Proposed national minimum wage law: Preliminary victory for workers

27 Mar 2016 - Commentary

A bill was recently passed in parliament on March 11 that ensures private sector workers earning less than Rs. 40,000 will receive a mandated Rs. 2,500 increase. In addition, the bill fulfils a pledge from the Rajapaksa era to institute a national minimum wage of Rs. 10,000. While some details may be modified in the process of turning the bill into an act, it is worth addressing its content. The current government should be commended for making good on its promises from last year to increase private sector wages. There are issues, however, with the technical framing, insofar as it does not appear that there is a clear and effective mechanism for periodic revision of the minimum wage.

This is especially problematic given the fact that the minimum wage of Rs. 10,000 is a political “compromise” and thus does not reflect the true needs of ordinary people. The minimum wage has an important role to play in a context where organised labour faces significant uphill battles. The fact that Sri Lanka has a very low rate of unionisation, less than 15 per cent according to the ILO, combined with the politicisation of enforcement, means that often many workers are not paid even the benefits to which they are entitled. As a result, it is not enough to simply pass the current bill. There must be a concerted effort to outline a mechanism that will determine the minimum wage going forward, in addition to making it enforceable. It is worth considering proposals to create a “National Wage Council,” and practical ways of implementing such a mechanism that are being discussed.

Purpose of the minimum wage

In the past, employers have argued that wage increases mandated by the government undermine capital growth because they are arbitrary. They argue that wages must be linked to productivity. An ILO report on the “Fundamentals of Minimum Wage Fixing” notes, however, that wage becomes a focus of politicisation in contexts where other mechanisms for increases are unavailable. Employers’ hostility toward government-mandated wage increases is ironically a product of the weakened state of organised labour in Sri Lanka, including the fact that fewer workers are represented by existing institutions such as the Wages Boards. While there are Wages Boards established for 43 industries, they currently cover less than 20 per cent of the labour force (calculation based on and the Labour Force Survey). Moreover, the Wages Boards do not always meet regularly, and so there are concerns about their effectiveness as forums to articulate workers’ concerns.

If we look back at past examples, the report of the National Wage Policy Commission of 1961 offers an alternative set of principles for understanding the importance of the minimum wage. One of the last systematic attempts to try and establish a set of principles for determining the minimum wage, the Commission recommended the creation of a National Wage Council that would be staffed with representatives from employers, workers, and the government. The report argues that there are two principles for determining wages: social justice and economic development. It says that while industry must grow, this should not infringe on a decent standard of living for workers. The report also criticises vague appeals to tie wages to “productivity” by arguing that the minimum wage should be justified by the industry average, not the lowest common denominator of the firm that can barely pay its employees.

Since the publication of the Wage Commission’s report, much has changed in terms of Sri Lanka’s economy and its labour force. The policy of economic liberalisation adopted by all governments since 1977 in order to support export-oriented growth puts downward pressure on wages. Moreover, employers and the government have at times undermined workers’ unions, in addition to the complicity of some of the latter that were involved in relations of patronage. Countries around the world have faced the dismantling of organised labour since the 1980s. The question now is why support the creation of a minimum wage mechanism in Sri Lanka? The minimum wage will not solve all of the workplace issues people continue to face, but it forces us to consider the state of the working class, similar to the “Fight for $15 (an hour)” wage struggle in the US. It is a useful index of the collective strength of labour in a country.

Way forward

Ultimately workers’ issues will only be resolved by strengthening the labour movement, including workers’ right to collective bargaining. Employers are free to criticise mandated increases, and it is true that the government cannot solve every issue in society. Nevertheless, the recent bill to increase the wage by Rs. 2,500 and to establish a minimum wage is a step in the right direction, because it rectifies the fact that private sector workers especially have faced significant difficulty being heard. If employers are truly concerned about the arbitrary impact such wage increases will have on the economy, they should support a National Wage Council similar to that recommended by the Wage Commission report and which is further enshrined in the National Workers’ Charter.

The design of such a mechanism must incorporate principles of social justice that recognise the fact that without workers, there is no industry, and that without a decent standard of living, workers will not be able to survive. Furthermore, continuing to think and organise around the issue of the minimum wage could lead to exploring and dealing with issues in enforcement. This means addressing the lack of workplace inspections, and reported cases in which workers have not received benefits to which they are entitled. Employers need to report all pay raises in a clear and transparent manner, and in a language that workers will understand. Even still, it is unlikely that the minimum wage will be enforced effectively in a context where many people work in home-based industries, as domestic workers, and so forth, including 60 per cent of the labour force that is in the informal sector. Nevertheless, the goal of the minimum wage should be to extend the concept of labour, and the idea that there is a minimum standard of living all are entitled to, indeed require, regardless of their workplace or status of employment.

(The writer acknowledges the information and support provided by T.M.R. Rasseedin, the National Association for Trade Union Research and Education, members of the National Labour Advisory Council, and members of the Collective for Economic Democratisation)

This piece was published in the Sunday Times on 27 Mar 2016.