Should the minimum wage be tied to inflation?
6 July 2010
Read by 1673 persons
In five years, the monthly minimum wage increased by 11.3% for reduced working hours, while the cost of living increased by 11.7%.
Indexing the minimum wage to inflation is in the labor code but is not applied.
The measure would ease social tensions, but businesses are reluctant.
It's done! Since July 1st, the guaranteed interprofessional minimum wage (smig) has just increased in the textile and clothing sector. It thus increases by 2.5%, reaching 10.39 DH per hour. However, the sector is an exception. This revaluation is in fact the application of the third tranche of the 10% increase in the Smig decided in 2008 for the industry, commerce, liberal professions and agriculture sectors. While for other sectors, the increase was applied in two stages (5% on July 1, 2008 and 5% on July 1, 2009), an exception was granted for the textile sector on the grounds that it was facing economic difficulties: the said increase was spread over four years at a rate of 2.5% per year. It is therefore on July 1, 2011 that textile and clothing workers will have a Smig aligned with the rest of the other sectors, i.e. 10.64 DH per hour. Knowing that the new labor code, which came into force in 2004, sets the normal working time in non-agricultural activities at 2,288 hours per year or 44 hours per week (article 184), the Smig, if it were monthly, would be 2,030 DH for all sectors, except for textiles where it would be 1,981 DH, until 2011.
10% catch-up in 2004 with the arrival of the new labor code
Of course, the monthly Smig has no longer been in effect since 2004, the date of entry into force of the new labor code. This text, which came after a long battle between unions and employers, indeed enshrined the concept of hourly Smig, and, as a result, the reference to the monthly amount which at the time corresponded to the Smig actually received by employees, disappears. The Ministry of Employment ceased on June 7, 2004 to publish the monthly, and even daily, Smig, simply indicating the hourly Smig.
How much has this Smig evolved? A review of the various increases made over the past five years shows that the hourly Smig, both that applied to industry, commerce and liberal professions and that relating to agriculture, has evolved considerably. Thus, between the beginning of June 2004 and July 2009, the cumulative increases resulted in a rate of 21.55%. Considered in relative value, these increases seem significant, the majority of salaries, within the framework of a career without promotion that is, having not evolved as much in five years.
However, we must take into account the change that occurred in the labor code. Indeed, with its entry into force in 2004, it was noted that the monthly Smig, which was 1826.24 DH, fell the next day to 1761 DH, even though a 5% increase had just been granted. This knowing that the hourly Smig went from 8.78 DH to 9.22 DH.
The explanation lies in the change in working time. Indeed, with the arrival of the new code, the weekly working time had decreased from 48 hours to 44 hours. However, the code, in its article 184, paragraph 4, is clear on this point: "The reduction in working time in non-agricultural activities from 2,496 to 2,288 hours per year and in agricultural activities from 2,700 to 2,496 hours per year does not result in any reduction in salary". Logically, by virtue of this provision, "smigards" were not to suffer any reduction in their salary after the entry into force of this code. We remember, there was a long and vigorous debate on this and the unions had demanded an increase that should at least maintain the Smig at its level before the new code. Following this, there were the two increases of the summer of 2004: +5% on June 7 and +5% on July 1. Thus, the hourly Smig increased to 9.66 DH and, in theory, to 1845 DH per month, slightly more than the 1826 DH that were in force before, but for four fewer hours worked per week!
Then came the 10% increase of 2008 within the framework of social dialogue, an increase spread over two years, at a rate of 5% per year, except for the textile and clothing sector which benefited from a spread over four years. In five years, therefore, the monthly Smig, which was 1826 DH in industry, has increased to 2032 DH. By canceling the catch-up effect due to the new code (two increases of 5% each), the increase is only 11.3%.
Unions continue to demand a minimum wage of 3,000 DH per month!
Today (except for textiles, once again), the Smig in industry is 10.64 DH per hour and 2,032 DH for those who are lucky enough to work a month. For the unions, this is very insufficient. And this question, moreover, regularly comes up at the negotiating table within the framework of social dialogue. Unions have even demanded a monthly Smig of 3,000 DH "at a minimum". But neither the government nor management intend to discuss such a demand. The former because, it constantly explains, it has already carried out salary increases and two successive reductions in income tax, the latter (management), because of, it says, the economic situation and the fragility of businesses in the face of this situation.
"Normally, this discussion shouldn't even take place. Tearing each other apart at regular intervals over the Smig, that is to say, over a vital minimum, is a waste of time and energy. There is a simple method to definitively close this file: index the Smig to inflation," explains Abdellah Lefnatsa, UMT union representative in Rabat. What our union representative is saying is exactly, perhaps in other words, the meaning of article 358 of the labor code: "The legal minimum wage means the minimum value due to the employee and ensuring that employees with limited income have purchasing power allowing them to follow the evolution of price levels and contribute to economic and social development as well as the evolution of the company."
The principle of indexing the Smig to inflation is therefore clearly enshrined by the legislator in the new labor code. And in truth, this is not new, since the code only continues, in a less explicit way, what had already existed for 50 years, that is to say the dahir of October 31, 1959 relating to the general increase in salaries according to the increase in the cost of living. This dahir, more favorable to employees since it had instituted a "general increase in salaries", was repealed after the entry into force of the 2004 labor code, but the spirit of the text is taken up again, in a more limited way: it is no longer a question of salaries in general but simply of Smig to be linked to the evolution of prices, or what is more commonly called inflation.
Fear of inflationary spiral
Why is this not being done or not being done anymore? Because, on the one hand, employers do not want it, invoking the clumsiness of those who negotiated this labor code, "hardly favorable to the company", and, on the other hand, the government believes it sees a "fuel" for inflation to be avoided at all costs.
At one point, says a unionist, Driss Jettou, when he was still in office, was on the verge of accepting the principle of what the unionists call the sliding scale of salaries, that is to say simply the indexing of these to inflation. He had to backtrack for fear of the famous inflationary spiral that his measure risked triggering.
However, elsewhere, the indexing of the Smig to inflation and/or other parameters is a reality. To take only the economies close to Morocco, Poland for example adjusts its Smig once or twice a year, based on government inflation forecasts, Malta has instituted automatic indexing, Turkey proceeds to its revision each year or, at a minimum, every two years, etc.
Should the minimum wage then be tied to the cost of living? If we calculate the inflation between 2004 and 2009, we end up with an increase of 11.7% while the Smig, itself, increased by 11.3% for a working time reduced by four hours. We can see that the increases are similar. If Morocco decided to opt for indexing, would it really harm the competitiveness of businesses, as is constantly said here and there? One thing is certain: it is better to increase the Smig by 2% for example, as an average annual inflation rate, calmly, rather than having to give in to it under the pressure of negotiation and in a brutal way, which risks giving much larger increases, in a period of social tension.
Published on July 12, 2010
Posted online on July 12, 2010
lavieeco.com
Indexing the minimum wage to inflation is in the labor code but is not applied.
The measure would ease social tensions, but businesses are reluctant.
It's done! Since July 1st, the guaranteed interprofessional minimum wage (smig) has just increased in the textile and clothing sector. It thus increases by 2.5%, reaching 10.39 DH per hour. However, the sector is an exception. This revaluation is in fact the application of the third tranche of the 10% increase in the Smig decided in 2008 for the industry, commerce, liberal professions and agriculture sectors. While for other sectors, the increase was applied in two stages (5% on July 1, 2008 and 5% on July 1, 2009), an exception was granted for the textile sector on the grounds that it was facing economic difficulties: the said increase was spread over four years at a rate of 2.5% per year. It is therefore on July 1, 2011 that textile and clothing workers will have a Smig aligned with the rest of the other sectors, i.e. 10.64 DH per hour. Knowing that the new labor code, which came into force in 2004, sets the normal working time in non-agricultural activities at 2,288 hours per year or 44 hours per week (article 184), the Smig, if it were monthly, would be 2,030 DH for all sectors, except for textiles where it would be 1,981 DH, until 2011.
10% catch-up in 2004 with the arrival of the new labor code
Of course, the monthly Smig has no longer been in effect since 2004, the date of entry into force of the new labor code. This text, which came after a long battle between unions and employers, indeed enshrined the concept of hourly Smig, and, as a result, the reference to the monthly amount which at the time corresponded to the Smig actually received by employees, disappears. The Ministry of Employment ceased on June 7, 2004 to publish the monthly, and even daily, Smig, simply indicating the hourly Smig.
How much has this Smig evolved? A review of the various increases made over the past five years shows that the hourly Smig, both that applied to industry, commerce and liberal professions and that relating to agriculture, has evolved considerably. Thus, between the beginning of June 2004 and July 2009, the cumulative increases resulted in a rate of 21.55%. Considered in relative value, these increases seem significant, the majority of salaries, within the framework of a career without promotion that is, having not evolved as much in five years.
However, we must take into account the change that occurred in the labor code. Indeed, with its entry into force in 2004, it was noted that the monthly Smig, which was 1826.24 DH, fell the next day to 1761 DH, even though a 5% increase had just been granted. This knowing that the hourly Smig went from 8.78 DH to 9.22 DH.
The explanation lies in the change in working time. Indeed, with the arrival of the new code, the weekly working time had decreased from 48 hours to 44 hours. However, the code, in its article 184, paragraph 4, is clear on this point: "The reduction in working time in non-agricultural activities from 2,496 to 2,288 hours per year and in agricultural activities from 2,700 to 2,496 hours per year does not result in any reduction in salary". Logically, by virtue of this provision, "smigards" were not to suffer any reduction in their salary after the entry into force of this code. We remember, there was a long and vigorous debate on this and the unions had demanded an increase that should at least maintain the Smig at its level before the new code. Following this, there were the two increases of the summer of 2004: +5% on June 7 and +5% on July 1. Thus, the hourly Smig increased to 9.66 DH and, in theory, to 1845 DH per month, slightly more than the 1826 DH that were in force before, but for four fewer hours worked per week!
Then came the 10% increase of 2008 within the framework of social dialogue, an increase spread over two years, at a rate of 5% per year, except for the textile and clothing sector which benefited from a spread over four years. In five years, therefore, the monthly Smig, which was 1826 DH in industry, has increased to 2032 DH. By canceling the catch-up effect due to the new code (two increases of 5% each), the increase is only 11.3%.
Unions continue to demand a minimum wage of 3,000 DH per month!
Today (except for textiles, once again), the Smig in industry is 10.64 DH per hour and 2,032 DH for those who are lucky enough to work a month. For the unions, this is very insufficient. And this question, moreover, regularly comes up at the negotiating table within the framework of social dialogue. Unions have even demanded a monthly Smig of 3,000 DH "at a minimum". But neither the government nor management intend to discuss such a demand. The former because, it constantly explains, it has already carried out salary increases and two successive reductions in income tax, the latter (management), because of, it says, the economic situation and the fragility of businesses in the face of this situation.
"Normally, this discussion shouldn't even take place. Tearing each other apart at regular intervals over the Smig, that is to say, over a vital minimum, is a waste of time and energy. There is a simple method to definitively close this file: index the Smig to inflation," explains Abdellah Lefnatsa, UMT union representative in Rabat. What our union representative is saying is exactly, perhaps in other words, the meaning of article 358 of the labor code: "The legal minimum wage means the minimum value due to the employee and ensuring that employees with limited income have purchasing power allowing them to follow the evolution of price levels and contribute to economic and social development as well as the evolution of the company."
The principle of indexing the Smig to inflation is therefore clearly enshrined by the legislator in the new labor code. And in truth, this is not new, since the code only continues, in a less explicit way, what had already existed for 50 years, that is to say the dahir of October 31, 1959 relating to the general increase in salaries according to the increase in the cost of living. This dahir, more favorable to employees since it had instituted a "general increase in salaries", was repealed after the entry into force of the 2004 labor code, but the spirit of the text is taken up again, in a more limited way: it is no longer a question of salaries in general but simply of Smig to be linked to the evolution of prices, or what is more commonly called inflation.
Fear of inflationary spiral
Why is this not being done or not being done anymore? Because, on the one hand, employers do not want it, invoking the clumsiness of those who negotiated this labor code, "hardly favorable to the company", and, on the other hand, the government believes it sees a "fuel" for inflation to be avoided at all costs.
At one point, says a unionist, Driss Jettou, when he was still in office, was on the verge of accepting the principle of what the unionists call the sliding scale of salaries, that is to say simply the indexing of these to inflation. He had to backtrack for fear of the famous inflationary spiral that his measure risked triggering.
However, elsewhere, the indexing of the Smig to inflation and/or other parameters is a reality. To take only the economies close to Morocco, Poland for example adjusts its Smig once or twice a year, based on government inflation forecasts, Malta has instituted automatic indexing, Turkey proceeds to its revision each year or, at a minimum, every two years, etc.
Should the minimum wage then be tied to the cost of living? If we calculate the inflation between 2004 and 2009, we end up with an increase of 11.7% while the Smig, itself, increased by 11.3% for a working time reduced by four hours. We can see that the increases are similar. If Morocco decided to opt for indexing, would it really harm the competitiveness of businesses, as is constantly said here and there? One thing is certain: it is better to increase the Smig by 2% for example, as an average annual inflation rate, calmly, rather than having to give in to it under the pressure of negotiation and in a brutal way, which risks giving much larger increases, in a period of social tension.
Published on July 12, 2010
Posted online on July 12, 2010
lavieeco.com
