Double Impact of Salary Increases
8 June 2011
Read by 1719 persons
The HCP establishes a simulation of the effects of salary increases on the macroeconomic framework, both in the public and private sectors, with the SMIG and SMAG.
The government's decision to increase the salaries of public administration personnel from May 1, 2011, as well as the SMIG and SMAG in two successive installments from July 1, 2011, and July 1, 2012, would be a double-edged sword.
Their impact on the national economy would be imminent, according to the latest HCP note, which establishes a simulation of the effects of these increases on the macroeconomic framework, in particular on incomes, household consumption and inflation, on investment, growth and employment, as well as on the state budget and foreign trade. "Overall, the increase in salaries for public administration personnel should improve household income, purchasing power and consumption, as well as investment, employment and growth. However, it would negatively affect the balance of the state budget and the trade balance," reports the same source.
If the improvement in domestic demand would gradually evolve from 0.98% in 2011 to 1.51% in 2015, thus inducing an upward appreciation of consumption respectively of 0.79% in 2011 and 1.1% in 2015, with an increase in investment from 0.3% in 2011 to 0.42% in 2015 and the creation of additional jobs ranging from 12,950 positions in 2011 to 20,090 in 2015, the perverse effect on the trade deficit, due to the multiplier effect in favor of imports, would not be denied.
Even with additional tax revenues, the impact on the budget deficit would not be compensated. "The trade deficit would increase by 0.63% of GDP in 2013 and the budget deficit by 0.51% in 2012," according to the same document, which also demonstrated the boomerang effect of the increase in the SMIG and SMAG. Certainly, this decision would result in an increase in household consumption of approximately 0.23% in 2011 and 0.85% in 2013 and 2014 before falling to 0.78% in 2015; however, its impact on business competitiveness would be negative, particularly due to the increase in production prices and the reduction in the profit margin. This would be even truer for the gross domestic product (GDP), which would experience a decrease, with a loss of earnings in terms of economic growth estimated at 0.13% in 2012 and 1.26% in 2015. Job losses would be from 1500 positions in 2011 to 116,050 in 2015, mainly due to the decline in investment, which would be part of an intensifying withdrawal, ranging from 0.03% in 2011 to 3.47% in 2015.
Furthermore, the simulation of the impact of the increase in salaries of public administration personnel and the SMIG and SMAG in the private sector, as established by the HCP, highlights an improvement in household incomes from 1.64% in 2011 to 6% in 2015. Consumption would increase from 1.01% in 2011 to 1.86% in 2015 with a peak of 2.01% in 2013, while prices would gradually increase from 0.52% in 2011 to 3.97% in 2015. GDP growth, on the other hand, would record an increase of 0.29% in 2011 and 0.27% in 2012, with a loss of earnings from 2013 of 0.12% to reach 0.97% in 2015.
On the other hand, a decline in investment and a deterioration in the trade balance would be on the agenda. These two indicators should respectively show declines ranging from 0.88% in 2013 to 3.07% in 2015 and from 0.46% in 2011 to 0.64% in 2015 with a peak of 0.85% in 2013. Even employment and budget balance would be affected. Thus, job losses are estimated by the HCP at nearly 15,940 in 2013 and 96,890 jobs in 2015, while the budget deficit would widen by approximately 0.32% in 2011 and 0.22% in 2012 before improving from 2013 by 0.10% to reach 1.03% in 2015.
Perverse Effects on Employment
In Morocco, the minimum wage plays an important role in determining low wages in the structured private sector. Set at an economically acceptable level, it can contribute, according to the Moroccan Center for Economic Conjuncture (CMC), to balancing the employment relationship between the employer and low-wage workers in the face of downward pressure on labor costs. However, in an economy exposed to external competition like that of Morocco, a high increase in the minimum wage can have perverse effects on employment. According to the CMC, by increasing hiring costs, a high minimum wage would lead the employer to reduce its ability to hire workers whose productivity is lower than or close to the wage cost.
Published June 2, 2011
Posted online June 8, 2011
Lematin.ma
The government's decision to increase the salaries of public administration personnel from May 1, 2011, as well as the SMIG and SMAG in two successive installments from July 1, 2011, and July 1, 2012, would be a double-edged sword.
Their impact on the national economy would be imminent, according to the latest HCP note, which establishes a simulation of the effects of these increases on the macroeconomic framework, in particular on incomes, household consumption and inflation, on investment, growth and employment, as well as on the state budget and foreign trade. "Overall, the increase in salaries for public administration personnel should improve household income, purchasing power and consumption, as well as investment, employment and growth. However, it would negatively affect the balance of the state budget and the trade balance," reports the same source.
If the improvement in domestic demand would gradually evolve from 0.98% in 2011 to 1.51% in 2015, thus inducing an upward appreciation of consumption respectively of 0.79% in 2011 and 1.1% in 2015, with an increase in investment from 0.3% in 2011 to 0.42% in 2015 and the creation of additional jobs ranging from 12,950 positions in 2011 to 20,090 in 2015, the perverse effect on the trade deficit, due to the multiplier effect in favor of imports, would not be denied.
Even with additional tax revenues, the impact on the budget deficit would not be compensated. "The trade deficit would increase by 0.63% of GDP in 2013 and the budget deficit by 0.51% in 2012," according to the same document, which also demonstrated the boomerang effect of the increase in the SMIG and SMAG. Certainly, this decision would result in an increase in household consumption of approximately 0.23% in 2011 and 0.85% in 2013 and 2014 before falling to 0.78% in 2015; however, its impact on business competitiveness would be negative, particularly due to the increase in production prices and the reduction in the profit margin. This would be even truer for the gross domestic product (GDP), which would experience a decrease, with a loss of earnings in terms of economic growth estimated at 0.13% in 2012 and 1.26% in 2015. Job losses would be from 1500 positions in 2011 to 116,050 in 2015, mainly due to the decline in investment, which would be part of an intensifying withdrawal, ranging from 0.03% in 2011 to 3.47% in 2015.
Furthermore, the simulation of the impact of the increase in salaries of public administration personnel and the SMIG and SMAG in the private sector, as established by the HCP, highlights an improvement in household incomes from 1.64% in 2011 to 6% in 2015. Consumption would increase from 1.01% in 2011 to 1.86% in 2015 with a peak of 2.01% in 2013, while prices would gradually increase from 0.52% in 2011 to 3.97% in 2015. GDP growth, on the other hand, would record an increase of 0.29% in 2011 and 0.27% in 2012, with a loss of earnings from 2013 of 0.12% to reach 0.97% in 2015.
On the other hand, a decline in investment and a deterioration in the trade balance would be on the agenda. These two indicators should respectively show declines ranging from 0.88% in 2013 to 3.07% in 2015 and from 0.46% in 2011 to 0.64% in 2015 with a peak of 0.85% in 2013. Even employment and budget balance would be affected. Thus, job losses are estimated by the HCP at nearly 15,940 in 2013 and 96,890 jobs in 2015, while the budget deficit would widen by approximately 0.32% in 2011 and 0.22% in 2012 before improving from 2013 by 0.10% to reach 1.03% in 2015.
Perverse Effects on Employment
In Morocco, the minimum wage plays an important role in determining low wages in the structured private sector. Set at an economically acceptable level, it can contribute, according to the Moroccan Center for Economic Conjuncture (CMC), to balancing the employment relationship between the employer and low-wage workers in the face of downward pressure on labor costs. However, in an economy exposed to external competition like that of Morocco, a high increase in the minimum wage can have perverse effects on employment. According to the CMC, by increasing hiring costs, a high minimum wage would lead the employer to reduce its ability to hire workers whose productivity is lower than or close to the wage cost.
Published June 2, 2011
Posted online June 8, 2011
Lematin.ma
