An economy characterised by a high level of informal labour can offer little protection to workers. And according to the Labour Force Survey of 2020-21, Pakistan’s informal sector accounts for more than 70 per cent of non-agricultural employment.

Not that matters are superlatively different for the formal sector. Each province has a different minimum wage, ranging from Rs19,000 for Sindh to Rs21,000 for Khyber Pakhtunkhwa. How many employers actually pay the minimum wage is another matter altogether.

“If I am being very generous, about 30pc of the informal sector receives the minimum wage of Rs19,000 and roughly 60pc of the documented sector,” says Majyd Aziz, former president of the Employers’ Federation of Pakistan. “The concept of a living wage is not present in Pakistan,” he adds. A living wage is a minimum income necessary for a worker to meet their basic needs, a notion completely alien in this country.

According to Global Living Wage, the cost of a basic but decent living for a family of about five in rural Sialkot in 2019 was Rs36,053. The biggest component of this wage is food, taking up almost half of the income, while other broad categories are housing, provision for unexpected events and all other expenses such as schooling, transport, education, etc. Factor in inflation and the much higher cost of living in an urban setting like Karachi where commutes are longer and crime common, the amount required for respectable livelihood increases far above Sindh’s minimum wage threshold of Rs19,000.

In an argument of labour costs vs labour productivity, the debate of a higher minimum wage is limited to rhetoric since most of the employment is in the informal sector

So are employers evil for knowingly giving less to workers?

Not necessarily, explains Mr Aziz. “Productivity in Pakistan is so low that you need to hire three workers to do the work of two. Individually workers are not expensive, collectively they are,” he says detailing the extra resources and administrative costs. “When you account for bonuses, employees’ old-age benefits, sick leaves, annual leaves etc, a single Rs19,000 worker cost me more than Rs30,000 per month,” he says. It makes much more sense to hire three employees for Rs15,000 than two for Rs25,000 and pay roughly the same amount.

According to a Danish Trade Union Development Agency 2021-22 Labour Market Profile, Pakistan ranked 63 out of 141 in terms of pay and productivity. Except for Afghanistan, Pakistan’s labour productivity has stayed low compared to neighbouring countries. Though it was the same as India in 2010, the latter’s labour productivity grew by 65pc while Pakistan grew by 17pc during the 2010s.

The reasons are endemic, old and well known. Pakistan’s labour is less productive because it is less educated and less trained. Those who work continue to live in poverty with limited access to welfare services. Child labour, bonded labour and gender-based discrimination are prevalent. The pandemic-induced economic downturn cost many formal jobs, forcing more into the informal economy with lower daily incomes. Together, this hodgepodge of reasons is some of the factors driving low labour productivity.

There has been occasional noise to increase the minimum wage to Rs25,000. After initially being shot by the Supreme Court, the latest half-hearted attempt was Prime Minister Shehbaz Sharif’s recent ascension to power when he announced the increase in the minimum wage as one of the first orders of business. But without an official notification, there can be no implementation.

And the notification and implementation will be resisted, even if most employed are not being paid the minimum wage. Why would any entity accept a roughly 30pc overnight bump in its labour costs? A more prudent measure would be to increase the minimum wage rate incrementally in bands of Rs1,000-2,000, says Mr Aziz.

And while it is pleasing for a layperson to think the underprivileged are being paid a higher salary, if the minimum wage is increased, logic disabuses the notion.

In an interview with former Punjab cabinet member and civil servant Hasaan Khawar, the Pakistan Institute of Development Economics outlines that the more the regulation, the more the efforts to evade it. Meaning, that the higher the minimum wage, the higher the incentive to hire informal workers which is why a delicate balance has to be maintained between labour protection and business growth — an argument that would make sense for many a business owner much to the detriment of workers. Which side a person agrees with depends on which side of the fence the person is standing on: employer or employee.

Published in Dawn, The Business and Finance Weekly, May 9th, 2022

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