Wage increase - Good or bad?
02 May 2013, 13:36
On Labor Day, the COTU Secretary General Francis Atwoli was agitating for a 30% increase in the minimum wage in the presence of the president. His argument was that in order to have a growing economy, people must have money in their pockets. That point of reasoning is correct but is it viable?
The president on his maiden speech to the workers on Labor Day ordered an increase in the minimum wage by 14%. How did he come to that figure? He neither has a Labor Secretary nor does he have secretaries in the National Treasury or Planning dockets. Whoever might have advised him most probably was acting on the sentiments of the COTU secretary general. But we are left with a big question over our heads; is this action a step towards better living standards or harsher living conditions?
Currently, the country imports a whole load of products and this creates some sort of competition among the local producers to ensure that they satisfy customers’ demands through quality products and services and favorable pricing.
An increase in the minimum wage obviously affects the industries directly and this means that the cost of production increases.
When the cost of production increases, the bearer of this increased cost is the end user who turns out to be the customer. Now, who is the customer of local products if not the very same people who earns this ‘minimum wage’?
Taxes are still high and this has been a barrier in the attempts to cut down the high commodity prices. These very taxes imposed on local producers and manufacturers is not going down any time soon since the government has a set target of raising over a billion in revenue.
With this goal, the taxman will do everything in its power to ensure taxes by corporations and individuals are remitted in full and nothing is diverted from his hands. Who will bear the burden of optimal taxation? Is it not the customers who in this case are the persons earning the minimum wage?
Minimum wage increase will push the cost of production by a certain margin. Local producers will be forced to either pass on the burden to the consumers or close shop. The main consumers of locally produced goods and services are the people earning minimum wages since the rich and wealthy individuals usually prefer to import products and services in order to suit their sophisticated demands.
When the producers and manufacturers in the industries and companies pass the cost burden to the consumers, the prices are set to increase. That is very basic economics which to my understanding doesn’t seem to have been factored when issuing the 14% increase order.
The deputy president seemed a little sober when he started off by saying that commodity prices need to come down in order to realize a reasonable living standard. He called for players in the agricultural sector to ensure that farmers are supplied with farm inputs to ensure that production is done massively and this way an increased supply of food might be realized. However, he seems to not have amicably discussed the government’s agenda in full detail with the president because economically, the two were speaking from two opposite positions.
Workers were up celebrating when the president announced the ‘remarkable’ increase. I say remarkable because it deserves a remark and not because it is a fabulous idea. The workers saw an improved living standard but what they do not know is that with the current state of affairs, their living standards might be facing down instead of the desired up. Commodities might increase in prices to cover for the increased minimum wages and this might not after all be a good thing, is it?
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