Minimum wage will create more jobs and spur growth

May 04, 2016

In June 2014, the then state minister for labour Mwesigwa Rukutana told the International Labour Organisation (ILO) Conference in Geneva, Switzerland, that come July 2015, Uganda would have minimum wage.


By Davis Akampurira

The debate of Uganda adopting a minimum wage policy for workers has lingered on for long and it seems it may only end at that; debating and nothing done as far as legislation and implementation is concerned. Uganda last set a minimum wage of sh6,000 per month in 1984 which has remained in force to this day.

In June 2014, the then state minister for labour Mwesigwa Rukutana told the International Labour Organisation (ILO) Conference in Geneva, Switzerland, that come July 2015, Uganda would have minimum wage. The Government followed Rukutana's statement with the creation of the Minimum Wage Advisory Board whose immediate role was to undertake a comprehensive study on the wage trends of the different sectors of the economy, by analysing employment rates, cost of living, wage trends by profession and geographical regions.

Rukutana's argument at the time was that fixing a minimum wage without regard to all the above factors may destabilise our macro-economic framework and economic employment trends. However, much as this argument holds true to a large extent, the delay to fix a minimum wage policy has left workers to suffer untold abuse and exploitation by capitalist employers which goes against international labour laws and standards.

It is worth noting that in 1995, government instituted the minimum wage advisory council which recommended sh75,000 minimum monthly wage for unskilled workers which has never been implemented.

On the other hand, the unions have for long been pushing government to fix minimum wage at sh250,000 to protect workers from exploitation, a suggestion which faced stiff resistance from some officials in government who would argue that government wouldn't rush into creating minimum wage but would rather focus on attracting more investors to create more job opportunities.

Article 23 of the Universal Declaration of Human Rights affirms that "everyone has a right to work, to free choice of employment, to just and favourable conditions of work and protection against unemployment." It further states that everyone without any discrimination has a right to equal pay for equal work.

The argument that fixing minimum wage for workers could "scare away investors" and in turn lead to fewer jobs doesn't hold water. The idea that higher minimum wages lead to fewer jobs has been decisively discredited.

In 2006, more than 650 US economists said that increasing the minimum wage would significantly improve the lives of low-income workers and their families "without the adverse effects that critics have claimed". The UK Low Pay Commission has said its research finds no evidence that minimum wages damage the economy or jobs. Brazil saw the creation of 17 million formal-sector jobs from 2002-11 coincide with large real increases in minimum wages. More remarkably, Uruguay increased its minimum wage from $100 in 2003 to $500 this year and unemployment is now at historically low levels. South Africa's Development Policy Research Unit found that between 2001 and 2007, after the introduction of higher minimum wages through sectoral determinations, despite lost farm jobs, net employment in the affected sector increased by more than 650,000 jobs.

It is clear there is no mechanical relationship between employment and wages. Employment performance is explained by various economic factors. Sectoral conditions, industrial strategy, and trade dynamics, among others, play a key role in determining how any sector performs.

Therefore, wage policy must be combined with appropriate macro and sectoral policies to have the desired employment effect.

One fundamental aspect though is that Uganda stands to heavily benefit from the minimum wage policy if it's enacted and implemented. Minimum wage creates incentives for greater output per capita in terms of productivity which in turn spurs growth. Some of us don't buy into the argument that investors would flee once we adopt the policy. How come investors haven't fled from Rwanda or Kenya which have minimum wage?

Brazil has a profound success story with regards to minimum wage policy. I quote the former Brazilian president Luiz da Silva: "Once we put money in the hands of the poor, they started buying goods, more of which needed to be produce…When workers and the poor started spending, the giant wheels of the Brazilian economy started turning."

As a matter of fact, Brazil's Gross Domestic Product rose from -0.5 per cent in 2003 to 9.1 per cent in 2010 owing to adoption of a minimum wage policy since it fuels domestic demand.

President Yoweri Museveni is solidly focused on increasing jobs as opposed to increasing incomes through minimum wage. While presiding over this year's International Labour day celebrations held in Hoima District, the President informed the gathering that the NRM jobs creation plan is through modernising four major sectors; Agriculture, Industrialisation, ICT, and the Services sectors.

We learn from the President that to-date 3,100 factories have been built, employing over 500,000 people. In the hospitality sector, the President said that about 3,475 hotels have been built employing over 600,000 Ugandans. And this excludes other sectors like transport, banking, etc. This is positive development as far as employment creation is concerned, but this needs to be matched by empowering the workers and protecting them against exploitation through minimum wage.

Assuming all the people employed in the above mentioned sectors had their pay fixed at the proposed bare minimum of sh250,000 by the unionists, this would go a long way in impacting on purchasing power, production, revenue generation, standards of living, etc, all of which would spur tremendous growth of the economy.

The writer is Team Leader African Leadership Forum

davisakampurira2014@gmail.com

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