Business
Setting minimum wage good for economy
Publish Date: Feb 10, 2014
Setting minimum wage good for economy
For a backyard brewery, labour is inexpensive.
  • mail
  • img
newvision

By Paul Busharizi

THE government announcement recently that it will set a minimum wage is good news for the economy and also for the workers, but not in the way they think.

As it is now, we have a minimum wage of sh6,000 a month, which was decreed in 1984, but inflation and an increasingly higher standard of living means the number is worse than redundant.

Our workers’ unions have been pushing for a revision of this number, but the Government has argued that it is best left to individual employee-employer negotiation, fearing that if they set a number, investment in the country will become unattractive.

Both are right, but for different reasons than they think. Let us take it from the investors’ point of view. Investors like cheap labour if they are producing for a market that is not finicky about standards and one that does not consume much anyway.

In such a market, you can literally source your labour off the streets and not care about what value they are bringing to the operation other than their sweat.

Looking at the payroll, the cost of this labour may be cheap, but the attendant costs of welfare – meals, health and labour laws – change this figure dramatically.

Imagine you start a backyard brewery. For labour you can employ the children to collect water from the well, the wife to peel the matooke, and you can all jump into the canoe to stamp on the bananas until they are a nice consistent mash ready for fermentation.

Your labour is inexpensive, need not know highly specialised skills and is readily available.  The market is your neighbours, and at worst, the village drunks on market day.

Imagine you wanted to scale up this operation to supply the sub-county, the district, maybe even the nation.

For starters, your labour has to change, initially in terms of quantity, and eventually quality.

Now you will not only be peeling the odd bunch of matooke, but probably truckloads. What was a small loss occasioned by the temporary lack of focus by the wife in which she peeled off more banana than peel, becomes a much bigger deal when it happens with a few thousand bunches.

The workers, in trying to beat the system by collecting 18 litres at the well instead of the 20 litres that a full jerrycan holds, will cost you as well. And finally, ensuring quality control across 100 mashing canoes is a whole different ball game than when you could lording over the wife and kids to step some more in your single canoe operation.

And finally, you will need a more advanced skill than your seasoned tongue to ensure the standards across your product is good to ship out to market.

If the Government raises the cost of labour, your fast instinct will be to cut staff. Initially, you may cut numbers and pay the remaining workers a bit more.

But the market demands that you step up production. However, getting more staff will kill your margins, so what are you to do? Mechanise!

The one off cost of plant and machinery maybe daunting, but the running cost of these machines, which can be worked more than the stipulated eight hours a day over the life of the machine, makes more sense when viewed against the stress and cost of maintaining a workforce.

In addition, with increased production – you have to sweat the machines to pay for themselves – you will have to step up your marketing, word of mouth just will not do going into the future.

Uganda workers are the least productive in the region, and it is not because they are lazy, it is because the capital injected into their work process does not match regional standards.

Think about it; you and your family combined cannot churn out as much beer in a year as a single worker in Uganda breweries can in a week.

So, the workers will be paid better, but the kind of worker who will be required is not that who can mash banana underfoot, but one who can, using chemistry, manage the fermentation process of thousands of litres of beer.

The worker required will not be the one who can carry four crates at a go, but one who can man a forklift. The worker required will not be the one who has to grin and bear the hot sun as he sells beer in the market all day, but one who can understand the market and design marketing campaigns that will lead to greater sales.

So, yes the minimum wage is good for the economy in that it will force us to inject more capital into our processes, boost production, improve efficiencies and pay the worker better. Not just any worker off the street, but a more educated and skilled one.

pbusharizi@newvision.co.ug

Twitter @pbusharizi

The statements, comments, or opinions expressed through the use of New Vision Online are those of their respective authors, who are solely responsible for them, and do not necessarily represent the views held by the staff and management of New Vision Online.

New Vision Online reserves the right to moderate, publish or delete a post without warning or consultation with the author.Find out why we moderate comments. For any questions please contact digital@newvision.co.ug

  • mail
  • img
blog comments powered by Disqus
Also In This Section
How to widen Uganda’s tax base in a large subsistence economy
Uganda’s tax base remains small and the country is grappling with measures on how to widen the tax base in light of decreasing donor funds and pressures to finance the national budget....
UAE Exchange Uganda observed World Food Day
UAE Exchange, the leading global remittance, foreign exchange and payment solutions brand observed World Food Day on 16th October. This year the theme was Family Farming: “Feeding the world, caring for the earth”...
Nigerian cleric warns Uganda over oil curse
Rev Father Edward Obi, a leading civil society activists fighting against the effects of the oil curse in Nigeria has warned Uganda that since oil has been discovered Ugandans are not safe from the negative effects the resource brings....
Oil to spur capital markets – Nsamba
This year marks 18 years since the Capital Markets Authority (CMA) was formed....
UBOS releases Producer Price Index
THE indices for hotels and restaurants indicate that annual prices for hotel services fell by 2.5 percent during the period of April, May and June 2014, compared to the same period in 2013...
KCCA shuts down House of Eden
KAMPALA Capital City Authority (KCCA) together with Uganda National Bureau of Standards have closed House of Eden that manufactures Safi juice and Azur water for allegedly using expired raw materials...
Should the absence of bride price prevent couples from wedding?
Yes
No
Can't Say
follow us
subscribe to our news letter