I HAVE ALL THE TIME WONDERED WHETHER A MINIMUM WAGE CAN MAKE SENSE IN CURRENT UGANDA

The unemployment levels in Uganda cannot favour the enforcement of a minimum wage legislation.  What Government can do is advise on a worthy pay to employees, short of that, the employer would remain open to peace talks with a prospect employee over what the employer imagines he can afford at the end of month.  In the circumstances, enforcement of the minimum wage can only be a ritual.

William Kituuka Kiwanuka

Minimum Wage: Good Cause Or Economic Pariah?

Lauded by progressives and rejected by most economists, minimum wage laws are somewhat of a hot button topic. Does the social cause of fighting for a livable wage make up for the negative impact that economic theory states minimum wage imposes?

TUTORIAL: Economic Indicators

A Brief History
It can be beneficial to understand the origins of minimum wage laws. Federal minimum wage laws have been around for over a hundred years. New Zealand and Australia were the first countries to enact a national minimum wage, followed in the early 20th century by Britain and the United States.

In the U.S., President Franklin Roosevelt spearheaded the federal charge for the Fair Labor Standards Act (FLSA) that was passed in 1938. The law mandated a minimum 25-cent-per-hour wage, in addition to setting the maximum amount of hours most employees could work per week at 44. Interestingly enough, the Supreme Court struck down a Washington, D.C. minimum wage law in 1923. The court decided it was actually unfair to workers since they would not be able to set a value for their own labor.

Many countries have minimum wage laws, and some have historically relied on binding collective bargaining, rather than legislation. Over time, labor unions have been one of the strongest proponents of fighting for increases in the minimum wage.

Having been woven into the fabric of modern society, minimum wage impacts a large percentage of the workforce. As of early 2012, about 70% of the 1.4 million minimum wage earners in the U.S. are full-time workers, according to the Economic Policy Institute. The first U.S. minimum wage increase in over a decade was passed in 2007, raising the minimum wage from $5.25 to the current rate of $7.25 per hour. (For more on increases done by other countries, check out 7 Years Raising The Minimum Wage.)

The Case for Minimum Wage
Advocates support the minimum wage primarily because of market mechanisms that produce drastic income inequality and the social motive to help those that need it the most. Specifically, minimum wage is seen as a tool to fight poverty and provide a way for workers in low-earning jobs to have a self-sustainable standard of living.

Additionally, it is believed that a sustainable minimum wage reduces the cost of social welfare programs that might otherwise have to assist low-income workers, and that these individuals are dissuaded from potentially engaging in illegal activities (theft, selling drugs) that reduce aggregate economic progress.

It can also be argued that setting a labor wage floor also enhances work ethic, because employers demand greater productivity from employees who cost more than the market would pay for their labor in the absence of minimum wage laws. Productivity is seen as being augmented even further because some low-paying jobs are eliminated, forcing the low-income workforce to train for more skilled, higher-paying positions.

The Argument Against Minimum Wage
The moral cause for minimum wage is strong. Yet many economists believe that minimum wage mandates are actually harmful to workers. They believe that artificial wage setting prevents market mechanisms from finding equilibrium, and that influences total employment, wages and productivity.

The economics for this case is actually rather simple. By placing a floor below the equilibrium wage (the rate that would naturally be set by market forces), the supply of labor increases (more workers want the higher pay) while the demand for labor decreases (fewer employers can pay the higher rate, and so they offer less jobs). Total employment is effectively reduced.

Another argument against minimum wage is that several other inefficiencies are created, such as:

• Large businesses are able to absorb higher wage costs better than small businesses, creating an uneven playing field.
• It excludes low-skilled labor and young, inexperienced youth from joining the workforce.
• A firm's ability to weather downturns by lowering costs (e.g. labor) is marginalized.
• Inflationary pressures may increase as producers try to pass through higher costs.
• The potential for more unemployment increases governmental expenditures (welfare programs). This may increase tax rates needed to fund the additional welfare costs. Higher tax rates have their own unique economic consequences.

The net result is that potential economic activity is reduced. This disproportionately impacts low-income workers, the very same group that minimum wage laws are designed to protect. Moreover, some argue that other methods, such as the earned income tax credit, are more effective at fighting poverty. (To read more on the cases for and against minimum wage, see The Minimum Wage: Does It Matter?)

The Bottom Line
Despite the established economic theory, there is still some active debate regarding the consequences of minimum wage laws. The rate at which the minimum wage is set is another controversial aspect. Obviously, those who oppose it believe minimum wage should not be in place at all. On the other hand, proponents believe it is so low that these workers cannot earn a sustainable living.

Setting a rate that provides workers with a sustainable wage, while minimizing the impact on unemployment, requires a delicate balancing act. Key indicators used in establishing the rate include historical wage rates within the country, relevant standards of living, GDP, inflation expectations, the supply and demand for labor, labor costs and other operating costs.

At the end of the day, it is almost certainly not politically viable for minimum wage opponents to successful advocate the legislative removal of the minimum wage. The practical debate is whether the current rate should be maintained or increased. During his election campaign, President Obama pledged to fight for a minimum wage increase to $9.50 an hour by 2011, index it to inflation and increase the Earned Income Tax Credit. We can safely assume that most Republicans candidates running for President support such a measure. Where do you stand?

What is Minimum Wage?

Minimum wage is the lowest amount a worker can be legally paid for his/her work. Most countries have a nation-wide minimum wage that all workers must be paid.

President’s views

President Museveni has consistently cautioned trade unions against intimidating investors over workers’ minimum wage and unionisation. 

The President has asked the unions to encourage more investment to create more employment opportunities. 

“The MPs and trade unions should attract investors and not chase them away. Workers MPs should help me attract factories and stop those slogans of minimum wage…”

What does Vision 2040 say about job creation

Uganda has a big challenge of a labour force that is largely unemployed. Despite this huge unemployed labour force, the Ugandan economy has a big shortage of appropriately skilled workers which means that the education system has failed to tailor its outputs to the needs of the economy.

The result has been a large number of unemployed youth who are becoming a social and economic threat. The failure to match the skills needed in the economy creates a gap in the human capital which is critical for economic and social transformation.

Vision 2040 says Uganda with its low wage; natural-resource will develop labour-intensive industries, creating much needed jobs. Labour-intensive manufacturing industries not only offer the potential to absorb surplus labour from the rural subsistence sector, but the development of such industries can also pave the way through continuous upgrading to higher value added industries.

How workers benefit from the Bill Lack of a minimum wage has often resulted into a lot of exploitation of the Ugandan workers. If the Bill is passed into law, the productivity of workers is expected to increase and rural-urban migration will be checked. NOTU Chairman said the long-held argument that fixing a minimum wage would scare away investors and shrink employment opportunities for Ugandans is mere propaganda.

According to MP Rwakajara, a minimum wage commensurate with the cost of living would assist workers cope with the current difficult financial situation and go a long way to improve the general welfare of Ugandan workers and their families.

Unemployment figures

As the world celebrates Labour Day today, latest government figures on the state of unemployment and poverty in the country indicate that at least 8.4 million Ugandans are stuck in abject poverty and many remain unemployed.

Statistics from the labour department show that out of the 400,000 students who graduate from various tertiary institutions across the country each year, only 8,000 have a chance of being gainfully employed.

Figures from Finance ministry

It is estimated that about 480,000 students leave the education system per annum and some 36,000 with university degrees. It is however estimated that over two million literate youths are jobless and a further two million are underemployed. Only 20% (80,000) of the school leavers get jobs.

Workplaces

It is estimated that there are over 1,000,000 workplaces in Uganda as per the definition in this Act. The Occupational Safety and Health (Workplace Registration Fees) Rules, 2009 Statutory Instrument – S.I 2009 No 48, spells out the amount of fees to be paid by individual workplaces depending on the nature of work, level of risk they pose or the number of workers they are employing.

Occupational safety issues

The International Labour Organisation (ILO) estimates that two million women and men die as a result of occupational accidents and work-related diseases each year. In Uganda for example fire outbreaks at workplaces, collapse of buildings; road accidents have claimed a number of lives and destroyed properties worth billions of shillings.

Poor working conditions

Currently Uganda’s labour productivity is the lowest in East Africa due to poor working conditions as one of the factors identified by Social Development Sector Investment Plan II 2011/12 to 2015/16. It is also interesting to note that the value added per worker in Uganda is 68% lower than that in India and 96% lower than that in China.

Facts about the Bill

Shs10m fine 

Employer who fail to comply faces a fine of Shs10 million and hefty compensation fees to the affected workers.

Shs6,000 per month 

Uganda last set a minimum wage of Shs6,000 per month in 1984 during Milton Obote II regime. The decree has remained in force to this day.

11,000 graduate to 83% joblessness

Posted by ABDU KIYAGA

on  Tuesday, January 17  2012 at  00:00

KAMPALA

As the first batch of 11,022 students graduated at Makerere University yesterday, the hostile economic environment that offers no immediate prospects for jobs was upper most in the minds of many.

Save for years when the country was facing civil conflicts, not many graduates have emerged from the awards ceremony to a stressed economy where jobs are as depressed as this year.

International pressures that saw the global economy shrink starting from 2008 and domestic factors have conspired to create possibly the worst conditions for fresh job seekers trying to enter the market.

With down-town traders on strike and those who graduated before them but unable to find jobs, graduates wondered what the world out there holds for them. “Most of us don’t have rich parents to take us to their offices to work as their assistants so we don’t know when we will land our first jobs but we will keep trying hard because we know that it is better trying than never,” said Zaidi Tebazaalwa, who graduated with a Bachelor of Science in Zoology. He hopes to work at least as a research assistant for his first job.

While Isaac Kirabwa was more direct in his appreciation of the situation. “This is just the beginning,” he said. “And as you know Uganda’s jobs, it is always difficult to find one and when many people find it, it is always hard for them to leave such jobs leaving the young people like us to be on the streets.”

And these fears are not misplaced. The Africa Development Indicators report released by the World Bank placed youth unemployment in Uganda at 83 per cent. Youth here being people between 15 and 24 years.

Presiding over the graduation of about 3,000 students on Day One of the week-long event that will see a total of 11,000 students graduate, Makerere University Chancellor, Prof. Mondo Kagonyera, asked President Museveni to “provide a special desk to help keep on the lookout for and coordinate the funding of students’ innovations.

“Innovation is an essential component of any nation’s long-term growth strategy and any funding devoted towards helping turn these creative ideas into successful, economically-viable projects will greatly ease the current strife faced by our graduates who search for jobs for years on end,” said Prof. Kagonyera.

There are no accurate unemployment figures in Uganda but estimates indicate that only a fraction of graduates with some form of qualification get absorbed in the limited formal job market. At least 400,000 graduate each year but projects registered by the Uganda Investment Authority indicate a potential to create only 150,000 jobs annually, leaving an estimated 350,000 on the street.