Posted in Legislative Research on Mar 06, 2020

Why is this a hot topic?

On 30th January an amendment was submitted to Amyotha Hluttaw to change the country’s 2013 Minimum Wage Law. This was picked up in the media because amongst other changes, the Bill proposes to abolish the current mandatory review of the minimum wage every two years. The amendment bill prompted ‘5,000 workers to march on Sunday in Hlaing Tharyar Township, where Yangon’s biggest industrial zone is located, to call for higher wages’ (The Irrawaddy, 2020).

Ananda’s Bill Backgrounder & Summary has covered the Bill in more detail. This briefing offers an introduction to minimum wages as an area of government policy.

What is a ‘minimum wage’?

Minimum wage laws play a vital role in protecting individuals from exploitation in the workplace, and ‘set the lowest hourly rate an employer can legally pay certain workers’ (Center on Budget and Policy Priorities, 2018).

Most countries have some mechanism for setting a minimum level of pay for their workers. This is based on the fundamental idea that all people have a right to not be held in servitude, and to fair working conditions that guarantee a minimum standard of living. These rights are enshrined in the Universal Declaration of Human Rights, Articles 4 and 23; and in Myanmar’s 2008 Constitution, Articles 23, 24 and 36.

Right to fair work pay and conditions – Universal Declaration of Human Rights (UDHR) & Myanmar Constitution

UDHR

Article 4: No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.

Article 23:

  • Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
  • Everyone, without any discrimination, has the right to equal pay for equal work.
  • Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
  • Everyone has the right to form and to join trade unions for the protection of his interests.

Myanmar Constitution

Article 23: The Union shall:

  • enact necessary laws to protect the rights of the peasants;
  • assist peasants to obtain equitable value of their agricultural produce

Article 24: The Union shall enact necessary laws to protect the rights of workers.

Article 36: The Union shall:

  • strive to improve the living standards of the people and development of investments

There is a lot of variation in how different countries calculate minimum wages, but the main types can be characterised as follows:

Type ASEAN example?
No minimum wage Brunei
No minimum wage, except for specific industries Cambodia (only for garment and shoe factory workers) Singapore (only for cleaners and security guards)
No government-set minimum wage, but laws require negotiated rate through collective bargaining between strong trade unions and industry representatives None in ASEAN. International examples generally only where employee representation / trade unions are effective, eg: Austria, Denmark, Finland, Iceland, Italy, Sweden, Switzerland
Min wage mandated by government, but with industry/regional variation Thailand (set by provincial committees); Malaysia (different rate for peninsula and Malaysian Borneo states); Philippines (varies by agriculture/non-agriculture and region); Vietnam (varies by region)
Universal minimum wage Myanmar (informed by regional committees but rate applies nationally); Laos (although slightly higher for government workers)
Living wage. Set based on cost of living calculation (i.e. not by negotiation through govt committees or collective bargaining). None in ASEAN. International examples are few and varied. Eg UK (living wage mandated for all workers over 25); US cities of Chicago and San Francisco

As with many areas of public policy in Myanmar, decisions about the minimum wage are made by a national committee (records of discussions are not published). Regional committees make their submissions about what they think the minimum wage ought to be, but this does not result in different regions having varied rates. Whilst government representatives have said that the national committee studies the gross domestic product and cost of living, it is not fully transparent in how it makes it decisions, unlike, for example the UK’s Low Pay Commission, which publishes all of its reports and transparency data (which you can see here (GOV.UK, n.d.).

Whilst in most countries a minimum wage is decided through negotiation by relevant stakeholders, the rise of inequality around the world has prompted an increase in those calling for alternative methodologies to calculate minimum wages. These include:

  • Living wage: included in the table above, this involves basing the minimum wage on percentage of the median (average) wage rates in a country. The UK has introduced a national living wage for all workers aged over 25 years.
  • ‘Real’ Living Wage: this rate is based on a calculation of a minimum pay level required to afford a ‘basket of goods’, often including food, housing costs, transport etc. (Living Wage Foundation, n.d.)
  • Pay ratio: some organisations have introduced fair pay principles linking pay of the lowest paid worker to that of the highest; for example, mandating that the CEO of a company cannot earn more than 10 times that of the lowest paid worker. Even if this is not used as policy for setting wage rates, the disclosure of pay ratios is promoted by many who believe in fair pay principles. This is an area where the public sector and NGO sector could lead the way by setting an example.
  • Inflation linked: the problem of setting minimum wages on an ad hoc basis using negotiation in government committees or through collective bargaining is that this does not take into account inflation. The below illustrates the implications of this:

‘[In the US] because the minimum wage is not adjusted automatically for inflation, its real (inflation-adjusted) value tends to fall in the years between enacted increases — as happened during the 1980s when the value of the minimum wage fell by 30 percent, from the mid-1990s until 2007 (20 percent decline), and after 2009 (14 percent and falling). Such declines in the purchasing power of the minimum wage lower minimum-wage workers’ living standards.’ (Center on Budget and Policy Priorities, 2018)

Example – UK minimum and living wages

The national UK minimum wage is based on a wage per hour, applicable to all jobs in the UK. The government reviews the wage in the UK annually in April, after taking advice from an independent body called the Low Pay Commission (GOV.UK, n.d.).

All UK employers must agree to pay at least the national minimum wage (NMW) to workers up to the age of 25. For workers older than 25 years, the national UK living wage (NLW) instead applies, which is set at around 50 pence higher than the NMW.

The amount of UK minimum wage that workers receive depends on which age bracket they fall into. To be entitled to the wage they must be of at least school leaving age, which is generally 16 years old in England.

The Living Wage Foundation is campaigning for a real living wage for all workers aged 18 and above that is based on the cost of living and adjusted for London where costs are much higher than in other parts of the country (Living Wage Foundation, n.d.).

Aside from minimum or living wages, alternative income polices that have been gaining interest in recent years are those related to providing a basic, or guaranteed minimum, income. The idea here is that the government pays everyone a basic income (as their share of the national product), which is enough to meet their basic needs. This idea is a response to growing inequality, as well as to prepare for the coming automation and robotisation of economies that will decrease the number of jobs, weakening the direct link between income and hours worked. In this climate, without some means for redistributing wealth millions would become jobless and those in control of capital (business owners, etc) will continue to get richer (Wikipedia, 2020).

What are the benefits, and who are the beneficiaries?

Benefits of a minimum wage include (When I Work, 2014):

Economic Stimulus: As consumer spending typically increases with increases in wages, ‘a higher minimum wage would put more money in the pockets of millions of workers, money that would then flow to retailers and other businesses’ (Investopedia, 2016). For a developing economy, boosting domestic demand for goods and services is an important part of growing a sustainable economy.

  • More opportunity for jobs: If minimum wage employees are spending more, businesses are earning more, and need to hire more employees to keep up with the increased sales.

  • Reduced cost of social welfare and reliance on charity: Employees surviving at minimum wage are also often the same people who must rely on additional support of government or NGO-run social support for themselves and their families. Raising minimum wage means some of these people would be able to better support themselves and could also mean ultimately reallocation of government funds to support other needs.

  • Healthier, happier workers: Economic growth is not a goal worth pursuing unless people are actually living better, happier lives as a result. Employees who are making a higher minimum wage feel more comfortable and satisfied in their minimum wage jobs, are less stressed, have a healthier diet and are less likely to turn to alcohol or drugs. It also means they are less likely to quit their jobs.

  • Beating inflation: The minimum wage needs to be raised in order to account for inflation. Inflation results in a decrease in the purchasing power of citizens unless wage increases keep pace.

  • Beating inequality: In a rapidly growing economy, and especially one where the larger businesses are run by a relatively small network of elites linked to the former regime, the risk is that as profit increases money will accrue to the wealthiest parts of society and not be distributed to the workers, unless minimum wages are adopted as part of redistributive economic policy.

  • Retaining skilled workers: the Myanmar government has shown some concern that economically active Myanmar citizens are leaving the country, or staying away, rather than working for the development of their home nation. For example, Ministers have made statements about the importance of Myanmar expats paying remittances and have tried to encourage the Myanmar diaspora to return home. But a far simpler approach is to ensure that work in Myanmar pays a fair wage – which can in part be achieved through decent minimum wages.

‘After the minimum wage adjustment in 2018, the number of Myanmar workers going abroad increased dramatically, from 150,000 departures in 2017 to 230,000 in 2018 and 327,000 in 2019, according to data from the Labour Ministry. Most migrant workers from Myanmar go to Thailand, where workers are paid 308 baht (US$10.14) to 330 baht per 8-hour shift, according to the country’s minimum wage laws. The second most popular destination is Malaysia, where migrant workers are paid 1,100 ringgits (US$270.95) per month.’ (The Irrawaddy, 2020)

What are the risks?

The risks associated with raising the minimum wage are unsurprisingly most often claimed by business owners, or by politicians that are close to the business community:

Layoffs: If a business is already struggling to make a profit, and the minimum wage is raised, it means they can no longer afford to hire the same number of employees must make layoffs. This could mean some employees may be making slightly more money, and others will be left unemployed.

Price increases: Employers might raise prices of their product in order to generate enough income to support their more highly paid minimum wage employees, which could ultimately fuel inflation and increases in the cost of living, resulting in another push to raise minimum wages again.

Reduced competitiveness: for developing countries, the low cost of labour relative to other countries is the primary reason behind the decision of manufacturing firms to locate in those places. These types of exporting and labour intensive industries provide an important stimulus for industrialising countries, and some argue raising wages harms the attractiveness of a country as an investment location. In reality, this argument is probably self-defeating, because unless workers receive a decent wage they cannot afford many consumer products and services, and thus domestic demand may remain stagnant and prevent sustainable growth.

Considerations for policymakers

1. Clear objectives

Governments should be clear in their policy objectives when setting the regulatory framework. Minimum wages should be introduced as part of a package of measures to reduce poverty and improve the quality of life of the lowest paid.

2. The right stakeholders

If a country chooses, as the majority do, to determine minimum wage rates in a government committee, care should be given to involving the right people based on the objectives (above). Workers must be properly and fairly represented, and mechanisms created, perhaps though parliamentary inquiries, to give the lowest paid and poorest in society an opportunity have their voices heard by elected representatives and government officials. Government should consider an independent advisory body on low pay, with members’ appointment through a transparent selection process and not through the usual method of overly-controlling executive appointment.

3. Living wage? Consideration should be given to using a living wage calculation to set minimum wages, rather than a committee decision. This is because a) it is likely to result in a fairer outcome for the lowest paid, and b) because using clearly published formula reduces the risk of arbitrary decision making and the outsized influence of business elites.

4. Routine review Many countries review their minimum wages rates on an annual basis, and this is set in law. Removing the requirement for regular review is not advisable. Assurances from a government Minister to review regularly and fairly are not a substitute for regular review mandated by law, which provides a safeguard for the lowest paid.

5. Regional variation

Many countries recognise that the cost of living varies. In Myanmar, the cost of housing in particular, means that the cost of living is much higher in Yangon than in other parts of the country. Minimum wages can be set to take account of this. Indeed, successful campaigns for higher minimum wages or living wages around the world have often begun in metropolitan areas.

References

Center on Budget and Policy Priorities, 2018. Policy Basics: The Minimum Wage. [Online] Available at: https://www.cbpp.org/research/economy/policy-basics-the-minimum-wage [Accessed 8 February 2020].

GOV.UK, n.d. Low Pay Commission: About Us. [Online] Available at: https://www.gov.uk/government/organisations/low-pay-commission/about [Accessed 8 February 2020].

India Briefing, 2017. India’s Minimum Wage Structure: A Brief Explainer. [Online] Available at: https://www.india-briefing.com/news/india-minimum-wage-a-brief-explainer-15102.html/ [Accessed 8 February 2020].

Investopedia, 2016. What Are the Pros and Cons of Raising the Minimum Wage?. [Online] Available at: https://www.investopedia.com/articles/markets-economy/090516/what-are-pros-and-cons-raising-minimum-wage.asp [Accessed 8 February 2020].

Living Wage Foundation, n.d. What is the Real Living Wage?. [Online] Available at: https://www.livingwage.org.uk/what-real-living-wage [Accessed 8 February 2020].

Myanmar Times, 2020. Myanmar govt seeks to scrap mandatory review of minimum wage. [Online] Available at: https://www.mmtimes.com/news/myanmar-govt-seeks-scrap-mandatory-review-minimum-wage.html [Accessed 8 February 2020].

The Irrawaddy, 2020. Thousands of Myanmar Workers Demand Higher Minimum Wage. [Online] Available at: https://consult-myanmar.com/2020/01/22/thousands-of-myanmar-workers-demand-higher-minimum-wage/ [Accessed 8 February 2020].

When I Work, 2014. The Pros and Cons of Raising the Minimum Wage. [Online] Available at: https://wheniwork.com/blog/the-pros-and-cons-of-raising-the-minimum-wage/ [Accessed 8 February 2020].

Wikipedia, 2020. Basic Income. [Online] Available at: https://en.wikipedia.org/wiki/Basic_income [Accessed 8 February 2020].