Minimum wage legislation: A politician’s magic wand for vote bank?

Such limits end up hurting unskilled workers, studies show.

KARACHI:

Amidst the clamour against shrinking paycheques and rising costs of living, one assumes yet another hike in the minimum wage is on the cards in the upcoming provincial budgets.

Minimum wages have seen consistent increases over the last many years. Rather than its economic impact, the customary increase in the minimum wage every year appears to have more to do with politicians’ tendency to outdo each other in making empty promises to the workers.

After the devolution of the subject of labour in 2010, each province now sets its own minimum wage for the unskilled labour. It is Rs10,000 a month in Sindh, Punjab and Khyber-Pakhtunkhwa and Rs9,000 a month in the case of Balochistan.

Although most nations around the world have instituted some kind of minimum wage, a large number of studies show such limits end up hurting the same unskilled workers in whose name populist politicians try to regulate the job market.

Instead of helping the poor, most conservative economists believe, minimum wage laws actually increase joblessness among unskilled people. The reason is simple: if you make it difficult for employers to hire unskilled people, they will simply hire fewer of them.

Considering the official per-capita income figure for 2012-13, a typical Pakistani worker, regardless of their skillset or education level, makes on average a little less than Rs11,000 per month. This means that our overzealous politicians expect every employer in the country to pay each unskilled worker an amount that is almost equal to the national per-capita income.

Resultantly, employers shy away from hiring unskilled people in the first place, thus permanently shutting the door on their upward social mobility.

Hence, a high proportion of unskilled people remain out of the documented economy for good because they never get the first chance to get their foot in the door and learn any kind of marketable skill. Consequently, the unskilled worker remains either under-/unemployed or becomes part of the undocumented economy.

So instead of finding a menial job at, for example, a properly audited textile mill offering some kind of basic insurance, annual paid leaves and opportunities to enhance skills and income in the long run, an unskilled female worker ends up in a dead-end ‘job’  of a housemaid that offers little prospects of growth.

Another point to note here is that the minimum wage of Rs10,000 per month applies to unskilled workers only. But someone who is even remotely aware of the prevailing conditions in the job market knows well that the average monthly salary of fresh graduates in many sectors of the economy is not significantly higher than the current minimum wage for unskilled workers. The job market is so competitive for new entrants that most commerce graduates today find it difficult to get starter jobs that pay more than Rs10,000 a month.

Restricting the number of starter jobs by imposing idealistic minimum wage conditions not only reduces employment opportunities for low-skilled young men and women, but also reinforces racist attitudes in society. Empirical evidence suggests that minimum wage laws in the richest country of the world have hurt minorities the most by making it harder for them to get a foothold in the economy, according to Forbes Media CEO Steve Forbes.

In his latest book, Forbes cites unemployment data since 1930, which suggests young African-Americans have been the worst victims of minimum wage laws that have reduced the overall number of jobs available to the lowest-skilled workers.

Thanks to the misplaced belief of politicians that the job market acts as per their fancy ideas, low-skilled members of Pakistan’s ethnic and religious minorities have fewer chances of getting started in the documented economy.

The idea that people sitting in the legislature can dictate minimum wages in an economy without causing inadvertent consequences is unfounded. It is people’s needs – and not whims of politicians – that determine the wage level in a job market.

Published in The Express Tribune, May 5^th, 2014.

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