Is the Minimum Wage Bill long overdue?

The law. Proponents of the minimum wage believe it will improve living conditions of workers. Photo by Godrey Lugaaju

What you need to know:

  • The market almost always predicts reduced cash flows as a direct result of strikes and indeed studies in South Africa (where mining strikes have been monumental) have revealed that ‘there appears to be a permanent loss to shareholders of companies that experience strikes, says the report.

The Uganda Shilling to US dollar exchange rate (average) in 1984 was $1 (about Shs359.67), according to Bank of Uganda.
Then (1984), the minimum wage – the lowest pay an employer could pay a worker – was Shs6,000 ($16.6).

Since then, Uganda has not insisted on such a minimum wage but there have been attempts by, among others, Arinaitwe Rwakajara, one of the Workers Representatives to Parliament, to institute one.

Last week, Parliament passed the Minimum Wages Bill, which Rwakajara had initiated in 2015 as a Private Member’s Bill.
It will come into force on a date the Minister of Gender, Labour and Social Development, will designate through a statutory instrument.

Determining the wage
Before that, the minister will appoint a board, which will be recommending the minimum wages for all classes of workers, the terms of employment in the sectors and carry out periodic revision of the minimum wage.
To arrive at the lowest wage, the board will reflect on, among other things, the needs of workers and their families.
It will consider the skills of workers, their productivity and the general level of wages in Uganda.

Additionally, it will look at cost of living, variations in consumer price index and any other matters the board will consider appropriate.
It will advise the minister on issues concerning employee working conditions and terms of employment.
Employees in sectors where no minimum wage has been prescribed, may initiate negotiations on the same with their employers.

The decision timeline
Such negotiations should be concluded within three months. If the parties to minimum wages negotiations fail to agree within six months, any of them can refer the matter to the Industrial Court to determine the minimum wage applicable.

Penalty for going against set wage
Employers who fail to pay a minimum wage commit an offence and will be liable – upon conviction – to a fine not exceeding Shs10m for each offence or imprisonment for a term not exceeding three years or both.
“This will force employers to comply with the law,” State minister for Sports, Charles Bakkabulindi, said during a press conference at Parliament on February 20.

Arguments against minimum wage
A 2016 report by Centre for Policy Analysis (CEPA) notes that it could increase the cost of labour. In turn, that would increase the cost of doing business and consequently reduce investment. “Economic theory agrees for it predicts reduced investments in the face of fixing or increasing minimum wages,” it says.

Still, CEPA says evidence from other economies reveals the cost of labour is just one of the many factors that influence investment. But Margaret Rwabushaija, a Workers Representative to Parliament, argues that it is not true that a minimum wage will discourage investment.
“Kenya has a minimum wage law but investors have not shied away from Kenya; Kenya might even be attracting more investors than Uganda does,” Rwabushaija said at Parliament last week.

The CEPA report, titled Does Uganda Need Minimum Wage Legislation? A Critical Review of Uganda’s Minimum Wage, says the other argument against a minimum wage is that it exacerbates unemployment.
“…opponents argue that in the face of minimum wages, employers are more likely to lay off workers or substitute human resource for alternative means.
“Indeed in China, a study has indicated ‘that the Chinese minimum wage policy has reduced firm investment rates in human capital and led to an increase in fixed capital investment rates.

“Slapped with higher minimum wages, investors generally substituted their investment in labour with fixed capital.
“Nonetheless, the study in China has qualified its findings; not on the conclusiveness of the fact that a minimum wage leads to unemployment, but on the extent of the unemployment.

It notes that previous non-investors were not significantly discouraged from undertaking human capital investments in the face of minimum wage hikes and, therefore, limits the substitution effect to existing investors.”
Another disadvantage the CEPA report notes is that given the large informal sector in Uganda, it will be difficult to ensure compliance.

Arguments for wage
CEPA says interventions to set minimum wages are often driven by a need to improve the living conditions of a country’s workforce.
In liberal economies like Uganda’s where free market considerations limit government’s role to provide support services, the welfare of citizens is often neglected, it says.

Labour
“The cost of labour, like all other sectors of doing business, is solely moderated by forces of demand and supply; the inevitable result being that workers (especially the unskilled) are forced to receive the least possible pay,” it says.

Checking strikes
The report says it is often the case that poor condition of work results in strikes, which discourage investment.
The market almost always predicts reduced cash flows as a direct result of strikes and indeed studies in South Africa (where mining strikes have been monumental) have revealed that ‘there appears to be a permanent loss to shareholders of companies that experience strikes, says the report.

“In the case of Uganda, although labour unions and collective bargaining are not as organised as they should be, the effect on the investment climate can be similarly disastrous. With a low income and high poverty levels, the government has always opted, for the sake of the investment climate, to persuade, engage or coerce the work force into abandoning strikes. This explains its ‘no strike policy’ which has indiscriminately been applied to both political and economic strikes.”

Membership of the board

The board will comprise four persons drawn from the ministries of Finance and Gender, Central Organisation of free Trade Unions of Uganda, the National Organisation of Trade Unions of Uganda and the Federation of Uganda Employers.

Additionally, the board will have four assessors drawn from the Bank of Uganda, the National Planning Authority and the Uganda Bureau of Statistics.

The members will be appointed on the basis of their knowledge or experience or interest in trade unions or matters relating to workers.

It will also be on the basis of knowledge or experience or interest in employers’ associations or matters relating to employers generally.