Wage against the economic machine

Prime Minister Ranil Wickremesinghe announced last week that steps will be taken to increase wages of government sector employees, in order to withstand the rising cost of living. The relief budget presented by Wickremesinghe warned of inflation levels, now already seen. The Colombo Consumer Price Index has risen to 39.1%, signifying a 10% since last month even without the one trillion-rupee money printing that was supposed to cause it in the first place. In 2015 under the Yahapalanaya government salaries for the public sector were increased by 10,000 rupees on average. The price increase to sustain living standards at current prices would pale in comparison. This was followed by an encouragement to the private sector to follow suit.

According to salary.lk, the local project of WageIndicator Foundation, the living wage for an individual stands at 39,400 to 56,700 rupees in April. This refers to a theoretical income level that allows individuals or families to afford adequate shelter, food and other necessities. The goal of a living wage is to allow employees to earn enough income for a satisfactory standard of living and prevent them from falling into poverty. This is while the minimum wage currently stands at 12,500 and the average wage for a high skilled worker is around 57,000. This means that even by the time the new wage level is set for any employee, the rise in the general price level of the economy outpaces it to an extent that sustaining living standards, let alone a positive real income, would be hard to come by.

Sobering and discouraging, this news is not unique to Sri Lanka as world over rising prices is part of the zeitgeist. Sri Lankans are more likely to see fuel added to the fire that is inflation, given the lack of fuel and essential items along with teetering external sector developments. This worsening condition can only, therefore, be mildly eased by wage increases, until price increases normalise. Inflation and wage increase generally move in the same direction, albeit driven by different inputs. Where inflation is driven by availability and cost of raw materials that impact the whole basket of goods, wage change is represented largely by supply and demand factors of labour which can be caused by labour participation rates, growth in productivity, demographic trends and even technological advances.

Labour economics proposes that wage increases are “sticky,” meaning they tend to not reduce unless significant structural changes are present. This is for a number of reasons including the legal and social protections given to employees and competitive hiring practices between employers. Since wages are difficult to reduce even if markets deteriorate, companies are cautious to raise wages before determining long-term implications. Currently in an economic downturn, with newly laid off people actively searching for work and existing employees keen to preserve their current level of earnings, it is certainly the employers’ market. This means that for meaningful wage change to come about collective bargaining power could be utilized to some extent.

Recently there was a controversy on medical staff receiving a lesser salary. In Sri Lanka nearly 90% of health services are provided by the government. Sri Lankan medical officers have warned of trade union action overpay cuts on top of drug shortages. The union also warned that the health services will be affected badly if the government will not address the ongoing fuel and gas shortage. According to Dr. Samantha Ananda the spokesperson of the union, “Strike is our last option always, so negotiation has to start, and we have requested a discussion with the certain authorities and hope to get an answer”.