The Minimum Wage: Between legislation and implementation

Transcription

1 Palestine Economic Policy Research Institute Round Table Discussion (9) The Minimum Wage: Between legislation and implementation 2012

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3 Executive Summary Minimum Wage Date: October 21 st, 2012 On October 9, 2012, the Palestinian Cabinet ratified a recommendation brought forth by the "National Wage Committee" on the minimum wage in the Palestinian territories; thus putting one of the items of the labor law (which was released in 2000) into effect. The committee comprised five ministries representing the government, employers and trade unions (Palestine General Federation of Trade Unions, General Union of Palestine Workers, Federation of Independent & Democratic Trade Unions & Workers' Committees and Union of Universities Staff). The meetings, which were held for almost an entire year between employers and workers, did not, however, ushered a settlement of the dispute. Worker representatives insisted on a monthly minimum wage of 1,750 shekels while employers insisted on only 1,250 shekels. Consequently, the Minister of Labor made a compromising proposal: 1,450 shekels a month, 65 shekels a day and 8.5 shekels an hour. The minister set a deadline for the members of the Committee to consider the offer and respond to it in the concluding session. Thirteen members (out of fifteen) in the "National Wage Committee" consented on the recommendation of the Minister, provided it comes into effect in January 2013, so that the companies can assess their positions. Protesting against the decision, the Palestine General Federation of Trade Unions observed a sit-in outside the Cabinet headquarters. Headed by the Secretary-General of the Federation and all the members of its executive committee, the demonstration involved hundreds of workers and unemployed young people from different governorates of the West Bank. Key discussion questions Is the proposed minimum wage reasonable? On what basis can you tell? Were the Committee's management and method of operation appropriate? Why couldn't different parties reach an agreement? Would the decision lead to an increase in unemployment or in prices? What is the impact on wages and salaries of other groups? Would the Ministry of Labor and trade unions be able to apply the provisions of this decision by 2013? Are preparations and arrangements necessary for the application adequate and appropriate? Keynote speakers Dr. Ahmed Majdalani: Minister of Labor and Dr. Mohammed Ghadiya: Advisor to the Minister of Labor Mr. Husam Hijjawi: Representative of the private sector in the National Wage Committee Mr. Shaher Saad: Secretary General of Palestine General Federation of Trade Unions Mr. Haidar Ibrahim: Secretary General of the General Union of Palestine Workers Mr. Mahmoud Ziyada: Secretary General of the Federation of Independent & Democratic Trade Unions & Workers' Committees Summary of key contributions Dr. No'man Kanafani kicked off the discussion- introducing the key speakers and the topic of the background paper, which is prepared by MAS on the minimum wage. He then reviewed the most important pros (motivating consumption due to the availability of cash in the hands of the poor) and cons (killing competitiveness, especially in industries that derive their competitiveness from low wages). 1

4 With regard to setting a minimum wage, Kanafani cited two main schools: the first sets minimum wage based on the cost of essential necessities of life; the second sets it according to economic variables, such as labor productivity, wage levels and real incomes in the economy. Opting for only one of these two methods in the Palestinian territories, in light of the persisting structural distortions, is inappropriate and inefficient, Kanafani commented. The structures of production, employment and productivity in the Palestinian economy are underdeveloped, while the structure and level of cost of living resemble those reported in developed economies, he added. For the first school, which depends on the minimal level of subsistence in the calculation of the minimum wage, the international amount deemed adequate to achieve an intake of 2100 calories / a day plus clothing and shelter is $ 1.25 or $2 (purchasing power parity). In the Palestinian territories, the verge of extreme poverty for a family of 2 adults and 3 children is 1,832 shekels a month. This means that the minimum wage of extreme poverty is 9.5 shekels (192/1832), Kanafani remarked. By contrast, the second school ignores the family poverty line and average income; rather it depends on the real wages in the market; i.e. labor productivity. According to the International Labor Organization, the ratio of the minimum wage to per capita GDP during was 40% in developed countries and 60% in developing countries. In 2010, the per capita GDP in the Palestinian territories (at current prices) was 8,154 shekels a year; i.e. the minimum wage (according to the second school) is 408 shekels (680 60%). This is a very low wage and is socially and politically unacceptable. Furthermore, the second school takes median minimum wage into account when working out the minimum wage earned by most workers. The average daily wage for unskilled workers is 71.4 shekels while the daily median wage is 65.4 shekels. The majority of countries set the minimum wage at approximately 40-50% of the average wage, or about 55% of the median wage. If we apply this to the Palestinian territories, the minimum daily wage will be between 36 and 28.5 shekels- which is extremely low, Kanafani estimated. Dr. Kanafani also outlined the implications of setting a minimum wage. It would influence employment in terms of increasing consumer demand and boosting the labor supply along with a drop in investment demand and a decline in competitiveness and demand. Based on the figures that have been set in the minimum wage decision in Palestine, the minimum monthly wage of the household is 2,320 shekels on the grounds that the average number of employees in the family is 1.6 ( ), well above the level of extreme poverty (1,832 shekels) and slightly higher than the family poverty threshold (2,293 shekels). Finally, Kanafani noted that prospective beneficiaries of the Minimum Wage Act are those who receive less than 1,450 shekels a month. They represent 20% (150 thousand people) of the number of employees in the Palestinian territories (excluding those working in Israel and the settlements). Forty-seven percent of these workers live in the West Bank and more than half of them work in trade, restaurants and services. In some accounts, the median wage of workers who receive less than 1,450 shekels a month in the West Bank is about 1,083 shekels. This means that the wage of a worker who earns an amount equal to the median wage will increase by 34% when the new Act comes into force. Therefore, the application of the Minimum Wage Act will increase the wage bill by nearly 945 million shekels a year (37% of this amount will go to the West Bank workers). Minister of Labor, Ahmed Majdalani, and Mohammed Ghadiya outlined the developments and negotiations that eventually led to the agreement on setting a minimum wage. The plan involved not only formal meetings, but also intensive dialogue within trade unions, as well as give-and-take meetings between trade unions and representatives of the private sector. There were also meetings between members of the Committee. The Minister maintained that the proposed minimum wage is reasonable because it reflects a consensual value. All parties involved have taken part in setting the minimum wage and there was no place for exclusionary. The Minister revealed that the ILO approach in the measurement of the 2

5 minimum wage depending on cost, coverage and beneficiary groups in relation to the average wage has been taken into account. Two scenarios were developed by the parties, and ultimately participants reached a compromise, which has eventually given birth to the minimum wage decision. Majdalani added that we can only judge the adequacy of the decision once it is put into effect. Therefore, the Ministry of Labor, trade unions and the private sector should overcome their differences concerning the proposed value of the minimum wage and start to build an effective system for implementing the decision. This requires joint efforts of the Ministry of Labor and trade unions, as well as a commitment from the private sector and a supervisory role from in-field inspectors. Mr. Husam Hijjawi remarked that the private sector is wrongly held accountable for both extreme and relative poverty. Indeed, the government is to blame for both forms of poverty. Concerning the downsides of the minimum wage decision, Hijjawi enumerated three forms of the private sector in the Palestinian territories: large facilities that constitute only 8% of the Palestinian private sector, small businesses and medium-sized enterprises. Small businesses can not afford the minimum wage, said Hijjawi. Kindergartens, for example, employ 4000 female teachers in the northern West Bank. The application of the minimum wage in kindergartens will raise prices of services provided as a result of high operating costs. The raise of the minimum wage will increase the cost of the monthly service per student from to shekels a month. The government, then, should support small businesses by granting tax breaks and alleviate their burden. However, the private sector still believes in social dialogue, and that is why it participated in the meetings that preceded the official meetings of the National Wages Committee, said Hijjawi. Hijjawi noted that labor productivity should be given special attention. The workers should be productive and in return the employers should give them all their rights. Hijjawi said that some studies found that workers in the Arab world put in only 38% of their working hours. Therefore, it is imperative to monitor worker productivity along with controlling the private sector. The proposed minimum wage is unjust for workers, according to Mr. Shaher Saad, who also protested the low number of trade unions representatives in the Committee. The minimum wage proposed by the Palestine General Federation of Trade Unions was1,750 shekels a month,70 shekels a day and 10 shekels an hour, he said. After much controversy and pressuring the PGFTU, a sheet with these figures had been presented on October 2, However, the government decision regarding the minimum wage was released on October 9, This means that the concerned authorities did not take enough time to study the sheet submitted by the PGFTU. Mr. Saad pointed out that a minimum wage must be backed by a social protection law to safeguard affected groups. He warned that this poor minimum wage will lead to Palestinian labor migration, whether to international markets or to Israel and settlements. Mr. Haidar Ibrahim said that the General Union of Palestine Workers made a proposal of 1,600 shekels as a monthly minimum wage. For about 18 months, different parties from different governorates held meetings to discuss the issue in question. The General Union of Palestine Workers hoped that we could set the minimum monthly wage at shekels, but the issue is not about what we hope for, said Ibrahim. Ultimately, the parties agreed on a minimum monthly wage of 1,600. The government did not, however, impose the minimum wage; rather it sponsored negotiations of the National Wage Committee. Therefore, it is incumbent on all concerned parties to help in proper application of the minimum wage decision. This requires cooperation between government agencies and the private sector to develop a system of social protection, Ibrahim concluded. According to Mr. Mahmoud Ziyada, the minimum wage has pioneered future negotiations to raise the ceiling of the protection of the Palestinian workers. The minimum wage represents the 3

6 minimum legal protection that never existed before. The minimum wage spans the inequality gap between men and women, on the one hand, and reduces the gap between low-wage and middlewage earners, on the other. It also enhances the chances of collective advocacy of workers' rights and strengthens the role of the trade unions in the Palestinian territories. Around 40,000 Palestinian daily-paid workers will benefit from the minimum wage, said Ziyada. Such a minimum wage would reduce destructive competition based on more profits and less wages, replacing it with productivity and quality-based competition, he remarked. Summary of the Discussion D. Atef Alawneh, Bank of Palestine Will some enterprises whose workers earn more than the minimum wage cut their wages to 1450 shekels? Mr. Mohammed Ghadiya replied that the minimum wage will not affect high wages. For example, the Association of Banks accepted in advance any figure knowing that it will be less than the real wages of workers in banks. Mr. Azmi Abdul Rahman, the One of the disadvantages of the minimum wage is that some enterprises might discharge some workers as they will be unable to afford the new wages, which may in some cases be twice the wages they currently pay. Abdul Salam Shkheit, the Can businesses, especially small enterprises, afford the new wages? What implications does minimum wage have on employment in the OPT? Saed Khalil, Palestine Monetary Authority The minimum wage decision was ill-timed. Setting a minimum wage should be concurrent with an increase in productivity which requires liberating the restrained Palestinian economy. Aqel Abu Qare' UNDP The minimum wage would hike prices (the kindergartens example is an illustration). He asked: Does this mean that the Palestinian consumer will have to bear the consequences of the application of the minimum wage in the Palestinian territories? Mr. Shaher Saad replied that the kindergartens sector employs about 3,700 workers, and thus it is very small in relation to the total labor force in Palestine. Ghadiya commented that the minimum wage will naturally trigger differences since it involves parties with conflicting interests. The government is fully aware of the risks that may arise when the decision comes into effect; yet every decision has both pros and cons. Ghadiya believes that this is the right time to set a minimum wage. "We cannot wait until we win our independence," he said. The decision came to regulate the rights of at least 150,000 workers, he noted. With regard to the impact of the minimum wage on prices, Hijjawi noted that prices are expected to swell once. The private sector brought forth a request before the government proposing a gradual raise of salaries, said Hijjawi. The concerned parties have agreed on conducting a study to assess the effects of the minimum wage after one year of application, he added. D. Samir Abdullah Abdullah voiced concern over the losses that might exceed NIS 945 million once the minimum wage is applied. This will quite likely disproportionately affect the monthly salaries higher than 1450 shekels, so that the largest increase will be found in salaries closer to that figure. It might also to affect the private sector, since some enterprises (finding themselves unable to afford the new wages) will be forced to go out of business. 4

7 Recommendations The government's decision to set a minimum wage in the Palestinian territories is a very important step in establishing a national dialogue between the concerned authorities in order to protect the rights of low-income earners. However, many downsides are expected, particularly in prices and employment. After a year of starting its application, the results of implementing the minimum wage must be assessed so as to come up with recommendations to improve efforts exerted to secure the rights of workers in the Palestinian territories, especially low-wage earners. The minimum wage in the Palestinian territories should be concurrent with a social protection program to institutionalize workers' rights. The application of the minimum wage requires joint efforts of all concerned parties, especially the private sector. 5

8 The Minimum Wage: Between legislation and implementation Date: October 21 st, 2012 Name Fathi Barqawi Shehada Husein Manuel Abdul-Aal Adnan Abu Hummus Suha Kanaan Fida' Tawam Aql Abu Qare' Ashraf Katkat Qais Arafat Bahjat Eid Khaled Motawi' Dr. Hazem Shinnar Mohammed Abdullah Husam Hijjawi Khaled Awartani Haidar Ibrahim Tatiana Khateeb Dr. Ahmed Majdalani Ibrahim Abu Kamesh Azmi Abdul Rahman Obaida Salah Ibrahim Hantash Adnan Abdul Jawad Phillip Khouri Mahmoud Ziyada Stephanie Kirst Hannah Peters Ahmed Abbas Nasreen Taher Jameel Taher Abdul Salam Shkheit Khaled Taweel Haidar Abu Ghosh Shaher Saad Majida Salem Dr. Saed Khalil Ibrahim Zwayib Dr. Atef Alawneh Dr. Mohammed Ghadiya Institution Ajyal Palestine Monetary Authority General Union of Palestine Workers PADICO PCBS PCBS UNDP MAAN Network Palestine General Federation of Trade Unions UNRWA- Gaza Palestine TV Al-Quds.com Representative of the private sector in the Wage Committee Arab Islamic Bank General Union of Palestine Workers MNE Alhaya Aljadeeda National Spatial Plan MAS Ministry of Finance MAS Federation of Independent & Democratic Trade Unions & Workers' Committees FES FES Ministry of Planning and Administrative Development Palestinian Investment Fund Palestinian Medical Relief Society Palestine General Federation of Trade Unions Birzeit University Palestine Monetary Authority Palestine General Federation of Trade Unions Bank of Palestine 6