"4,000 pounds per month does not make up for the previous inflationary rises, nor does it protect against further inflationary waves expected after the presidential elections"

"Binding mechanisms should be developed to implement the minimum wage in the private sector"

The Egyptian Initiative for Personal Rights (EIPR) published a study titled "Towards a Fair Wage for All in Egypt - Options for Universal Minimum Wage", which analyzes wage policies in Egypt against the backdrop of increasing austerity and debt-servicing measures and declining public spending on services and social protection. The study reviews policy developments related to the minimum wage in the public and private sectors, as well as gaps in policy implementation. The study offers recommendations for applying the minimum wage to all wage earners as widely as possible, amid the inflation rates that have been significantly increasing since the beginning of the year.

The President announced early this week that the minimum wage for workers in the government sector will be increased so that it reaches 4,000 pounds for the lowest (government) job grade. The Minister of Finance explained in a subsequent statement that this increase will come into effect next October after approval by the House of Representatives, and that the increase will include all lowest job grades, with a 500 pounds increase at least for each employee at the public administrative apparatus and (public) economic bodies.

The announcement was part of a package of executive decisions that included increasing the exceptional cost of living allowance from 300 to 600 pounds per month, and raising the tax exemption limit by 25% to reach 45,000 pounds annually.

The minimum wage rise, which is the second increase in one year, is a step in the right direction as far as improving the living conditions of a sector of wage earners in Egypt, especially since the rising inflation since the previous announcement of raising the minimum wage for government sector workers to 3,500 pounds last March. However, the real-wage situation remains unfair and insufficient to avoid more people falling below the poverty line.

Despite the positive step of raising the minimum wage and raising the tax exemption limit for the low-income segments, the decision covers only workers in the government sector, and does not cover the private sector or informal labour, which actually constitutes the largest category of wage earners in Egypt. The meeting of the National Wages Council (NWC) to decide on updating the minimum wage in the private sector may be delayed until the end of the year, leaving millions of workers without aid or intervention. On the other hand, the method of calculating the minimum wage may require additional review in light of the increasing food prices in particular, in addition to the expected devaluation of the pound after the presidential elections and perhaps before.  This anticipated devaluation will consequently lead to a decline in the purchasing power of wages, thus eliminating any positive impact the increases could have had on living standards.

EIPR does not believe that the inflationary effects of the minimum wage increase will be significant, especially since this increase will be directed mainly to spending on basic commodities and may even have a stimulus effect on the economy. According to the Ministry of Finance, the cost of What it r social decisions is 60 billion EGP, which is a small figure in the general budget accounts, as it is almost double the export subsidies, and its impact on the deficit cannot be compared to the impact of interest rates or the devaluation of the pound against the US dollar.

Workers in the private sector receive a lower minimum wage than their counterparts in the government sector, and suffer from the lack of a binding mechanism to implement it. The NWC raised the minimum wage for private sector workers from 2,700 to 3,000 pounds starting last July. It had decided to set a minimum wage for private sector workers in 2021, after a ten year hiatus in which it stopped updating the value of the minimum wage. The updated minimum wage in the council set in 2021 was 2,400 pounds per month, which was later increased to 2,700 pounds in 2022.

In this regard, EIPR believes that the decision is a first step on a long path to increase the wages of private sector workers, the real value of which has declined significantly in ten years due to successive price hikes and the wages’ failure to keep pace with these hikes.

EIPR’s study expressed two key reservations with the NWC’s decisions. The first concerns the fact that the NWC’s decision did not indicate gradual or incremental increases in all wages, similar to the government decisions for increases in public sector workers’ wages. The second concerns the NWC’s decision to cut 4% from the annual allowance for private sector workers, reducing it from 7% to 3%, which is very low. This is especially important since the allowance was the only way to increase wages in the private sector since the NWC stopped increasing the”the cost of living allowance” for private sector workers for nine years now, and hasn’t issued any updated decision on any other mechanisms to increase wages, in parallel with the periodic increases approved for workers in the government sector. The NWC used to approve some increases for the private sector in line with the government sector up until 2014).

Moreover, the government updates the minimum wage based on the official inflation rate, which is the right thing to do. However, this policy has been in place since 2013, when the minimum wage set was actually based on a calculation of the minimum cost of living in 2010 (the figure adopted in 2013 was the one debated and set in 2010). The government also fails to take into account the fact that those who are paid a minimum wage spend most of their income on food and drink. Discrimination between government and private sector workers in all of these issues remains a concern.

We believe that it is important to update the minimum wage in accordance with inflation rates. However, there needs to be a legal minimum wage that covers all workers in the government, public and private sectors, with deterrent penalties for those who do not comply with it. The starting point of update should be the year 2010, taking into account the food price indices and not just the general inflation rate. 

The study analyzes the development of wages in the private and government sectors over ten years, concluding that workers in the private sector lost 33% of the value of their real wages during that period, while the wages of public sector workers increased by about 9% in the same period.

The paper explains why setting a fair minimum wage to all wage earners in Egypt is a priority, which can be summarised in three points:

• The minimum wage is a crucial tool to reduce poverty and stimulate domestic demand

• International experience suggests that the minimum wage is a tool for achieving a more equitable distribution of incomes 

• Adopting a minimum wage acceptable to all stakeholders would reduce social strife and labour protests

The study also reviews the many problems of the minimum wage currently in place, which comes down to the following points:

• The absence of a universal minimum wage covering all wage earners in public and private sectors, especially informal labor.

• The parliament’s failure to pass a minimum wage, which allows for the circumvention of the implementation of minimum wage decisions and related policies.

• The absence of a binding mechanism to enforce the minimum wage and review it annually.

• The absence of a complaints mechanism in the event of non-compliance with the minimum wage decisions, and the lack of protection for workers from reprisals in the event that they demand the implementation of minimum wage decisions.

• The value of the minimum wage needs to be reviewed from the perspective of the minimum living wage, because minimum wage as it is puts those who alone bear the burden of spending on a family - consisting typically in government statistics of four members - and who receive the minimum wage below the poverty line. This is reflected in the continuous rise in the rate of the working poor.

All of this makes the latest minimum wage decision a step forward, but one that falls short of meeting what the Egyptian constitution or the International Labour Organization’s conventions stipulate for an effective minimum wage.

Since the current wave of inflation is expected to worsen the conditions of workers in general (inflation increased by about 60.5% from October 2020 to August 2023); the weakness of the minimum wage and its lack of universality would prevent it from performing its most fundamental role of saving vulnerable workers from slipping into poverty.

The study argues that it is now necessary to promulgate a unified law to restructure the wages of all wage earners in Egypt, so that their wages will be commensurate with price hikes at least. It also calls for setting a minimum wage sufficient for the needs of workers and their families, and reviewing it every six months in light of the continuous increase in prices. Binding mechanisms should be also put in place to ensure the application of minimum wage in the private sector, obliging non-compliant employers to pay everything that they have deducted from workers' wages; and to compensate them appropriately for the damage caused by the privation they were exposed to due to the fact that those workers were deprived of part of their wages.

These demands are realistic and achievable, especially since the workers’ share of the value added in the private sector amounts to only 20%, while employers receive 80% of it. Employers also recover everything they paid in the production process, including the value of renting the workplace (or its equivalent if the workplace is owned by them) and loan interest (or its equivalent if the employers invested their own money) and paid all the required taxes and fees).

The study proposes an urgent mechanism to increase wages and set a minimum wage. It explains that other mechanisms that can be applied are available, but they would require more time. Those mechanisms would also require the modification of some policies so that the party absent from decision-making (the workers) can be included and actively engaged, before we can talk about a real tripartite negotiation process.