“Minimum Gross Wage of K3,003 in all Negotiations: What is the Impact on Private Business and Rising Cost of

Living?”

CHITI, Leonard, S.Jlchiti@jesuits.org.zm

Jesuit Centre for Theological Reflection

1

Objectives of the Conversation

To discuss the concept, the principle and foundation of minimum wage in Zambia.

To discuss the impact of the minimum wage on Private Investments and businesses.

Highlight government response to the minimum wage.

To explore the way forward on the revised minimum wage.

2

Methodology of the Conversation

Introduce the minimum wage concept.

Present key determinants of minimum wage in Zambia.

Present the pros and cons of minimum wage.

State JCTR position on the minimum wage conversation.

State some recommendations to government.

Conclude3

JCTR – Who we are and what we Do

• We are a project of the society of Jesus ( Faith based organisation).

• We are founded primarily on implementing the Social Teaching of the Church ( CST) which emphasizes the dignity of the human person.

• Therefore, our role as JCTR is to promote social justice.

4

JCTR & Social Analysis

JCTR approaches contemporary challenges by examining their context, identifying challenges and responding to the call to work with God by undertaking Social Analysis.

5

JCTR’s ApproachFrom a faith inspired perspective JCTR promotes justice for all in Zambia, especially the poor, through research, education, advocacy and consultations.

JCTR sees itself as contributing towards the creation of a society where justice prevails, faith informs and shapes all human activities, which are oriented towards raising the living conditions of all Zambians.

Therefore, our approach on this matter is premised on Social Justice.

6

The Employment Situation in ZambiaAccording to the Central Statistics Office (CSO), majority of the working population is employed in the informal sector.

As of 2012, there were 4,652,253 (84.6%) people in the informal sector against 847,420 (15.4%) people in the formal sector.

The bulk of the people working in the informal sector particularly 2,586,964 are skilled agriculture, forestry and fisheries workers.

In the formal Sector, private businesses and farms are the highest employers with 57.8% of the workers, followed by central government with 28.1%

7

Formal Sector Employment Distribution in Zambia

Institutional / Sector Number Percent

Central Government 237,846 28.1

Local Government 29,304 3.5

Parastatal/State Owned firm

55,496 6.5

NGO or Church 24,518 2.9

Private Business or farm

488,323 57.6

Embassy, International Organization

8,424 1

Private Household (e.g Domestic Worker)

- 0

Producers Co-operative 1,367 0.2

Not Stated 2,142 0.3

Total Formal Sector 847,420

8

Source: Central Statistics Office, (2012). Zambia Labour force Survey Report. Lusaka: Central Statistics Office

Minimum Wage Vs Employment Situation

Minimum wage is the body of law which stipulates the barest baseline salary per hour, per day or per month.

In Zambia, the Minimum wage is governed by Statutory Instrument No. 45 of 2012 otherwise referred to as “The Minimum Wages and Conditions of Employment Act.”

This Act is meant to dictate the Minimum Wages and Conditions of Employment for Domestic Workers.

9

Minimum WageHowever, recently there was a directive from the Republican President and Head of State, 2014 Labour Day Celebrations, directing the Minister of Labor and Social Security to ensure that no worker is paid below the food basket as measured by the Central Statistics Office. (http://www.daily-mail.co.zm/index.php/local-news/)

The directive from government dictates that collective agreements should be improved to / or above the minimum gross wage in government amounting to K3,003.00.

The directive further stated that the wage freeze is only for public sector employees and does not apply to the private sector.

10

General Perceptions of The Minimum Wage

The recent directive and decree by the Head of State lacks clarity whether it supersedes the Minimum wage Statutory Instrument No. 45 of 2012 .

Further, there is lack of guidance from the State on the matter whether the Presidential decree has been ratified by parliament and it is to be applied across industry.

11

What has informed this New Drive for Minimum Wage in Zambia

The Patriotic Front ( PF) Government was elected primarily and ostensibly on the promissory position of putting more money in peoples’ pockets through descent pay and lower taxes.

The PF swept into power largely riding on the vote of informal sector employees.

It is this constituency the PF is appealing to by insisting on implementation of K3,003. 00 minimum wage. This consistent with the PF Manifesto.

12

Government Application of Minimum Wage

The Reports we have received indicate that government has directed the Labour Commissioner to decline recognition status of Collective Agreements whose lowest gross pay is below K3,003 as is obtaining in Government.

This implies that collective agreements for categorized workers that are below K3,003.00 should be rejected.

This is the way of proceeding of the PF government regarding Public Policy, i.e. Unilateral policy decisions based on political imperatives.

13

Impact of The Minimum Wage on Private Business and InvestmentsThe following labour intensive industries are going to be impacted namely;Agriculture –

Negatively ( Largest employer of none skilled labour)

Construction – Negatively (limited by Contractual Obligations and time frame)

14

Impact of The Minimum Wage on Private Business and Investments

Manufacturing – Positively / NegativelyHigher wages may act as an incentive to workers,

spur productivity and stimulate demand. In the short-run it may increase production costs,

reduce profits and lead to job losses. Mining – Positively / Negatively

Higher wages may act as an incentive to workers, spur productivity and stimulate demand.

In the short-run it may increase production costs, reduce profits and lead to job losses.

Mining is Capital intensive hence impact may be marginal.

15

Impact of The Minimum Wage on Private Business and Investments

It has been argued that this directive will make Zambia uncompetitive by making the country uncompetitive as an investment destination.

Still others have pointed out that the minimum wage may lead to structural unemployment on account of labor being expensive and therefore unaffordable.

The business Sector may thus respond by cutting the labor force size to guarantee returns on investments.

16

Impact of The Minimum Wage on Private Businesses and Investments

Still some sections of society consider this approach as risky as it may lead to inflationary trends which will in the medium to long-term erode the purchasing power of the revised minimum wage.

In effect because the minimum wage is not informed by productivity ratios but by political imperatives we are actually killing the milking cow, it is argued.

17

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

The revised minimum wage of K3,003.00 which is based on the Presidential directive is a social protection mechanism of labor.

Therefore, the minimum wage ( By presidential decree) must be viewed, over and above the productivity perspective, with the notion of social justice.

In a sense it guarantees labor being remunerated justly.

There is no justice at all in paying workers lower and uncompetitive wages.

18

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

Therefore the minimum wage is a mechanism for enforcing a decent work agenda in Zambia because of the huge disparities in earnings in the country.

This can greatly improve the standard of living in Zambia especially of lowly paid workers who have little or no bargaining power by ensuring that they access decent working conditions under protection of labour laws.

19

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

Additionally, the minimum wage has the potential to leverage the country’s aggregate demand which has the potential to stimulate productivity, employment and profit.

Minimum wage has the potential to motivate workers and increase productivity in return.

20

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

Colleagues there is needy to protect labour in Zambia on account of the fact that labour is vulnerable to abuse, since as economies grow income inequalities tend to increase.

Rapid economic growth generally generates inequalities, hence the necessity of the Minimum Wage.

21

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

JCTR gives the minimum wage a positive interpretation . Potentially the minimum wage can help build the middle class in Zambia.

It is the middle class who are the real drivers of nation-states both economically and politically. If we expand the middle class in Zambia we are guaranteed sustained economic growth and a mature political system.

Therefore by way of inverse insight, the minimum wage seeks to expand the middle class.

22

The government directive on implementation of the K3,003.00 minimum wage should therefore not be viewed negatively

In fact compared to the JCTR BNB the revised minimum wage is below.

The latest April basic needs basket (BNB) for Lusaka as measured by JCTR indicates that a family of five needs K3,650.01 to access a decent living .

23

JCTR Position on Presidential Directive on Minimum Wage Vs the Cost of living

Way ForwardWhile we affirm the implementation of the K3,003.00 Minimum wage for categorized workers we appeal to government to embrace a culture of dialogue and consultation when making public policy decisions that have wider implications. ( 2012 minimum wage was enacted in a similar process).

This is because of our conviction that effective and efficient public policy is often an output of a broader and wider spectrum of insights.

24

Way ForwardGovernment should also consider reducing other costs of doing business other than wagesWhy is our fuel the most expensive in the

region?Why is electricity so expensive in Zambia?Why is cost of borrowing so high?

If these were addressed, minimum wage might not be seen to be such a threat to companies profitability

25

Way ForwardThe revised minimum wage must be implemented gradually and consideration must be sector based.

Zambia as a nation, we should address our national productive capacities by diversifying our economy.

Government MUST stick to procedure and undertake stakeholder engagement in making adjustments to public policy.

The revised minimum wage must be linked to long term employment trends.

The revised minimum wage must be linked to the Macros to ascertain its sustainability.

26

Conclusion

Thanks for your attention!

“May God Bless the Worker and the just

employer”

27