PER CAPITA INCOME AS A NATIONAL ECONOMIC GOAL AND EMERGING NEED FOR NATIONAL WAGE POLICY
Following is an appeal to the International Labour Organisation, Labour and Human Resource Development Ministries and Charted Institute of Personnel Management Sri Lanka.
The economic cost of strikes and street protests is on the increase and most of them are politically motivated. Strikes are legitimate rights of employees in any country. The eight million employees in Sri Lanka are accounting for about 38 percent of the total population. This means every two persons employed have to maintain five persons unemployed, keeping in line with the ‘dependency syndrome’.
With a negative trade balance and balance of payment, increased exchange rates, growing unemployment rate, increasing inflation rates, almost double the value of exports being imported and total borrowings exceeding 90 percent of gross domestic product (GDP), the frustration of the employed is understandable. Ironically, the plight of employers too has to be understood, having to secure their market share in the international marketplace amidst fierce battles under the same weak economic indicators.
Accordingly, a need is emerging for the trade unions to be ‘organisational centric’, leaving behind political interests. ‘Killing the goose that lays the golden eggs’ to become rich quicker is a futile effort. This is not the time to fight for conditions of employment but to secure employers until the economy recovers fast.
In short, an improved system is required to keep politics and economics separated from each other with clearly demarcated boundaries. Both the state and trade unions have to work together to strengthen the employer and national economy as a top most priority.
A provision declaring that the union shall not have any political objects or political fund within the meaning of section 47 of the ordinance may be introduced to the amended Trade Union Act of Sri Lanka that may be applicable to all trade unions, including both the private and state sectors.
A well-developed wage policy is one of the effective solutions we propose to address the gap that is anticipated. This intervention is merely to be proactive and addressing a pressing need as well. The four institutions, to which this appeal is made, may in turn assist the trade unions to understand their role expectancy and assist them with acquiring new competencies and technology to uphold professionalism.
The sudden emergence of a wave of protests and strikes that are in continuation for the past three years, not only by the employees but also by the university students as well, paint an extremely poor image on the investor-unfriendly business climate in the eyes of foreign investors, who are interested in setting up their businesses in Sri Lanka for whatever the strategic reasons.
When the continuous business processes are disrupted frequently, due to conflicts, the economy starts spiralling downwards. Then it becomes a vicious cycle, whereby attracting and retaining better talent becomes an impossible task. Instead of attracting and retaining, such an unfriendly climate encourages outmigration of better talent, thus leaving behind the ‘duds’ to steer the country forward. The current economic deterioration of the country demands intelligent and strategic interventions through knowledgeable and competent individuals.
To attract and retain such individuals, the per capita income (PCI) levels of employees have to improve greatly. It is a happy and contended workforce, which will take either a country or an organisation to the next higher level. All must understand this emerging need and work towards a unanimously agreed ‘growth’ goal on a well-designed game plan. We have no time to waste with two giant economies on either side of us growing as a planned intervention.
If we assume that the man days lost due to strike situation is an outcome of accumulated and unresolved grievances of employees, then the increased number of man days lost year after year, due to strikes as shown in Table 1, indicates that there are unresolved employee grievances in the private sector as a whole and in the plantation sector in particular.
Table 2, 3 and 4 show the changes in global per capita income and contribution to GDP by sector and the relationships in changes in the per capita income in selected countries in the Asian region for understanding the dynamics in per capita income and sectorial contribution to GDP.
Many global level research studies have concluded that the wages do matter in better quality job outcomes such as higher labour productivity, employee motivation, attraction of better talent, lowering absenteeism and turnover, work stoppages, poor levels of job engagement, reducing hiring cost of new employees, security related issues, etc.
Further, the World Bank Development Report (2015), citing numerous field studies, recognizes that ‘poverty’ taxes people’s mental capacities and self-control, which demotivates high performers. In Sri Lanka, the plantations sector accounts for the highest number of man days lost due to strikes during the period 2003-2016, amongst the total private sector in the country.
Accordingly, it is an economically credible and worthy hypothesis to assume that there is a direct core-relationship between the wages and outcomes of grievances affect the economy.
Minimum wages
The minimum wage is around Rs.13,500 per month in Sri Lanka, which works out to be Rs.540 per day. Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.
The collective bargaining process has been used always to increase the ‘minimum wages’ by many times to enter an upper wage zone known as ‘collective bargaining zone’. (General wage fixing convention, 1970).
Nineteen wage boards have revised the minimum wages applicable but almost all the minimum wages are closer around Rs.13,500 per month. There is a vast disparity between the theory and the practice – never to forget the same in minimum wage and living wage aspects as well.
According to Professor of Economics M. Sinnathamby (2018) of the University of Peradeniya, the livable wage of a tea plantation worker is Rs.1,108 per day, provided the employee is allowed to work 25 days per month.
The manual grade employees spend most of the earnings on carbohydrates to generate energy whereas most of the monthly salary earners spend most of the earnings to build a house and to the betterment of children.
It’s our opinion that the minimum wage of Sri Lanka is not to develop a happy employee but to attract foreign direct investments (by letting them to exploit our labour) and as a mechanism to create namesake jobs. As an example, the plantations industry (not the smallholder sector) had approximately 300,000 employees in 1993 and the number has greatly reduced to approximately 160,000 employees by 2017. This has created a huge shortage of labour within the industry managed by the private sector. This affects profitability, export revenue in terms of US dollars.
The ‘livable wage’, which denotes, a wage that fulfils families’ basic needs, including a moderate diet, decent housing, better education, sufficient healthcare, desirable social and cultural life on par with the national standards and current level of the socio-economic development of the country appears to be more useful and relevant wage index to consider. The percentage difference between the livable wage and minimum wage in the UK is 13 percent and in the USA it is around 84 percent but for different reasons. Ours is an issue about survival. That’s why we are asking for a wage policy instead of the two indicators.
A wage policy can be defined as a government policy setting wages and wage increases for workers. We are facing lots of social issues such as mothers leaving families for jobs such as housemaids and increased crime rates, etc. due to wagerelated anomalies.
There are three main principles that govern wage and salary fixation such as external equity, internal equity, and individual worth. The ‘external equity’ principle ensures that jobs are fairly compensated in comparison to similar jobs in the labour market. A manager in company A can be compared with a manager in company B doing similar job tasks and holding similar responsibilities with same qualifications, when setting wage levels.
If we consider the job of teaching as an example, then the ‘internal equity’ refers to establishing of wage levels of the teachers (professor, proof reader and lecturer) that are different as per the perceived or real differences between the values of jobs they perform. Once the wage category is established, it has to be subdivided to arrive at the reasonable point of remuneration depending on the pay grade.
‘Individual worth’ refers to ‘pay for performances’. Thus, the compensation system, as far as possible, enables the individual to be rewarded according to his contribution to the organisation. However, it is doubtful if the three policies have been correctly used to determine a livable wage in the Sri Lankan context.
The main objective of wage and salary administration is to establish and maintain an equitable wage and compensation system. This is so because only a properly developed compensation system creates an enabling work environment for the employees to give their best to the organisation. Such a positive vibe is essential to execute the strategies of the organisation effectively.
In the free market mechanism, depending on demand and supply of the job or profession, the wage rate is determined on the basis of productivity generated by each employee. Further, it has determined the wage rate, based on the value of the marginal productivity generated by each employee in each organisation. The level of wage rate is further determined depending on the structure of the product (i.e. tradability), monopoly power, scarcity of labour, etc. in this free market model.
So much so, the role of the government is to set a national wage policy framework to create an enabling and conducive work environment and take the country to the next level rather than selling the manpower of the country promoting ‘cheap labour of Sri Lanka’. This is partly due to incompetency of the political leadership to create meaningful jobs within the country by creating a conducive and investorfriendly business climate. Sri Lanka should not be promoted as a country with cheap labour but skilled labour with high level of computer literacy.
Need for wage policy
According to the Central Bank annual report 2016, the level of labour productivity in the agriculture sector continues to remain the lowest of all three sectors of the economy (gross value added), with Rs.173.70 per hour worked compared to Rs.503.27 and Rs.561.41 in the industry and services sectors, respectively, for the first three quarters of 2016.
Not addressing the issues connected with marginal productivity per employee and not applying human resources management tools and knowledge are contributory factors. It is absolutely essential to infuse the latest technology, skilled labour and exporting value-added products are essential to improve the gross value added of the agriculture sector.
All these shortcomings can be addressed through formulating of a rational and competitive wage policy based on labour demand and supply and productivity levels that won’t change with the changing political ideologies. So getting back to the former permanent sectary system and developing a national wage policy emerges as a top priority in order to take the country to an advanced economy.
Here again the need to manage the country strategically is a basic need. The most fitting economic goal to develop the policies and strategies is the target of per capita income of US $ 10,000 to be achieved before 2024. Sri Lanka has abundance of high value resources when compared with countries like Japan that has full of natural disasters and limited resources. Yet, the PCI in Japan is more than US $ 38,000 in 2017.
India has a wage policy that can be considered as a guideline to develop ours. One of the 12 main objectives of the wage policy of India is to raise the standard of living of the people. This means that the benefits of planned economic development should be distributed among the different sections of society. Such a foundation is required to develop the minimum wage of any industry. The national human resources and employment policy for Sri Lanka can be made use of to develop the national wage policy.
The minimum wage per hour in the UK is in age-related pay slabs. This augurs well with the Maslow’s theory of needs. As an employee gets older his needs too will become bigger.
A large number of countries, including Denmark, Germany, Italy, Norway, Singapore, Sweden and Switzerland, don’t have minimum wages at all. Most of them make up for it with widespread collective bargaining, which sets de facto minimums. But we feel that having a well-developed national wage policy is the answer to steer the country forward.
Methodology proposed
The graph titled ‘Minimum Wages Around the World’ shows the minimum wage per hour in some of the countries of the world in terms of US dollars. Almost 25 countries out of 196 countries in total have a PCI of more than US $ 100,000 per year. And the 25 poorest countries have a PCI of less than US $ 1000 and some of them are around US $ 300 per annum, which accounts for about US $ 3 per day.
If Zimbabwe is allowed to continue with its current growth rate, it will become a developed country by 2722. What is the future of Sri Lanka if we don’t consider such a road map? Most corrupt countries are becoming poorest countries. The difference between the richest and poorest countries appears to be due to three areas such as institutions (poor systems and execution), cultural (clan-based thinking) and geographic locations (tropical countries).
Institutional mechanism proposed
In developing the national wage policy, all jobs and services that are used to calculate GDP are to be listed in all 25 districts independently. They will fall into the categories of agricultural, industries or else into services. The job descriptions are to be prepared for all those jobs following the human resources management techniques.
The JDS will help to determine the type and levels of skills required in each job. This will help to develop a ‘national skill inventory’. A national skill inventory can be compared with that of the developed countries to understand the skill gaps between them and us. This discovery will also help us to improve all our work processors, thus adding value to our jobs.
Developing the personal or job specification follows next. This will help us to understand the type educational qualifications that are required and the numbers in each district. The ‘job evaluation’ process will indicate a probable value of each job for the period, again in each district.
All the details are to be exposed to the public through a website, like done through the O’net.org website in the USA. Once the baseline data are established, comprehensive competency maps should be developed. These competency maps can be effectively used to improve the curriculums of the secondary and tertiary education systems. This information also will be useful in identifying jobs that can be automated or mechanized.
On the other hand, the jobs too are changing rapidly. It is said that telecommuting jobs are amounting to almost 28 percent of the total jobs in the USA. One alternative to robotics (or replacing employees with machines) is to go in for higher level of specialization. With the specialization, the possibility of outmigration process could get accelerated. Such changes are bound to happen with a free market economy in any way.
However, developing a proper wage policy can help the country to arrest outmigration and develop a productive secondary and tertiary education system. Let’s initiate action on this nationally important assignment with an end goal of US $ 10,000 PCI in focus. Such a meaningful and timely action will reverse the brain drain and will help Sri Lanka to march forward to her deserving destiny beyond any other economy of our region.
We thank Dr. W.G. Somarathne, a renowned agriculture economist, for his valuable inputs in developing this article.