Egypt is studying plans to set maximum monthly wages for government employees at LE42,000 — 35 times the newly set national minimum wage of LE1,200. Both are due to take effect in January for nearly 5 million public employees.
A source at the Finance Ministry told the privately owned Al-Shorouk newspaper that the government, by capping wages, would save about LE2 billion, up from a previously budgeted LE1.2 billion savings for fiscal year 2013-2014.
But implementing the minimum wage is expected to cost a lot more than this sum. On Monday, the Finance Ministry said the changes would cost LE21.36 billion. This is a marked increase from earlier estimates that the cost would be about LE18 billion annually.
When the new maximum and minimum wages are implemented in January, the cost for the first six months, ending June 30, will be half that, at around LE11 billion.
One concern remains to be how the government, already struggling with a gaping budget deficit and a less than robust balance of payments, will fund the increase in the minimum wage.
Some economists have suggested that capping the maximum wage will save the state billions of pounds, which can then be reallocated to paying for the new minimum wage. However, the numbers clearly suggest that this will not be sufficient.
Reda Eissa, an independent economist, told Mada Masr that the bigger issue facing Egypt’s finances, and a proper wage structure that ensures a higher standard of living, is proper supervision and regulation of market prices, as well as transparency around the state budget.
“More important than setting a minimum and maximum wage is monitoring and regulating the prices of basic commodities so that they are not suddenly hiked by traders and retailers once a new wage is set,” Eissa said. Otherwise, workers’ higher wages will go to spending on basic needs at higher prices.
Eissa also contends that it is not impossible to fund the cost of a higher minimum wage if there is clarity around the state budget and if it lives up to international standards of transparency. He referred specifically to the controversial private funds, where much of the budget of individual ministries goes and which is unaccounted for in the annual state budget.
“This is the mystery box where about LE40 billion lies, and if this is accounted for properly in the state budget, then the maximum wage cap can indeed fund the new minimum wage,” he said.
Another issue of contention is that this wage scheme would so far only apply to about 4.8 million public sector employees, without taking into account the private sector and the more significantly sized informal economy.
According to Finance Ministry documents obtained by Al-Shorouk, the number of public sector employees increased over the past year by 2 percent to reach 5.5 million. However, some high-level employees and consultants will be exempt from the wage scheme.
Although there are currently studies to determine the feasibility of regulating the wage scheme in the private sector, setting a maximum wage is seen by analysts as a deterrent to investments.
The wage debate has been ongoing in Egypt for several years now, first over the amount for the minimum, which has increased from a previous LE730 per month but is still seen as too low to significantly improve living standards.
It was also seen as imperative that a maximum wage be set as a way of ensuring social justice, and in the immediate aftermath of the January 25 uprising, successive governments promised to do so. But despite the passage of a wage law, the state has yet to implement the new public sector wages.
In early November officials in the interim government announced that they would bring Egyptian and foreign experts together to devise a framework for implementing the minimum and and maximum wage scheme.
