Despite the apparent satisfaction expressed by several trade unions in response to the recent rise of the minimum wage and the salary compensation, it also comes with an estimated cost of Rs 10 billion for the government.
What are the consequences of such a measure?
According to the economist Eric Ng, the country is adhering to a consumption-based model, as the economy is again driven by consumption, even though we are grappling with inflation, a trade deficit, and mounting debt.
“We heavily rely on importing what we consume. Allocating Rs 10 billion for this measure means that the government will have to secure an additional Rs 10 billion in taxes; hence, taxes will rise… “ he warned.
He added that the impact will undoubtedly be highly destabilising next year, particularly for SMEs, which will face financial strain and lack the capacity to pay, burdened by increased production costs. “This will occur just as they are starting to recover from the hardships caused by the pandemic.”
The combined effects of the minimum wage hike and salary compensation also raise concerns about fairness and wage relativities.
“Regardless of the amount, an increase in the minimum wage also implies that those earning above the minimum wage will be penalised, triggering an element of unfairness based on professional hierarchy and salary structures.
Consequently, an increase in the minimum wage will exert pressure on broader wage increases to maintain fairness and wage relativities. Can companies proportionally increase other salaries?
A salary hierarchy will undoubtedly be disrupted. Determining salary compensation or the minimum wage based on the inflation rate is illogical.
Instead, it should be rooted in production,” Eric Ng argued.
Source: l’Express
