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News Analysis: Egypt mulls minimum wage to appease protesters

English.news.cn   2014-01-22 22:51:11

by Marwa Yahya

CAIRO, Jan. 22 (Xinhua) -- Egypt's interim government plans to implement minimum wage regulations in an attempt to quell protesters who demand social justice and better living conditions, demands that led to the famous Jan. 25 upheaval, but some analysts said this move could harm the country's deteriorating economy.

The interim government announced it would raise public sector minimum wages from 700 to 1,200 Egyptian pounds (around 172 U.S. dollars) as of January 2014.

Many activists and economists said the figure will satisfy large segments of Egyptian workers despite still being relatively low compared to recent price hikes. Other experts said the changes will add more pressure on the economy hammered by three years of recession.

"The minimum wage is successful politically, but a failure economically," said Mohamed Salem, an economics professor at Cairo University. He describes the decision as "catastrophic," arguing it will have a negative impact on the investments, business sector companies and the state budget.

"The figure apparently will improve the conditions of the Egyptians but will cost the state budget around EGP 200 billion ( 28.7 billion U.S. dollars)," Salem told Xinhua.

In order for the government to secure the value of the minimum wages, it will be obligated to issue banknotes which could increase inflation from 20 to 30 percent, the professor said, noting that the inflation rate now stands at 12 percent. He added that the budget deficit, which currently stands at nearly 240 billion U.S. dollars, could also double.

Nevertheless, minimum wage remains a much desired change in a country where nearly 25 percent of its people live below the poverty line and spend less than 500 dollars a year. For many minimum wage is a step to ensure better living conditions for workers.

Salem argues that social justice can still be achieved through austerity policies, saying that reducing the inflation rate, facing the high prices, supporting public and private competitiveness, are better alternatives than increasing the minimum wage.

"The hike in prices will swallow salaries and lead investors to flee Egypt," Salem said, preaching against the dangers of minimum wage for businesses.

Egypt allocates EGP 172 billion for spending in the public- sector pay at a time when the country is suffering a budget gap of EGP 240 billion (34.5 billion U.S. dollars) or about 14 percent of its gross domestic product.

The new minimum wage scheme for public sector workers will cost the treasury EGP 9 billion (1.29 billion U.S. dollars) in the second half of the current fiscal year ending on June 30, according to a finance ministry statement in October.

Nearly 5.5 million employees in the governmental sector will be benefited from the new decision, according to official reports.

The government did not mention how they will fund the minimum wage. Salem said it will most likely be extracted from the underprivileged sectors by cancelling subsidies for certain commodities, or reducing subsidies on health and education sectors, or the government will impose more taxes.

According to the government decree, the maximum wage will be implemented as of Januart 2014 and its ceiling has been settled at 42,000 Egyptian pounds (nearly 6,000 U.S. dollars) per month, 35 times the minimum wage of the employees working in the public sector, but the decision excluded some professions including diplomats.

Any sudden rise in incomes concerns Salem, who says that these changes could drive inflation upwards and put pressure on the economy, given that the beneficiaries of the minimum rate have a tendency to direct all extra income towards consumption.

Abdel Rahman Khair, a member of the National Council for Wages disagrees. He said any economic outlook should consider the difficult living conditions of the majority of Egyptians.

Within the constraints of the budget deficit and the shortage of economic resources, the government should promise people reasonable minimum wages until the economy is revived, Khair told Xinhua, adding that it should control the market prices at the same time.

The interim government has postponed plan to implement minimum wage regulations pending further discussions, as business interest groups have resisted the initiative, saying it will raise unemployment, cause great losses in the revenues already suffering from the ongoing political unrest.

Editor: yan
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