economists, have charged that raising the minimum wage will create inflation. Radwan doubts that.

“Egypt’s share of wages in GNP is low, just 36 percent, and the share of those who would receive the minimum wage is not significant enough to have a dent on inflation,” he says.

“Some employers also claim it would increase the cost of production and reduce their competitiveness,” Radwan continues. “But depressing wages in the long run is counter-productive. If you increase the wage then it results in a productivity increase, one would expect, in which case the competitiveness argument does not hold.”

Rights groups are pressing for the NCW to set a minimum wage, but warn that unless accompanied by real economic reform, the mandated wage threshold will be insufficient to offset rising prices.

“Simply raising the minimum wage is not enough. It must be linked to reform of market management mechanisms, since an increase in the minimum wage could trigger a wave of inflation,” the Egyptian Organisation for Human Rights (EOHR) said in a report released last June. “What is needed is a monitoring of prices, reduction of imports, reform of agricultural policy and increased productivity.”

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