I am writing this post on the topic of the minimum wage at the request of a friend (not sure what this says about my personal life :)).

The Egyptian government recently announced a plan to increase the minimum wage first to 700 Egyptian pounds and then to 1,200 EGP (200 USD) for some 1.9 million public sector workers. The plan was detailed in the economic programme released by the Egyptian government which was the subject of a previous blog post:

The government is committed to provide a fairer wage structure. To honor this commitment, we will introduce lump sum wage increases in entities with low levels of remuneration, to achieve a minimum gross wage of LE 700 per month for all workers in the public sector in 2011/12. It is our objective to increase this wage level gradually in the coming years to reach LE 1,200 by mid-2015. The partial wage increase in 2011/12 is expected to benefit some 1.9 million employees (about one third of the total public sector work force), mostly municipal workers. It will increase the effective wage bill by around 6 percent and cost the budget about LE 7 billion. Workers earning wages above this minimum in non-targeted entities will receive their standard annual increases to contain the growth in the wage bill while maintaining incentives for progression and skill differentiation.

So this is overall good news: 1.9 million people (and their families) will supposedly received a better salary soon.

However, like in many other countries including developed ones, the issue of minimum wage becomes a highly political one (for a good overview, check this). While public sector employment is a life-time guarantee (although this has proven not to be true for those workers in publicly owned manufacturing industries that have been privatised in the past decade), a large number of  workers are employed in the private sector where the minimum wage does not apply. Actually, make it the private sector where hardly any labour law is really applied. In my personal experience, with the exception of few friends who work for large Egyptian or foreign companies (e.g. companies that are listed on the stock exchange, multinationals etc…), most Egyptians do not have a work contract. And the few who do, are often asked to sign a dateless resignation letter in case their employer decides to lay them off at some point in the future. So, it’s clear that even if a minimum wage became mandatory for private sector employees, it will probably not be applied.

So how could the Egyptian government improve the wages of the million workers in the private sector? The labour market situation requires overall restructuring in Egypt, if nothing because the informal sector, while providing employment for a large share of the workforce, is also the sector where abuses such as withholding of wages, lay offs without compensation, lack of insurance and pension rights are hardly ever addressed.

My argument is going to be that trade unions could be part of the solution (but not the only solution) to the problem of low wages in Egypt. This paper details the impact of trade unions on wage of workers. The subject is at the centre of a long and complex debate but in a nutshell, the more unionised workers are there, the more unions have bargaining power over wages and benefits. This creates a ‘Trade Union Wage Premium‘ (for more info check here). The paper mentioned above shows that the difference in wages between (similar) unionised and non-unionised workers averages around 15-20% with peaks of 34% in places like Brazil.

There are also a lot of other issues when unions come into play, including creating a situation where those who are not unionised basically represent a pool of workers that can be employed informally to avoid paying higher wages to unionised workers etc… The paper linked above does a good job of explaining the various caveats.

The point I am making here is that the discussion around the minimum wage should not only be centred around public sector wages or declaring a minimum wage also for the private sector that will not be enforced just like most of labour laws in Egypt.

Giving workers the right of assembly, the right to be a part of independent unions (with different political affiliations) could do a lot more for Egypt’s workers by increasing their bargaining power, somehow going against the patronising idea that the state gives its citizens rights as concessions as opposed to empowering them to demand, campaign and hopefully obtain what they think is best for them. Of course empowering trade unions will also require an industrial policy that is based on consultation and dialogue between employers, workers and the state – perhaps an even harder cultural shift from the current dynamics.

On the subject of labour rights, a little bonus track material on corporations and interns:
The Corporate Social Irresponsibility of the Internship Phenomenon
– aka “the highly competitive race to the bottom of the corporate ladder”