‘Provide better wages and salaries for labour to increase productivity’

Workers – who need jobs in order to generate earnings to purchase goods and services – enter the labour market willing to supply their labour in exchange for wages or salaries.

While wages are hourly or daily payments for work done during the working day, salaries are fixed upon payment agreed to by both the employer and employee. Wages or salaries are more often than not the primary incentive for increased productivity. That notwithstanding, it is workers’ labour that essentially generates or extracts the wealth from productivity.

Therefore, the idea that increasing productivity will attract better wages for workers is unfounded and not progressive. It is a motivation for labour exploitation wherein workers are taken unfair advantage of. And considering the fact that the work force of Ghana is mostly in the public sector, where the means of production is owned by government, it comes as a crooked thought by government to insist that extracting productivity from workers without giving premium to better wages for them is the best approach to redeem our moribund economy.

Minister of Employment and Labour Relations, Ignatius Baffuor Awuah

Recent studies undertaken under the International Labour Organisation (ILO) have shown that increased minimum wages not only help to reduce wage disparities and channel productivity gains into higher wages, but they also can contribute to higher labour productivity – at the enterprises level to the aggregate economy-wide level.

At the enterprise level, workers may be motivated to work harder. They may also stay longer with their employer, gaining valuable experience and also encouraging employers and employee to engage in productivity-enhancing training. At the aggregate level, increased minimum wages can result in more productive businesses replacing least productive ones – and surviving ones becoming more efficient. These mechanisms can increase overall economy-wide productivity. What’s more, below are some reasons why government should accede to the calls for better wages for Ghanaians workers:

A. Workers are more motivated

A number of studies have supported the hypothesis that employees consistently provide higher effort levels in response to higher wages – the so-called ‘efficiency wage’ theory. Most of these studies have focused on pay levels of individual agencies, organisations and companies, showing that higher pay compared to elsewhere can attract more experienced and motivated applicants. Higher pay can also elicit greater commitment and productivity from existing employees (Ehrenberg and Smith, 2009). The effect of better minimum wages on workers’ motivation has also been found to be positive.

B. Efficiency of work

Although some labour experts argue that productivity increases may be the result of a fall in employment due to the minimum wage, as work substitutes capital for labour and adopts more capital-intensive production technologies, this remains distinctly insignificant as the minimum wage of some work is set high. In addition, increase in labour costs also increases labour productivity.

Labour productivity changes do not come about through a reduction in workforce by laying-off workers or through capital-labour substitution. Rather, they are associated with increases in total factor productivity, consistent with organisational change, training and efficiency wage responses to increased labour costs from minimum wages. (Riley and Bondibene 2015)

C. Increased efficiency at the macro level

At the macro-economic level, it can be observed that minimum wages may prompt low-productivity works or organisations to leave the market and higher-productivity firms to expand – thereby raising overall efficiency of the economy.

A typical example is the Chinese economy, in that for 2014 data show more than 160,000 manufacturing companies in China realised that increases in minimum wages resulted in lower survival probability for low-productive companies.

They explain this finding by the fact that productivity in surviving companies improved significantly, allowing firms to absorb the higher labour costs without hurting their employment or profitability.

They conclude that minimum wage growth allows more productive companies to replace the least productive firms, and forces incumbent companies to strengthen their competitiveness.

National Financial Inclusion and Development Strategy (NFIDS) – Ghana

In 2018, Ghana’s government under the Ministry of Finance initiated the National Financial Inclusion and Development Strategy (NFIDS). This programme ends in 2023 and seeks to reduce economic vulnerability and income inequality through the development of a broad financial inclusion policy.

In addition, NFIDS aims to address the fundamental barriers preventing an underserved population from accessing financial products and services which would enable them to generate income, build assets, manage financial risks and become economically empowered.

If government seeks to achieve this agenda, it must ensure better remuneration and incentives for our workers. The four percent base pay salary increment recently announced by the Minister for Labour and Employment in the wake of introducing numerous new hefty taxes and the high cost of living in this COVID-19 era will largely increase the financial vulnerability or financial gaps for the Ghanaian worker.

Labour agitations

Government should therefore consider withdrawing the four percent increase in salary. The labour union leaders should, in good faith, continue to press home their demands on government for it to go back to the negotiation table with them to reconsider its decision. One of the core principles about negotiation, as captured under article 97 of the Labour Act, 2003 (Act 651), provides that all parties to the negotiation of a collective agreement shall negotiate in good faith and make every reasonable effort to reach an agreement.

It is believed that there’s room for further negotiations between labour and government; and that negotiating parties are expected to be honest, faithful, believe in their cause and observe reasonable standards or norms of the various organisations which constitute the public sector of the country to bring the impasse of a strike and those looming to rest.

Those ones who understand the situation of the economy and manage should be in a better position to know that workers who struggle daily to contribute in development of the economy deserve a better salary, not otherwise.

How can someone taking a salary of less than two thousand Ghana cedis survive after all these taxes are deducted in addition to SSNIT and other levies? Adding to this fact, government claims that the four percent pay increase is due to the dire economic situation created by COVID-19; meanwhile, that it has increased the salary of Article 71 holders astronomically does not sit well in mind. To labour, this explanation is discriminatory and unfair.

Conclusion

From all indications, studies have shown that there is a positive correlation between wage increases and productivity, and a regressive correlation between increases of productivity and wages. For that matter, it imposes on government the responsibility to ensure the Ghanaian economy in its ailing state receives the needed stimulus through the provision of better wages for workers to shore-up economic production in the country. This, most importantly, includes providing the teeming unemployed youth – who are the economy’s workforce – jobs for rapid growth of the economy.

References

1. Ehrenberg R. G. and R. S. Smith, 2009. Modern Labour Economics: Theory and Public Policy, 10th Edition, Pearson.
2. Riley, R.; Bondibene, C., R.; 2015. The Impact of the National Minimum Wage on UK Businesses. Report to the Low Pay Commission. National Institute of Economic and social Research and Centre for Macroeconomics.
3. Mayneris, F.; Poncet, S.; Zhang, T.; 2014. The Cleansing Effect of Minimum Wage: Minimum Wage Rules, Firm Dynamics and Aggregate Productivity in China. CEPII working Paper.

>>>The writer is a Tax Analyst. He can be reached at marcusgarvey.snr@gmail.com