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Update of Living Wage and Actual Wages of Tea Workers in Malawi Prepared by: Levison Chiwaula, Richard Anker & Martha Anker February 2020
Update of Living Wage and Actual Wages of Tea Workersin Malawi
Prepared by: Levison Chiwaula, Richard Anker & Martha AnkerFebruary 2020
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Chapter 1. Introduction
Chapter 2. Conclusions of previous reports
Chapter 3. Macroeconomic environment
Chapter 4. Updating the living wage
Chapter 5. Trends in TAML basic wagesSection 1 | TAML wages and minimum wages Section 2 | TAML basic wages in United States dollars
Chapter 6. Measuring prevailing wages of A1 tea workers
Section 1 | Payroll data6.1.1 Changes in wage data available to the Wages Committee and prevailing wage estimates since 20146.1.2 Improvement to prevailing wages data available to Wages Committee for 20196.1.3 Data cleaning6.1.4 Number of days worked and number of workers per pay period
Section 2 | In kind benefits
Section 3 | Calculating prevailing wage for Aug. 2018 to Jul. 2019 and Oct. 2019 6.3.1 Calculating prevailing wages for Aug. 2018 to Jul. 20196.3.2 Calculating average prevailing wage for Oct. 2019
Section 4 | Projected average prevailing wage for A1 workers in Oct. 2019
Section 5 | Wage ladder
Section 6 | Trends in the gap between living wage and tea wages
Section 7 | Income taxes
Chapter 7. Summary and conclusions
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Contents
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This report aims at establishing the size of the gap between the living wage and the actual wages of A1 tea estate workers in Malawi.
This is achieved by comparing the living wage updated to 2019 and the estimated actual wages of A1 tea estate workers (A1 workers are the lowest paid category and make up the majority of production workers on tea estates in Malawi). When calculating actual wages, this report uses the full wage package received by A1 tea workers that includes the TAML basic wage, cash bonuses, cash allowances, and in-kind benefits.
Over time, there have been improvements in quality of data available to the Wages Committee. This report uses payroll data and financial records on the cost of in-kind benefits to tea estates from August 2018 to July 2019 that were supplied by two large tea estates. The analysis calculates average prevailing wages for A1 tea workers over a period of 12 months as well as prevailing wages as of October 2019.
Chapter 1.
Introduction
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Before discussing progress in the past year, it is worthwhile to recap conclusions of Wages Committee Progress Reports for 2017 and 2018.
The 2017 Wages Committee Progress Report concluded that:• Considerable progress had been made by the Malawi Tea
2020 Program in closing the gap to a living wage in the Malawi tea industry.
• Despite this progress, there remained a long way to go to achieving a living wage for tea workers in Malawi.
• High inflation in rural Malawi posed a major problem hindering progress toward payment of a living wage since inflation continuously reduces the purchasing power of wages and so increases the living wage in Kwacha.
• Income tax was becoming increasingly important for tea workers and so was an increasingly important impediment to achieving payment of a living wage in the Malawi tea industry.
• TAML basic wage was much higher than the rural minimum wage.
The 2018 Wages Committee Progress Report concluded that: • The increase in tea wages relative to the living wage
plateaued in the past year.
• High inflation in rural Malawi continued to pose a major problem hindering progress toward payment of a living wage since inflation continuously reduces the purchasing power of wages and so increases the living wage in Kwacha.
• However, owing to the stability of the USD/MK exchange rate in the 2017/2018 period, tea wages expressed in USD increased.
• The TAML basic wage continued to remain considerably higher than the rural minimum wage, and the gap between the TAML basic wage and rural minimum wage increased considerably in the past year.
Chapter 2.
Conclusions of previous reports
Having discussed conclusions from Wages Committee Prog-ress Reports for 2017 and 2018, we now turn to the challenges that tea workers experienced in the past 12 months.
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Changes in living wages and actual wages follow the changing macroeconomic environment, more importantly, inflation rate and exchange rate.
Two important macroeconomic indicators that have strong influence on the welfare of tea estate workers are inflation and exchange rate. Inflation rate is important because it affects the purchasing power of the wages received. Additionally, high inflation rates increase the amount of money that is required to purchase a basket of goods and services for a basic but decent life, i.e. it raises the living wage needed. In Malawi, there is often a difference between rural inflation rate and national inflation rate. Our analysis uses rural inflation rate because tea estates are located in rural areas.
Exchange rate is important, because tea estates sell tea in United States dollars (US$) but they pay for most factors of production in local currency (Malawi Kwacha, MK). When a currency is overvalued, tea estates suffer, because they get fewer kwachas from a dollar of exported tea. With an overvalued exchange rate, tea estates pay more Kwachas for the factors of production and this affects the ability of tea estates to increase wages for workers. We present the trends in rural inflation rate and exchange rate in Figure 1 below.
Figure 1 shows that since January 2014, the rural annual inflation rate in Malawi has been fluctuating reaching a peak of 29.1% in December 2015 and the lowest rate for the period was 7.6% in December 2017. In the past 12 months, rural inflation rate has largely been declining from 24.0% in August 2018 to the lowest level for the year of 9.5% in February 2019. From then, rural inflation rate started increasing. The year-on-year rural inflation rate for October 2019 is 12.3% from the September rate of 11.0%. There are high risks that rural inflation will continue to increase due to the resurgence of intermittent power supply and the post-election violence that has slowed economic activities of the country. The general elections that were held in Malawi on 21st May 2019 and the post-elections conflicts and demonstrations that ensued thereof have posed a lot of uncertainty and risks to businesses in Malawi both rural and urban.
Famine early warning systems (FEWS) also show that food prices have started increasing and this is inflationary. As a result, improvements in wages of tea workers will continue to be eroded by high inflation.
Chapter 3.
Macroeconomic environment
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Surprisingly, the exchange rate has largely remained stable in the last year despite the presence of a volatile and increasing commodity price environment. We suspect that the Kwacha is overvalued, and this is disadvantageous for tea estates.
Adding to high inflation rate and stable exchange rate, energy supply is one factor that affects the tea industry because of the tea processing plants. Due to government intervention (specifically the Malawi-Zambia interconnection which saw an addition of about 20 Megawatts of electricity into the main grid) in the power generation sector and the heavy rains experienced in 2018, there was stability in electricity supply in 2018 and in the first half of 2019. However, as of July 2019, the country started experiencing frequent power cuts. This was mainly due to low water levels in the Shire River, from which Electricity Generation Company (Egenco) produces hydroelectricity. The electricity problems are expected to continue for the rest of this year. Since electricity supply is linked to business costs, including for small and medium size enterprises in rural areas, this will most likely exert upward pressure on future rural inflation and therefore the purchasing power of tea workers’ wages as well as on tea estate production costs.
Figure 1: Rural Year-on-Year Annual Inflation Rate and Exchange Rate for Malawi by Month, January 2014 to October 2019
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Chapter 4. Updating the living wage
Using rural inflation rates, the living wages have been updated from MK 35, 222 per month in January 2014 to MK 85, 197 in October 2019.
The living wage was originally estimated at MK 35,222 per month (and MK 1,531 per workday assuming 23 workdays in a month) in January 2014 by Richard and Martha Anker (Global Living Wage Coalition Malawi Living Wage Report). We used the government rural inflation rate to update this estimate to October 2019. We started by updating the January 2014 net living wage to January 2019 using year on year rural inflation rates. Then, owing to the extreme seasonality in inflation rates in Malawi, we updated the January 2019 net living wage to October 2019 using the reported monthly year on year rural inflation rates in 2019 to get to October 2019.
From the previous section, it is clear that rural consumer prices have more than doubled in the January 2014 to October 2019 period. As such, the MK 35,222 net living wage in January 2014 is, in real terms, equivalent to MK 85,197 per month and MK 3,704 per workday in October 2019. This updated net living wage would purchase the same goods and services as was the original estimate in January 2014.
So far in this section, we estimated the net living wage. If workers receive what we estimated, they will not actually attain a basic but decent life, because part of their wages will be used to pay income tax. We therefore determine the gross living wage by adding the income tax payment requirements to the net living wage of tea workers, because even low earners in Malawi pay income taxes. The gross living wage is the amount that would need to be paid by the estates to enable workers to pay income tax and still attain a living wage. The estimates for the gross living wage and net living wage are presented in Figure 2. The results in Figure 2 show that the gross living wage per day in October 2019 is MK 4,407 per day while the net living wage is estimated at MK 3,704 per day. The gross living wage fell slightly because of changes in Malawi tax policy when there was an increase in the income threshold before income tax must be paid.
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Figure 2: Rural Malawi net living wage and gross living wage per workday in Kwacha updated for inflation to keep same purchasing power and include required income tax, January 2014-October 2019
Notes: Net and gross living wage per workday assumes that there are 23 workdays per month on average (see Anker and Anker 2014 living wage report).
Sources: Malawi National Statistical Office for rural inflation rate. Anker and Anker (2014) for living wage for January 2014.
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Chapter 5. Trends in TAML basic wages
Section 1:TAML wages and minimum wages
TAML Basic Wages have had more upward adjustments between July 2015 to October 2019 than the official minimum wage.
The 2016 Wages Committee Progress Report found that the TAML basic wage and the official minimum wage were very similar and closely linked between January 2014 and July 2015 albeit the TAML basic wage changed more frequently and was generally slightly higher than the official minimum wage (Figure 3).
With the signing of the Malawi Tea 2020 Program MOU in July 2015, this link was broken. Since then, the TAML basic wage has been much higher than the official minimum wage. Whereas the TAML basic wage increased five times since the signing of the Malawi Tea 2020 MOU, the official minimum wage increased only three times. By September 2019, the TAML basic wage was 65.0% higher than the official minimum wage.
However, the gap between the TAML basic wage and the official minimum wage narrowed significantly in October 2019 when the official minimum wage increased by 40% from MK 962 to MK 1,346. The TAML basic wage, at MK 1,586, is now 17.8% higher than the official minimum wage. It is possible that the government may have been influenced by the TAML wage to revise the official minimum wage.
Figure 3: TAML basic wage compared to statutory minimum wage in Kwacha, January 2014 - October 2019
MK
/day
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The ability of tea estates to pay higher wages is affected by price of tea in USD, Kwacha to USD exchange rate, local costs in Kwacha, and productivity. Since the price of tea is set in world markets in USD, this means that the Malawi Kwacha to USD exchange rate directly affects the ability of tea estates to pay higher wages. But before we discuss the trend of TAML basic wage in United States Dollars, a brief discussion of the behaviour of the Kwacha against the United States Dollar is in order.
Figure 1 above shows the behaviour of the Malawi Kwacha against the United States Dollar since 2014. Since August 2016, the Malawi Kwacha exchange rate against the United States Dollar has remained stable. For instance, the Kwacha moved from an average middle rate of MK 726 per US dollar in August 2016 to MK 738 in October 2019 (as higher rate in May-July 2019 appears to have been temporary). This represents a depreciation of only around 2% over a period of more than 3 years.1
The stability in the MK/USD exchange rate can partially be explained by a steady inflow of foreign reserves, which have been maintained at just abvove the required three-months minimum import cover. In addition, the Kwacha’s stability can be explained by the subdued domestic demand for foreign exchange. This has mainly been due to structural constraints, including but not limited to the unreliable and inadequate power supply, which have hindered production and hence reduced demand for foreign exchange to purchase imported inputs. Typically, in a managed floating system in which Malawi is, the foreign exchange rate of a currency depreciates when a country has high inflation. Perhaps this will occur in future.
With falling inflation rates, the Reserve Bank of Malawi (RBM) has been reducing the policy rate (PR) while keeping it above the headline inflation rate as well as ensuring that the inter-bank market rate (IBR) always remained close to the policy rate. Keeping the IBR close to the PR has helped checking excess liquidity conditions in the money market which ultimately has helped reduce pressure on the exchange rate.
Chapter 5.
Section 2:TAML basic wages in United States dollars
1 Within the same period, the Kwacha has been more volatile against currencies of some of its major trading partners. For instance, in just a span of 1 year (from 2016 to 2017), the Kwacha lost 13.69% of its value against the Euro to trade at MK 869.07 per Euro as of December 2017. Within the SADC region, the Kwacha slipped by 10.6% against the South African Rand its most important trading partner in the region in this period. It, however, slipped by only 1.7% against the Zambian Kwacha in the same period.
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However, as already explained in previous sections, famine early warning systems (FEWS) show that food prices have started increasing. This is more likely to put upward pressure on headline inflation in the medium term since food constitutes a large proportion of the consumer price basket. In addition, resurgence of intermittent power supply and the post-election violence that has slowed economic activity of the country are more likely to exert pressure on headline inflation in the country in the medium term.
As inflation is expected to increase in future owing to the previous explanations, this may force the RBM to revise the policy rate upwards resulting in currency depreciation. If the Kwacha begins to depreciate, tea estates should at that point be better able to raise wages in Kwacha assuming that tea prices do not fall. However, it is also important to keep in mind the fact that the increased inflation would in turn reduce the purchasing power of future wage increases that would result from currency depreciation.
Figure 4 displays the TAML basic wage expressed in USD. The figure shows that TAML basic wage expressed in USD has increased fairly steadily since 2014 (see trend line in Figure 4). Bearing in mind the fact that the Kwacha has been fairly stable against the USD since 2016, this means that increases in the TAML basic wage in Kwacha since 2016 translated directly into increases in the TAML basic wage in USD.
Figure 4: TAML basic wage in USD, January 2014 - October 2019
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Wages Committee annual reports compare the full wage package (which includes both cash wages and in kind benefits) to the living wage in order to determine the gap between the prevailing wage and the living wage.
6.1.1 Changes in wage data available to the Wages Committee and prevailing wage estimates since 2014Information available to the Wages Committee on prevailing wages has improved over time, and for this reason each annual report has used the best available data to measure prevailing wages. A description of how available wages data and the basis for determining prevailing wage estimates has changed from 2014 to 2018 is contained in the Wages Committee 2018 annual report (section 5). In 2018, the Wages Committee was provided with payroll data from one large estate only. This was not disaggregated by pay period and it covered a 13-month period (July 1 2016 to July 31 2017) rather than a 12-month period2. The Wages Committee had the cost of in kind benefits from two large estates.
In the 2018 annual report of the Wages Committee, the payroll data provided to it by one large estate was used to:
1. Determine actual average prevailing cash wages for the past year (August 2017 to August 2018)
2. Estimate average annual prevailing cash wages for October 2018 using the new TAML basic wage rate and overkilo rate. The value of in kind benefits were then added.
In this way, previous Wages Committee annual reports also indicated the expected wage for the month of October which is when the annual meeting of Malawi Tea 2020 is held.
6.1.2 Improvement to prevailing wages data available to Wages Committee for 2019An improvement achieved in the 2019 Wages Committee annual report is the availability of improved payroll data for A1 workers.
These data are: 1. Covering a complete 12-month period (5 August 2018 to 4
August 20192. Only for A1 workers3. For the two largest tea estates in Malawi4. For each of 26 two-week pay periods.
Chapter 6.Measuring prevailing wages of A1 tea workersSection 1: Payroll data
2 These data were adjusted “by multiplying wages over the 13 month period by 93% (since around 7% of wages are earned in July)”.
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3 Calculations were done in STATA and Microsoft Excel.4 Additional consistency checks involved checking whether the amount paid to tea workers in a pay period was the same as the sum of all pay components in the payroll data. We found very few cases where our calculations did not match the amount paid reported in the data. When these few cases were interrogated by looking more closely at the payroll data, it was found that another wage calculation system was used for some tasks during the pay period such as for cutting firewood, uprooting old tea shrubs, and digging holes. These tasks are remunerated either by per amount of work done such as number of shrubs uprooted or per hour and not per day. More detailed payroll data about some of these cases were provided by the payroll data expert, and in all cases, it showed that the amount of pay was correct. We therefore used the amount of wages paid in each of the past 26 two-week pay periods to calculate the prevailing wages of tea workers.
The availability of these data allowed us to calculate prevailing cash wages for each of 26 two-week pay periods. This allowed us to calculate average prevailing cash wages for a typical A1 tea worker who works around the year. We were also able to project these data to October 2019 using components of prevailing wages throughout the year together with the TAML basic wage rate effective in October 20193.
6.1.3 Data cleaning
Payroll data from the two large estates were cleaned to eliminate obvious errors. This involved checking the number of workdays (which we assumed had to be non-zero, not missing, and not more than 14 days in any two-week pay period); making sure that data were only for A1 workers; making sure that reported daily wage rate was not above the TAML basic wage for that pay period; and making sure that amount of pay was non-zero. Workers who were found not to meet one of these consistency checks were dropped from the data set. We found that number of days worked was indicated for all workers; 9 workers had more than 14 workdays in a per pay period; and 90 workers had a grade higher than A1. In terms of daily wage rate, 194 workers received more than the TAML basic wage for a particular pay period. We also found that 854 payroll records had zero amount of pay reported despite the fact that they worked some days in the pay period. All of all these cases were considered as errors and were dropped them from the data set. This left 387,924 valid payroll records.4
Further exploration of the payroll data revealed that some individuals who worked for 14 days were paid for 12 days in a particular pay period. We suspect that this could be due to data entry errors. For these workers, we replaced the 14 workdays reported with 12 workdays.
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6.1.4 Number of days worked and number of workers per pay period
Improvements in the payroll data available to the Wages Committee provides new information about the amount of time worked and the number of workers per pay period. Figure 5 below plots the average number of days worked, paid public holidays, and paid sick days per two-week pay period.5
Figure 5: Average number of days worked, number of paid public holidays, and number of paid sick days per two-week pay period for A1 tea workers, August 2018 to August 2019.
5 Although pay period dates differ between the two estates, this does not introduce a big problem because the differences in the pay period dates is only one or two days at most.
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The payroll data indicate that the average number of days worked by A1 workers per pay period varied between 8.6 in May 2019 and 10.8 in February 2019. The average number of days worked per pay period for the whole year was 10 days. There were very few paid sick days taken, possibly because of the need for a doctor’s certificate. There were on average 0.41 paid public holidays per pay period over the year – which partly explains some of the variation in days worked of pay periods.
The average number of A1 workers per pay period was 14,920 for the two large estates (figure 6). This ranged from 10,636 in August 2018 to 19,192 in March 2018. Significant seasonal variations are observed in terms of the average number of A1 workers per pay period as there is an increase in average number of workers between January and May and fewer workers in the other months. Although the seasonal pattern in the number of A1 workers was similar in both estates, it was more apparent in one estate than in the other. The average number of workdays of A1 workers per pay period does not change dramatically over the year (although it is lower in the slack season), suggesting that estates respond to seasonal labour demands in part by hiring different numbers of workers according to the season.
Figure 6: Average number of A1 tea workers per pay period on two large estates, August 2018 to August 2019
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Figure 7: Gross pay of A1 tea workers and number of public holidays per pay period
Tea workers receive various in-kind benefits such as meals, housing, school for children, funeral expenses, and medical services. Detailed descriptions of these in kind benefits are available in the Wages Committee 2018 annual report. Data on the cost to estates of in-kind benefits based on financial records were provided by two large estate for the August 2018 to July 2019 period. One of these estates does not provide a school, and neither of these estates any longer provides a creche. Table 1 indicates the cost to estates of in kind benefits (i.e. reported costs from each estate weighted by the average number of workers on each estate). Note that the value of estate housing as an in kind benefit was calculated in the following way. First, the rental value of estate housing for A1 workers was estimated by multiplying its value in 2018 according to the Wages Committee 2018 annual report by inflation in the past year and then increasing this new value by 10% to take into consideration that the quality of estate housing has improved in the past year and as well a 3% increase in number of estate houses in the past year according to an unpublished Malawi Tea 2020 Monitoring and Evaluation report. The cost to estates of providing water to estate housing was added to this.
Chapter 6.
Section 2:In kind benefits
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The total value of in kind benefits as partial payment of wages rose from MK 7,673 in 2018 to MK 8,829 in 2019. This 15.1% increase in Kwacha is similar to the 2018-19 inflation rate.
Item Cost (MK, 2019 Estimate) Cost (MK, 2018 Estimate)
Medical clinic 2,486 1,495
Funeral 22 19
Housing 1,817 1,420
School 109 127
Creche 0 12
Meals 4,395 4,600
Total 8,829 7,673
Prevailing wage was calculated for the 12 months from August 2018 to July 2019, as well as projected for October 2019. Wages for the past 12 months are based on data for 26 two-week pay periods and provide insight into the effect on prevailing wages of different factors such as season, TAML basic wage, and tax policies. And, projecting prevailing wage to October 2019 is very helpful to Malawi Tea 2020 stakeholders to understand the current situation and plan for the future. We describe how each of these wage calculations was done below.
6.3.1 Calculating prevailing wages for August 2018 to July 2019Prevailing wages for this period were calculated using payroll data on pay per two-week pay period. Prevailing cash wages were calculated by summing the amount paid for work done (which includes TAML basic wage or task based pay6), overkilo pay, paid sick leave, paid public holidays, paid annual leave, skill allowance, quantity bonus7, and gratuity. We did not include overtime pay, because living wage is expected to be earned within normal working hours. Average cost to tea estates per worker of in-kind benefits was added to cash wages to determine the average total prevailing wage package.
Chapter 6.
Section 3: Calculating prevailing wage for Aug. 2018 to Jul. 2019 & Oct. 2019
6There are two different types of task-based remuneration, and it is possible for work-ers to combine several different types of remuneration during a single pay period. 7Quality bonus is not added, because all cases reported zero pay on this item
Table 1: Cost of in-kind benefits per worker per month, excluding housing
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Figure 8 indicates fortnightly average cash wages of A1 tea workers over a one-year period along with number of paid public holidays. It is clear from figure 7 that wages fluctuated over the year according to season and according to public holidays as well as with changes in the TAML basic wage.
6.3.2 Calculating average prevailing wage for October 2019Data used to calculate the prevailing wage for October 2019 are described below:
• TAML basic wage - The current actual TAML wage as of October 2019 is MK 1,586 per day.
• Days worked - This is the total number of days worked irrespective of the type of remuneration received. The average number of workdays per two-week pay period for 2018-19 was 10 days.
• Non-kilo work –This is work which is remunerated per activity or per hour. Workers worked on this basis for an average of 0.33 days per pay period for 2018-19.
Figure 8: Gross cash pay of A1 tea workers and number of paid public holidays per two-week pay period
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• Prorata work – This is remunerated per unit of output. Over kilo payments are not considered for this work. The average number of days worked and remunerated on prorata basis was 2.21 per pay period for 2018-19.
• Flat kilo work –Workers are paid a flat daily rate irrespective of the amount of work done. The average number of days worked where the flat rate was used is 1.73 per pay period for 2018-19.
• Over kilos remuneration - Tea workers that pluck more than the TAML threshold amount of tea in a day are paid an over kilo payment. The quantity of tea plucked over the threshold in number of kilos is reported in the payroll data, and this was used to calculate the over kilos plucked. The average number of over kilos plucked per pay period for 2018-19 was 95.2 kg. The amount paid for over kilos was MK 29.94 per kilogram in October 2019.
• Paid sick days - When a tea worker is unable to work because of sickness and the worker has a certificate from a doctor, she or he is paid the TAML daily basic wage. The average number of paid sick days was 0.04 per pay period for 2018-19.
• Paid public holidays – The average number of paid public holidays over the year was 0.41 per pay period. Note that if a worker works on a public holiday, her or his work is remunerated and she or he is also paid an extra day of pay. We did not include the public holiday premium pay because it is similar to the overtime pay premium.
• Paid annual leave – Workers are entitled to paid annual leave days. The average annual leave payment per pay period was MK 666. Because most workers work less than 12 months, they usually receive their annual leave in cash rather than as leave days.
• Skill allowance and quality allowance – These are bonuses that are paid for special skills and plucking quality tea. The payroll data reports the amount paid for skill allowance and quality allowance separately. We calculated averages of each of these payments.
• Gratuity – All workers receive a 5% gratuity over and above their cash wage at the end of their contract, regardless of type of contact or length of service. Although this is paid at the end of the contract, we prorated it to a monthly value.
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To calculate the October 2019 average prevailing wage, we adjusted the average amounts of each wage component (discussed in section 6.3.2) for the October 2019 TAML basic wage. For wage components that do not use the TAML daily wage rate such as non-kilo days and prorate days, we computed their average daily rates for the periods when the TAML basic wage rate was the current rate of MK 1,586. Results are presented in Table 2.
Table 2: Estimated October 2019 average prevailing wage per pay period
Chapter 6.
Section 4:Projected average prevailing wage for A1 workers in October 2019
Item Unit Quantity Unit rate (MK) Amount
TAML basic wage workdays and flat kilo days - remunerated based on TAML basic wage
days 7.46 1586 11,832
Non kilo days - remunerated per unit of output days 0.33 1071 353
Prorata days- remunerated by activity performed or hours worked
days 2.21 1998 4,416
Pay for over kilos plucked Kg 95.2 29.94 2,850
Paid sick days – remunerated based on TAML basic wage days 0.04 1586 63
Paid public holidays– remunerated based on TAML basic wage
days 0.41 1586 650
Paid annual leave– remunerated based on TAML basic wage days 0.42 1586 666
Skill allowance lumpsum 20.48 20
Sub-total 20,852
Gratuity 1,043
Total cash wage 21,895
In kind benefit 4,075
Complete gross pay 25,970
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Findings in Table 2 show that the current average cash prevailing wage for A1 tea workers is MK 21,895 per two-week pay period and the total average prevailing wage is MK 25,970 per two-week pay period. This works out to be a cash wage of MK 47,439 per month. And an average total wage of 56,268 per month when in kind benefits are added. The monthly wage calculation assumes 23 workdays8 per month. The average daily cash wage was MK 2,190 and an average total wage considering in kind benefits was MK 2,597 per day.
According to the October 2019 income tax rate schedule, workers would pay MK 366 in income tax on a monthly cash prevailing wage of MK 47,439 – which means that their average cash wage per month after taxes would be MK 47,073 (i.e. MK 47,439 - MK 366) and their average total wage including in kind benefits after taxes would be MK 55,902 (i.e. MK 56,268– MK 366). This works out to be an average net wage of MK 2,431 per day.
As of October 2019, the average gross prevailing wage for tea workers represents 56% of the gross living wage (MK 2,446/MK 4,407), while the average net prevailing wage (i.e. take home pay) represents 66% of the net living wage (i.e. MK 2,431/MK 3,704).
8The assumption of 23 paid days per month in the original living wage report in 2014 was based on interviews with estate managers. Now that we have payroll data, it turns out that this assumption was not very far from reality as these payroll data indicate that workers are paid for an average of 23.8 days per month and they work 21.9 days per month on average. We maintain using 23 days for comparability.
1.000
2.000
3.000
4.000
5.000
6.000
1.3461.586
2.446
3.704
4.407
Rural minimum
wage
TAMLbasic wage
Prevailing tea wage(including
all forms of pay)
Netlivingwage
Gross livingwage
(includes incomes tax
required)
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Chapter 6.
Section 5:Wage ladder
A Wage ladder compares the actual wage to a number of benchmarks graphically.
To compare prevailing wages of A1 tea workers with other wages, we use the wage ladder presented in Figure 9.
The gross living wage as of October 2019 is estimated at MK 2,446. This is more than three times (3.3 times) the minimum wage, slightly less than three times the TAML basic wage (2.8 times), and around 80% higher than the prevailing wage.
Notes: On October 1, 2019 the minimum wage was increased to MK1,346.15 per day.
1.000
2.000
3.000
4.000
5.000
6.000
1.3461.586
2.446
3.704
4.407
Rural minimum
wage
TAMLbasic wage
Prevailing tea wage(including
all forms of pay)
Netlivingwage
Gross livingwage
(includes incomes tax
required)
Figure 9: Wage ladder for rural Malawi, October 2019 (MK per day)
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Chapter 6.
Section 6:Trends in the gap between living wage and tea wages
Table 3 indicates the ratio between prevailing wages for A1 tea workers and living wage between January 2014 original living wage study and October 2019. There is a consistent upward trend in A1 tea worker wages relative to the living wage – that is, A1 tea wages have been increasing more quickly than inflation since October 2014 when the baseline for Malawi Tea 2020 was established in terms of the proportion of the living wage that is paid.
The baseline used for Malawi Tea 2020 for the ratio of net prevailing wage to net living wage was 0.529. At the time of the baseline (October 2014), there was a 48% gap (i.e. 100%-52%) between the net prevailing wage and the net living wage. In October 2019, this gap has fallen to 34% (i.e. 100%-66%). Thus, since the October 2014 baseline for Malawi Tea 2020, 29% of the gap in net living wage has been closed (i.e. 0.14/0.48). This compares to the 25% of the gap being closed one year ago.
The baseline used for Malawi Tea 2020 for the ratio of prevailing wage to living wage was 0.45. At the time of the baseline (October 2014), there was a 55% gap (i.e. 100%-45%) between the prevailing wage and the living wage. In October 2019, the gap is 44% (i.e. 100%-56%). Thus, since the October 2014 baseline, 20% of the gap in living wage has been closed (i.e. 0.11/0.55). This compares to 16% of the gap being closed one year ago.
9This baseline value is the midpoint between the ratio at the time of the living wage study in January 2014 and the start of the Malawi Tea 2020 programme in July 2015.
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Table 3: Ratio of prevailing wage of A1 tea workers to the living wage, January 2014 to October 2019
Date Event Ratio prevailing wage to living wage
Ratio net prevailing wage to net living wage
January 2014 Living Wage study 0.53 0.58
October 2014 Baseline 0.45 0.52
July 2015 Malawi 2020 MOU 0.39 0.46
October 2015 One year after baseline 0.49 0.59
August 2016 First CBA 0.51 0.63
October 2016 First Wages Committee report 0.50 0.61
August 2017 Mid CBA and tax threshold increase 0.53 0.63
October 2017 Second Wages Committee report 0.52 0.62
August 2018 Second CBA and tax threshold increase 0.56 0.65
October 2018 Third Wages Committee report 0.54 0.64
October 2019 Fourth Wages Committee report 0.56 0.66
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Chapter 6.
Section 7:Income taxes
Despite being low earners, tea workers in Malawi in the past have paid substantial amounts of their income in income taxes. In the past few years, however, the government has tried to reduce the tax burden on the low wage workers by increasing the income tax threshold, but this effort is continually undermined by high inflation rates. Over the December 2014 to October 2019 period, the income tax exclusion has tripled from a monthly exclusion of MK 15,000 in January 2014 to a monthly exclusion of 45,000 as of October 2019. However, at the same time wages of Malawi tea workers were increasing and there has been considerable inflation.
Figure 10 shows the amount of income tax that was paid by tea workers per month from January 2014 to October 2019. Not many A1 workers needed to pay income tax in 2014. In 2015 with major wage increases and high inflation, A1 tea workers began paying more income tax. Just before the first 2016-2018 CBA, income taxes paid by typical A1 workers were quite high at MK 4,491 per month. With the July 2017 increase in the income tax exclusion threshold to MK 30, 000, the amount of income tax fell considerably to MK 2,072 per month. This substantially increased the take-home of many tea workers. In July 2018, there was an increase in the tax-free bracket from MK 30,000 to MK 35,000, and this resulted in a slight decline in income taxes to MK 1,915 per month on average. In January, 2019, tea workers were given a 9% increase in wages and this increased the income tax payment to MK 3,271 per month. A further 5% increase in wages in August, 2019, without any change in tax regime, resulted in an increase in income taxes paid by A1 workers to MK 3,888. However, a substantial increase in income tax free bracket in October, 2019 from MK 35,000 to MK 45,000 reduced average monthly income tax payment to MK 366. This again increased take home income of tea workers.
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Figure 10: Monthly income tax on average wages of A1 workers, January 2014 - October 2019
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There is continued improvements in the wages of A1 tea workers since the signing on the Malawi Tea 2020 MOU. The challenge to tea estates to pay living wages remain high inflation rates, income tax policy, and poor tea prices.
Important conclusions from this year’s annual report are:1. The payroll data available for this year’s report is much
improved as it:
I. Covered a complete 12-month period (5 August 2018 to 4 August 2019).
II. Was for A1 workers only.
III. Was for the two largest tea estates in Malawi.
IV. Was for each of 26 two-week pay periods. These payroll data enabled us to calculate prevailing cash wages for each of 26 two-week pay periods, and this in turn allowed us to calculate the average prevailing cash wages for a typical A1 tea worker who works around the year. In addition, we were provided with detailed information on the costof various in kind benefits by the two largest tea estates based on their financial records.
2. There continued to be improvement in wages for A1 workers and the gap between prevailing wages and living wage continued to close slowly – meaning that wages of A1 tea workers continued to increase slightly more quickly than inflation. By October 2019, 29% of the gap to the net living wage (i.e. gap between prevailing wage and take-home pay required for decency) had been closed, while 20% of the gap to the gross living wage (aka living wage) had been closed from the baseline for Malawi Tea 2020. This compares to 25% and 16% respectively of the gap being closed one year ago.
3. Wages of A1 tea workers continued to increase in USD owing to the stability of the USD/MK exchange rate and increasing TAML basic wage in Kwacha. Although this increase in wages in USD is not of direct consequence to tea workers, it is of direct consequence to tea estates which sell their tea in USD.
Chapter 7.
Summary and conclusions
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4. The macro-economic environment for tea estates continued to be difficult. Inflation continued to be high at more than 10% per year and now appears to again be increasing. The Kwacha to USD exchange rate (which is the currency in which international tea prices are set) continued to be stable which creates difficulties for an industry with increasing expenses in Kwacha. Energy supply is likely to be a problem in future due to low water levels in the Shire River from which Electricity Generation Company (Egenco) produces hydroelectricity despite improvements in 2018 and first half of 2019 due to heavy rains and the Malawi-Zambia interconnection which added about 20 Megawatts of electricity to the main grid.
5. The income tax free bracket increased in October 2019 from MK 35,000 to MK 45,000. This significantly reduced the amount of income tax that tea workers need to pay and so increased take home income of tea workers. This is, however a temporary reprieve given the high inflation rate in Malawi.
6. The gap between the rural minimum wage and the TAML basic wage narrowed considerably in October 2019 when the rural minimum wage increased from MK 962 to MK 1,346. The TAML basic wage (MK 1,586) is now 18% higher than the rural minimum wage. Although this is a significant narrowing of the gap, it is possible that the government revision of the rural minimum wage might have been influenced by the TAML wage.
Project Partners
Plantation and Agricultural Workers Union
Malawi Tea 2020Revitalisation Programme Towards Living Wage
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