Argue what minimum wage structure is the best, compare structures for 10 countries, by Douglas Opio

Introduction and Background

There is currently no operational minimum wage in Uganda. However, the current minimum wage of 6000 Ugandan shillings was put in place in 1984 by the Government. Most recently, in 2015, the Government established a minimum wage advisory board that has been tasked to undertake studies and make proposals about a minimum wage in Uganda, for Government’s consideration. This implies that there is an urgent need to put forward various structures that could be considered for setting a minimum wage or wages in Uganda.

 

Statement of the Problem

Despite continuous pressure both local and international, Uganda has not had a new minimum wage since 1984. This has mainly been attributed to absence of credible evidence to provide guidance on the best structure that could be considered by the Government. It further strengthens the argument that research has to be undertaken in order to be able to establish a minimum wage structure that would be easy to implement in order to safeguard against low levels of compliance.

 

Objectives of the Study

  1. To analyse the minimum wage structures that exists in selected countries across the world.
  2. To propose a minimum wage structure that could be adopted by Uganda.

 

Research Method

The study is largely based on secondary data derived from the Wage Indicator Foundation database which is available on line. It has been completed through the use of additional secondary literature which are available both off and online.

 

Findings and Analysis of Minimum Wage Structures in ten selected countries

The study provides an analysis of the existing minimum wage structures in the following countries:

 

  1. Kenya

Minimum wages in Kenya was last updated on 1st May 2015 during the international Labour Day. It is expected to last for a period of two years. Minimum wages in Kenya is differentiated based on regions and occupations of the various categories of workers. It covers all skills levels of the lower category of workers, that is, unskilled, semiskilled and skilled.

 

In essence, about 77 occupations are covered by the minimum wages. A reasonable number of occupations in the agricultural sector are included in the setting of minimum wages in Kenya. According to mywage.org/Kenya, the minimum wage was raised by 12% during labour celebrations. It further points out that working hours are generally 52 per week although in reality employees work for about 45 hours per week mainly from Monday to Friday. The working hours are reduced to 5 on Saturday based on special Orders for different sectors subsidiary to the Regulations of Wages and Conditions of Employment Act, Cap 229. Minimum wages are generally set per hour, day and month so the workers are paid based on the nature of their contracts.

 

Whereas minimum wages covered a significant number of occupations in Kenya, not all occupations are covered. Minimum wages have targeted those occupations that are considered to be vulnerable to lower wages and therefore a significant proportion of such occupations apply to those who are in the informal sector economy which are often not covered through collective bargaining negotiations.

 

  1. Tanzania

In Tanzania, sector and area based minimum wages are preferred and the current minimum wages were set on the 1st of July 2013 and was expect to last for a period of three years. However, new minimum wages have not been announced and this is partly attributed to the complexities that are involved in establishing minimum wages based on sectors. Minimum wages are generally sector and area based without any due consideration to the various occupations that exist.

 

All the sectors in the economy are covered at various levels of minimum wages. According to the mywage.org/Tanzania, minimum wages are paid per hour, day (9 hours), week (45 hours or 6 days), fortnight (90 hours or 12 days) and month (234 hours or 26 days) depending on the nature of contract which is applicable. The calculation of Pay period is based on section 19 of The Employment and Labour Relations Act, 2004. Delayed revision of the minimum wages in Tanzania after the three years signifies an underlying changing with sector and area based minimum wages.

 2. Ghana

A national daily minimum wage is used in the case of Ghana and monthly minimum wage is calculated as daily minimum wage multiplied by 27 days. Therefore, one national minimum wage cuts across all sectors of the economy which implies that negotiations can be done relatively quicker. The minimum wage came into effect on the 1st January 2016 and is expected to remain in force for a period of at least one year.

 

According to http://www.wageindicator.org/main/salary/minimum-wage/ghana, the Labour Act 651 stipulates that every worker is entitled to be paid his or her remuneration and workers are eligible for up 15 working days leave with full pay in any calendar year of continuous service. In other words, an employer may not deduct a worker’s salary for the eligible leave working days that has been utilized.

3. Ethiopia

National minimum wages in Ethiopia applies basing on job types which further broken down into rank and skill level. According to http://www.wageindicator.org/main/salary/minimum-wage/ethiopia, the current minimum wages became effective on 1st January 2011 and have not been revised.   

 

4. India

Minimum wages in India are determined based on hourly, weekly and monthly rates. Consideration for minimum wages may include one all of the following issues basic rate, cost of living allowance and cash value concessions. According to http://www.wageindicator.org/main/salary/minimum-wage/india, minimum wages are reviewed twice a year in April and October. The current minimum wages became effective on the 1st April 2016 and is set to expire on the 30th of September 2016. Various states in India have different minimum wages covering several scheduled occupations ranging from 45 to over 1500 occupations.

5. Indonesia

Annual minimum wages are considered in Indonesia and the current minimum wages became effective on 1st January 2016 and it is expected to be in operation until 31st December 2016.  The minimum wage is calculated based on 40 hours week. According to http://www.wageindicator.org/main/salary/minimum-wage/indonesia, minimum wages in Indonesia are categorized by on regions which are further subdivided as districts and municipalities. Each level of administration cited above has a defined minimum wage which is based on a monthly rate.  “Formula to determine annual minimum wage increase is as follows: Previous minimum wage + previous minimum wage x (%annual inflation rate during the year+%GDP annual increase during the year)”. However, this formula applicable to eight provinces which are considered to be below government determined cost of living.

6. Guatemala

Minimum wages in Guatemala change annually and the current minimum wages became effective on 1st January 2016 and are set to run up to 31st December 2016.The minimum wages are categorized by industry which includes; agriculture, non-agricultural activities, and export activity and maquiladora. According to http://www.wageindicator.org/main/salary/minimum-wage/guatemala, minimum wages are calculated along three main dimensions, namely; daily, and monthly. However, minimum pay is also set for monthly allowances. Regular workday is 8 hours or less which is equivalent to about 44 hours per week and in any case considered up to 48 hours for the purpose of payment of wages.

7. Mexico

One of the unique cases is Mexico where minimum wages are set on a daily basis. According to http://www.wageindicator.org/main/salary/minimum-wage/mexico, with reference to the Federal Labour Law Article 83, the salary may be fixed per unit time, per unit of work, commission, lump sum or otherwise.  Minimum wages are set based on the various job types/occupation and in total, 59 occupations are covered by the minimum wages targeting mostly lower level workers in nearly all the sectors of the economy. This is complicated further by the fact that statutory minimum wages are declared on a daily basis by the government.  

8. France

The current minimum wage in France came into effect on the 1st January 2016 and is expected to last up to 31st December 2016. There is one national minimum wage which is based on hourly rate which is calculated using a 35 hour week in order to be able to arrive at the monthly rate. The national hourly minimum wage is applicable to all sectors of the economy. According to http://www.wageindicator.org/main/salary/minimum-wage/france, young people however are paid relatively lower especially those between 16 to 17 years. These facts not with standing allowances are compulsory for those with two month consecutive work experience.

9. The Netherlands

Adjustments to minimum wages in The Netherlands is done twice a year by the government and the current minimum wage became effective on the 1st July 2016 and is expected to last until 31st December 2016 with a new one set to come into force on the 1st January 2017.  Minimum wages are generally age specific ranging from 15 to 22 years, with each year forming an independent category. Employees who are 23 years or older are then grouped together with a uniform minimum wage irrespective of sector or areas of operation with variances arising from hourly, daily, weekly or yearly arrangements.

Minimum wages are categorized based on hourly, daily, weekly and yearly wages. According to http://www.wageindicator.org/main/salary/minimum-wage/netherlands, statutory minimum wages are set based on a full working week which varies from 36 to 40 hours depending on the sector. This is because working hours are usually determined through collective bargaining.  In addition, minimum pay sis also set for holiday allowances.

 

Conclusion

It is clear that minimum wages generally target lower level occupations and in cases where occupations are not considered age is an important factor that is considered although all categories of skills level are included, that is, unskilled, semiskilled and skilled. It is also evident that sector based minimum wages are preferred by majority of the countries that have been studied in comparison to a single national minimum wage cutting across all sectors of the economy. Based on the evidence from the study, 80% of the countries had sector based minimum wages or more than one minimum wage compared to only 20% with a single national minimum wage.  Findings also showed that minimum wage tend to be revised after period of between six months to three years. There is a general tendency to revise minimum wages after one to two years. 

 

Recommendations

There is need for Uganda to establish the occupations and the various categories of workers that should be considered while setting minimum wages for the country. It is clear that minimum wages generally tend to target lower level workers that are often not unionized and therefore are more susceptible to low wages given their low bargaining power.

Minimum wages are usually reviewed after a period of one to two years which gives adequate time for implementation and to ensure compliance while at the same time avoiding disrupting the normal operation of companies due to frequent changes in the wage level. Uganda should therefore consider a significant period of time for regularly reviewing the minimum wages once it is set.

Some form of categorization and/or sectors is usually considered while setting minimum wages in order to guarantee fairness. The study therefore, recommends that Uganda should considered establishing minimum wages that take into account the diversity of its workers and employers especially considering the variations in sectoral wages.