Salary compensation : Does it Really Compensate for Loss in Purchasing Power?

On Thursday 6th December 2018, the Prime Minister and Finance Minister Pravind Jugnauth, chairing the annual tripartite meeting of trade unions, employers federations and government bodies, announced a salary compensation of Rs  400. This compensation is payable as from January 2019. But does the annual compensation really compensate for the loss of workers’ purchasing power?

The much-awaited decision has been announced on Thursday. Workers will receive a compensation of Rs 400 as from January next year. This figure was arrived at after joint deliberations at the annual tripartite meeting. A first meeting was held on Thursday 22nd November, under the chairmanship of Labour minister Soodesh Callichurn. According to Statistics Mauritius, an inflation rate of 3.3% is expected for the year 2018, while the GDP growth rate is estimated at 3.9%. Last year, at this time, it was the advent of the minimum wage that was in the news. This year, contrary to what was expected, economic rigidity has taken precedence over electoral partisanship, despite the fact that the Government is completing the last leg of its five-year mandate in 2019. The government initially proposed a compensation of Rs 330, but following further deliberations, and in the face of mounting pressure from trade unions, the government finally proposed the sum of Rs 400. 

Compensation

It should be noted that the national debt has already exceeded Rs 307 billion last September while official figures from the Bank of Mauritius indicate that local commercial banks have provided credit, as at 31 October 2018, to the tune of nearly Rs 360 billion to the private sector.

Every year, there is a tripartite meeting, which is attended by representatives of employers, trade unionists and the Government. The unions make their proposals, the employers express their fears about the ability to pay and the Government concludes the final amount. But does the annual wage compensation really compensate workers for the loss of purchasing power? Is there another way to determine compensation? Are there alternative compensation methods? Trade unionist Rashid Imrith explains that the tripartite committee is a political rather than an administrative mechanism, and it is a very important one. “There is no other alternative,” he says. For economist Pierre Dinan, it is a rather complicated question as this exercise is a long established tradition. “The wage compensation is determined primarily by the rate of inflation. In the past, I once said that productivity must also be considered as one of the factors,” says the economist. He explains that there are people who can cope with a loss of purchasing power, but others, especially those at the bottom of the social ladder, deserve a decent compensation. However, he finds that a fixed amount is better than a percentage, because with a fixed amount, those at the bottom of the ladder earn relatively more. “It does not bother me if inflation is taken into account to compensate people in need, such as the working class and those who are in receipt of a pension or social aid, but for the rest, I believe productivity should be taken into account as well.”  He adds that productivity is not just about labour but about capital too.

Purchasing power

Trade unionist Faisal Ally Beegun of the Textile Manufacturing and Allied Workers Union says the tripartite meeting has become an annual routine exercise where he feels the government is playing with the unions. “Every year we make our proposals, and the Government comes with a paltry final figure. However, it is only when we are on the eve of elections that the Government comes with a miraculous figure, sometimes more than that proposed by unions! I think politicians should stop playing with trade unionists,” says Faisal Ally Beegun. He explains that the wage compensation does not really compensate, because, simultaneously, workers experience price hikes in most commodities. “Already, we have been told of a probable increase in the electricity tariff. And in January, I predict a wave of price increases. So what compensation are we talking about?” He proposes that the minimum wage should be able to reach Rs 15,000 as an average Mauritian family cannot live decently with Rs 9,000 per month. “Imagine someone who has to pay house rent and private tuition for his children, how can he manage with Rs 9,000 a month? Many workers are being forced to do a second job, just like most foreign workers do, especially during weekends. By the way, let's have a special thought for foreign workers who, too, deserve a decent compensation.”

Darmen Appadoo, a social worker, says that every year he proposes that the government lowers the rate of VAT. “It's the best and easiest way to boost consumer purchasing power. If the private sector does not have the capacity to pay a generous compensation, then the Government should consider lowering VAT, which will cause a drop in general prices.”

Radhakrishna Sadien : “Control prices to protect purchasing power”

The chairman of the Government Services Employees Association, Radhakrishna Sadien, is this year focusing on the need to control consumer goods prices as part of the wage compensation debate. For the trade unionist, the country is facing a huge problem of rising prices of consumer products and there seems to be no control. “The purpose of wage compensation is to compensate for the loss of workers' purchasing power, but how can they be compensated when there is no price control?” He is appealing to the Government to consider the extent of this problem and bring remedial solutions. “Price display is another major issue. In many cases, price is never affixed on the product and it is decided according to the customer's head or wallet. The consumer is eternally fleeced,” says Radhakrishna Sadien. He also denounces unscrupulous practices, such as charging a paper bag for an exorbitant price when buying bread or selling thawed fish as fresh.

Secondly, he believes there must also be better control over the quality of products put on sale. “The customer is always looking for the lowest price, but unscrupulous traders take advantage of the situation to offer poor quality products to entice customers, and they suffer.”

Thirdly, he believes that the gap between those at the bottom of the ladder and those at the top of the hierarchy needs to be further narrowed. “You cannot have a salary of Rs 10,000 on one end and a million on the other.” The trade unionist finds that middle-class salaried workers are the most penalised because their salary level does not entitle them to the various State aid programs and schemes, but they are the ones who pay the most tax, while many well-off people, such as traders, self-employed professionals, etc. can avoid paying taxes. He further believes that the minimum wage is not enough to live decently, and the Consumer Price Index no longer reflects reality because commodities and consumption patterns have changed. “For example, at certain times of the day, ‘pain maison’ bread is scarce and the consumer is forced to buy luxury bread whose price is not controlled. Similarly, bottled water has become a necessity because people doubt the quality of tap water.” Radhakrishna Sadien concludes that the Pay Research Bureau has also not yet readjusted the public sector wage following the introduction of the minimum wage.

Zohra Gunglee : “It’s time to rethink compensation methods”

Zohra Gunglee, an economist and lecturer at UCLan Mauritius, believes that the debate over wage compensation and tripartite meetings is similar from year to year, but does not really tackle the problem. She also believes that wage compensation is not the only way to compensate for the loss of purchasing power. “Unlike many countries, in Mauritius we have free transport, subsidies on rice, flour and gas. Consumers do not pay for the first six units of water consumed. There are also several state aid schemes, poverty eradication programs, income support, etc, to alleviate the burden of the working class and the needy. Indirectly, these are compensatory. If we add the cost of all these, we can say that the average Mauritian family benefits from a fairly large compensation,” says the economist. Thus, she is of the opinion that, comparatively, the wage compensation is insignificant compared to all these facilities already provided to the nation. Zohra Gunglee believes that instead of spending billions to give a small compensation to each worker, we could have invested the global amount in large social projects so that the population benefits better. “For example, we could buy about 50 additional ambulances, or more water tank trucks for the CWA to serve the population better, or invest in solar energy on a large scale in order to lower the electricity rate,” she proposes.  She concludes that wage compensation should not be a simple arithmetic calculation exercise that is done once a year, but rather should be a continuous exercise throughout the year to see how to really compensate workers, not necessarily in terms of monetary policy, but in other different innovative forms.