Minimum wage debate draws mixed reactions from economists

Kampala. As Ugandan workers wait for the minimum wage, some economic think-tanks have poked holes in the struggle, saying this may not be the most important challenge the country is facing.

A minimum wage is a standard benchmark below which an employer is expected to pay workers to ensure fair return. A minimum wage objective protects those employees who are not under unions and cannot negotiate for better terms and conditions with their employers.

Currently, the new minimum wage Advisory Board, which was appointed by government last year, is expected to deliver its final report to the Labour minister and later to Cabinet with recommendations on whether Uganda should set up a minimum wage or not.

In his analysis, associate professor and senior economist at College of Business and Management Sciences at Makerere University, Mr Asuman Gulooba, shares: “…in regards to the current development challenges, a minimum wage may not be the most important challenge that Uganda needs.”

Poor population
Mr Gulooba justifying his thoughts as to why a minimum wage is not Uganda’s biggest challenge said a large number of Ugandans are working but they are very poor.

Further, he said most of these poor people are concentrated mainly in agriculture which is largely the informal sector and are self-employed.

“This means that all the above category of people mentioned may not be affected by a minimum wage. What is known is that 71 per cent of Ugandans are in agriculture, and out of these who are employed about 17 per cent are poor,” Mr Gulooba said.

He added that if you look at the youth, close to 47.4 per cent are actually earning a wage but when you closely look at the 71 per cent employed in agriculture are in the informal sector and a minimum wage will not affect them.
His further analysis shows that 79 per cent of Ugandans working are either working for themselves or contributing to a family business.

“This means that those who earn a wage are working for themselves. This means however rosy a minimum wage will be, it doesn’t affect them,” he shared.
Secondly, Gulooba notes that Uganda’s labour force is growing so fast and will remain young for a long time.

“Thirdly, when you look at the current rate in wage employment, it will not grow fast enough to accommodate the young. This means that the working poor will continue to grow. Yet Uganda’s current economy for the last six years has been growing at an average of 4.5 per cent,” he shared.
With that, the minimum wage is not the most pressing issue for the economy. The focus should now be on boosting economic growth so that the economy grows faster.

Job loss
Mr Ramathan Ggoobi, a Makerere University Business School Economic Forum expert echoes Mr Golooba’s views saying people tend to believe that the minimum wage legislation is an illustration of good and bad intensions.

“A minimum wage in Uganda should not be anchored on the economies where we have seen it work and think it will do the same here. You should first study the realities of our economy,” Mr Ggoobi shared.
He says having a minimum wage will affect the low wage earners because it will destroy jobs.

Mr Ggoobi said if, for example, government next year proposed that let the minimum wage, say among the informal employers who have about five people working on their farms, be Shs20,000 per hour.
“This will translate into about Shs400,000 per month. This will have already made it difficult for anyone to earn profits below that amount.” he analysed.

Mr Ggoobi further says there is need to appreciate that like many other policies, a minimum wage can have an effect on employment especially on the young people since Uganda predominantly has a young population.
He said: “Evidence shows that from countries where the minimum wage has been instituted, jobs of the young were destroyed more by minimum wage especially those below 30 years old.”
With technology advancements where the substitution effect is real, firms like banks can easily substitute their labour with capital using machines.

Ggoobi saya according to the International Labour Organisation, three of the world’s 10 largest employers are going to destroy 70 per cent of their jobs in the next 15 years because of technology.
“Robots and other machines have become handy. A company called Wal-Mart in the US, the third largest global employer with 2.1 million, has already destroyed 50,000 jobs in their warehouses in substitution for drones instead of people,” Ggoobi shared.