Dispute Over New Living Wage for Workers

EghtesadOnline: The Supreme Labor Council agreed last week to determine the living wage and consider it as a base for setting the minimum wage next year.

News ID: ۷۴۰۲۰۳

06 March 2017

The new Iranian year will begin on March 21, 2017.

The council determined a monthly income of 24.8 million rials ($655) as the living wage for a family of three and a half members. The minimum wage currently stands at 8.12 million rials ($213) per month.

The decision to determine the living wage came after more than two decades since the introduction of the Iranian Labor Law. Clause 2 of Article 41 of the law calls for a balance between minimum and living wage, Financial Tribune reported.

A living wage is necessary for a worker to meet one’s basic needs. These needs include shelter and other essentials such as clothing and nutrition.

In order to reach the set living wage, the current $213 minimum wage must be increased by more than three times.

Low oil prices and years of economic sanctions have left the government cash-strapped and the negligible growth in minimum wage can be seen as a form of cost-cutting. This is while the newly determined living wage shows the chasm between what the workers need to live a normally satisfying life and what they receive, despite the incessantly rising costs of living.

According to Mehr News Agency, the living wage was calculated using a month’s costs of “food and drink, tobacco, clothing and shoes, energy, appliances and furniture used at home, healthcare, transportation, leisure, education, restaurants and hotels, and other services” for workers utilizing data released by the Central Bank of Iran, Statistical Center of Iran and National Nutrition & Food Technology Research Institute.

This is while the recognition of living wage by the government does not necessarily lead to any rise in the minimum wage. In fact, the move, although positive in nature and a symbolic victory for workers, mostly serves to underline the need to boost the minimum wage.

The latter has grown 6% less than the inflation rate over the past three years. This means that even if the wage is boosted by 15% and inflation at the end of the current fiscal year (March 20) reaches 9%, as many experts forecast, the minimum wage has in fact not changed for the past four years.

The International Monetary Fund, in its latest report, predicted that Iran’s inflation will average about 9% in the 2016-17 fiscal year, before temporarily rising to just over 11% in 2017-18 due to the pass-through from a recent exchange rate depreciation.

In its latest report, the Central Bank of Iran announced an average inflation rate of 8.73% for the 12 months to February 18 (the end of the Iranian month of Bahman), indicating the first major rise since June 2015.

Failure to Implement Article 41

“Article 41 clearly indicates that the minimum wage, aside from the type of the work done, must sufficiently cover the material needs of a family whose size is indicated by the Supreme Labor Council. But to this day, both the government and the employers are reluctant to implement the law,” Ali Khodaei, workers’ representative in the council, was quoted as saying by the Persian daily Etemad.

Khodaei noted that workers were pushing for a raise in the minimum wage to 33 million rials ($868.4), but the representatives of government and employers deemed it to be too high.

“It is unlikely that they would raise the wage up to the subsistence level. But this is still a step forward, as it shows how much the minimum wage should be,” he said.

“Workers bear the brunt of an economic downturn. They were the first in line to feel the sting of economic sanctions. Now is the time to support and empower them.”

On the same note, economist Fariborz Raisdana, said the living wage must be set at least 2 million rials ($52) higher for workers to be able to cope with the current economic conditions.

“It must also include more populated families and take regional economic factors into consideration,” he said.

“Only about 20% of worker families have a population of three and a half, and over 40% have more than four. Also, due to regional and industrial diversity of workers, simply setting a living wage will not fix the problem. It is the wage system that must be completely overhauled.”

There are also rumors flying out of the Ministry of Cooperatives, Labor and Social Welfare.

According to Abdollah Vatankhah, a member of the Assembly of Iranian Workers’ Representatives, there is talk among workers that the minimum wage is set to rise by about 40% to 11.5 million rials ($302.6) by the yearend.

“But this is how it has always been with this government: they [indirectly] announce a significantly higher rate near the yearned, but nothing emerges as promised,” he said.

“As the presidential election is drawing closer, moves like this are usually seen as publicity stunts.”

Consequences of Wage Rise

With the living wage now having been determined, the employers are wondering if they are able to pay such a sum.

That said, employers present a doomsday scenario: higher wages obviously lead to higher production costs. This will deal a blow to producers who have to rely on exports due to an all-encompassing recession in the local markets, while foreign rivals with superior technology and lower costs would speed past Iran both in target markets and those at home.

With profits dropping drastically, production would eventually cease and there will no longer a job to argue about its wage in the first place!

The scenario was described by Morsal Seddiq, an Iranian entrepreneur, in an interview with the Persian daily Jahan Sanat.

“Raising the minimum wage might benefit the workers on paper, but it will hurt them in the long run,” he said, emphasizing that it is commonsense that the employers’ loss is also shared by workers.

He noted that any unreasonable boost in wages will be a “double-edged sword” for the country, which could lead to higher housing, food and other costs.

In fact, Seddiq believes that the minimum wage question is not even among the main issues facing the country.

“We first have to fix issues [impeding production growth] such as lack of technology, high production costs and banking problems. We cannot pretend that everything is fine and that the workers’ wages is the only problem,” he said.

Seddiq called on the government to stop pressuring the employers for higher wages and to think of another way to fix the issue instead.

Workers’ Right to Organize

Vatankhah believes that just like any other active group in the economy, workers would not be able to advance their interests without the right to organize.

“The workers’ bargaining power lies in their organization. We are deprived of this right, while employers enjoy the freedom of establishing chambers of commerce, syndicates and councils,” he said.

As a member of the International Labor Organization, Iran has yet to ratify 66 conventions set forth by the United Nations body. The top three, labeled as fundamental, are “freedom of association and protection of the right to organize convention,” “right to organize and collective bargaining convention” and “minimum age convention”.

Established in 1919, ILO brings together governments, employers and workers representatives of 187 member states to set labor standards, develop policies and devise programs to promote decent work for everyone.

The “freedom of association convention” indicates that workers and employers, without any distinction whatsoever, shall have the right to establish and, subject only to the rules of the organization concerned, to join organization of their own choosing without previous authorization.

They shall also have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organize their administration and activities, and to formulate their programs.

Moreover, the organizations shall not be liable to be dissolved or suspended by administrative authority.

With no organizations, workers are deprived of any bargaining power against the employers, which disrupts the balance required in a healthy labor market.

As Adam Smith, the father of modern economics, puts it in his seminal work The Wealth of Nations, “servants, laborers and workmen of different kinds make the far greater part of every great political society . . . no society can surely be flourishing and happy, of which the far greater part of the members are poor“.