Iran: Economists Support Raising Minimum Wage, But With a Catch

EghtesadOnline: In Iran, private-sector wage discussions and bargaining between the representatives of employees and employers, as well as the government, which constitute the Supreme Labor Council, to agree upon the pay raise for each year usually start in mid-December and reach its peak in March.

News ID: ۷۴۶۹۳۳

16 March 2019

However, the economic climate at the close of the current fiscal year (ending March 20) hardly makes it possible for one to take side in wage negotiations.

While the prices of goods have risen sharply and diminished the purchasing power of workers, it was a constant struggle for employers whose businesses faced a heap of thorny issues.

The Statistical Center of Iran's latest report shows the goods and services consumer price index in Iran registered a year-on-year increase of 42.3% in the 11th Iranian month (Jan. 21-Feb. 19) compared with the similar month of last year, according to Financial Tribune.

CPI calculated using the Iranian year to March 2017 as the base year stood at 158.1 in the same month, indicating a 2.2% rise compared with the previous month. The average goods and services CPI in the 12-month period ending Feb. 19 increased by 23.5% compared with last year’s corresponding period.

Under the circumstances, the state-run Persian daily Iran has asked a couple of economic lecturers and commentators whether they approve of setting a minimum wage and if yes, what should it be.

Supply and Demand

When it comes to wages, supply and demand are the most important factor, said a senior fellow at Allameh Tabatabaee University, Amrollah Amini.

"The productivity of an employee as well as keeping up with inflation rate must be the benchmark for setting wages. In developed countries, both employees and employers are strong. The workers have the right to form and join syndicates. In countries such as ours, since the unemployment rates are high, jobless individuals agree to work at any wage. Here, the government is willing to consider inflation rate but employers don’t comply,” he said.

SCI's latest data show Iran’s unemployment rate, the proportion of jobless population of ages 10 years and above, stood at 11.7% in the third quarter of the current Iranian year (Sept. 23-Oct. 22, 2018), indicating no change compared with the same period of the last year.

A total of 3,174,042 Iranians were unemployed in the third quarter, the latest report by the Statistical Center of Iran read. Men's unemployment rate stood at 10.1% while women's joblessness hovered around 18%, as over 2.19 million men and 980,578 million women of ages 10 and above were jobless in the period.

The unemployment rate was 13.2% for urban areas (2.64 million people) and 7.6% for rural areas (528,994 people). The unemployment rate in autumn comes lower compared to the rate of 12.2% in summer.

SCI provides two figures for the youth unemployment rate: the proportion of the population between the ages of 15 and 24 and those between the ages of 15 and 29. The youth unemployment rate of those between 15 and 24 years stood at 27% in Q3, posting a 1.3% decrease while the unemployment rate of those between 15 and 29 years, stood at 24.5%, posting a 0.5% decline compared with the same period of last year.

History of Minimum Wage

The minimum wage’s origins are traced to workers’ movements in industrialized nations in the 19th century. Long hours, low wages and lack of safety led unions and social reformers to advocate a variety of laws to protect factory workers.

The first minimum-wage laws, which appeared in the 1890s in New Zealand and Australia, and the 1900s in the United Kingdom, were not minimum national wage, but minimums for specific industries where there were concerns that workers were being taken advantage of.

“The debate over setting a minimum wage is a hot topic in nearly all economies since individuals with basic, nontechnical skills account for a significant share of labor force and the governments are willing to ensure they receive a fair wage at various jobs,” Hassan Taei, the dean of the College of Economics at Allameh Tabatabaee University, said.

“There’s no denying that price hikes in the current year reduced the purchasing power of workers’ households. The government and employers, however, might not be able to raise wages in proportion with inflation rate, but they have to compensate at least a fraction of the loss in purchasing power,” he added.

Alinaqi Mashayekhi of Sharif University believes that the minimum wage should differ in different areas of the country.

“Costs are not similar in all cities of the country and it is best if the government stays out of the negotiations regarding pay levels. The only thing the government needs to do is to ensure all workers have insurance coverage," he said.

According to a Fars News Agency report, the Supreme Labor Council has rejected the idea of setting next year’s minimum wage based on the province or area of the worker's residence, suggesting that the council will set a nationwide minimum wage for next year.

Risk of Job Losses

Mohsen Izadkhah, economic researcher who has served at the Social Security Organization of Iran, said, “In developed, industrialized countries where economies are predictable and stable, wages are adjusted for inflation. There are exceptions to this general norm in Iran. First, year-on-year consumer inflation has exceeded 40% in recent months, wreaking havoc on the purchasing power of workers. Second, one may well ask, ‘Is the onus (of raising wages) on the employer to compensate the loss of workers’ purchasing power or the government whose misguided economic policies have actually resulted in this rampant inflation?’”

Izadkhah noted that official statistics put the number of unemployed Iranians at three million, whereas according to unofficial figures there are six million unemployed in the country.

According to standard economic theory, a government-enforced minimum wage risks the loss of jobs, as there could be some employers only willing to hire workers at a wage below the minimum, and some workers without jobs could take one that pays below that minimum.

By mandating a minimum wage, the government will harm both employers and employees, and hurt the economy’s productivity to boot.

“The data suggest that the supply of labor force is larger than demand. Now the Supreme Labor Council is seeking to adjust minimum wage with the poverty line. It seems impossible for the employers to fulfill this task single-handedly. Therefore, I recommend the government to improve the livelihoods of workers by granting cash or non-cash funds,” Izadkhah said.

All economists interviewed by the Persian daily favored the minimum wage. However, they all failed to give an estimate for next year’s minimum wage.

For government employees and retirees, the parliament has envisioned a monthly raise of four million rials (about $30) in the new Iranian year that starts on March 21 as per an amendment to next year’s budget.

The parliamentarians also allowed the government to increase wages of its employees by up to 10% apart from the fixed annual pay raise.

Meanwhile, private-sector workers will not know how much they will be paid until the New Year holidays are over (on April 2).