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04.01.2006 Business & Finance

¢15,000 Minimum Wage For 2006?

By Palaver
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THE Technical Sub-Committee of the National Tripartite Committee that was tasked to determine a living wage for the Ghanaian worker proposed in one scenario a National Daily Minimum Wage of ¢15,004.24 and in another scenario ¢14,839.81 as the minimum wage for 2006.

This was because the Sub-Committee considered the 5-day period given it to complete its assignment as too short and therefore recommended that a study should be commissioned into the relationships among the various variables that go to constitute the living wage and assign a weight to each in computing the Living Wage.

According to the Committee's report submitted on November 6, 2005, a Living Wage could be defined either as;

• The level of emolument that is sufficient for a full-time employee to provide basic needs for his/her household;

• The level of emolument earned through optimum productivity that enables a full-time employee to provide his/her basic needs.

The Report considers 4 persons as the reference household size and defines “Basic Needs” to cover minimum required food and nutrition, housing, clothing, education, health care, transportation, electricity, water, recreation/entertainment and social security contributions.

In determining the two scenarios for the 2006 minimum wage, the Sub-Committee used the 2005 minimum wage of ¢13,500.00, the December 2005 estimated inflation of 15%, the [projected inflation for December 2005 of 13.5% and the projected inflation for December 2006 of 8.3%. It is not known whether the Sub-Committee's proposals were used for the 2006 Budget.

The full report of the Sub-Committee, minus the names of the members, is published elsewhere in this paper.

REPORT OF THE TECHNICAL SUB-COMMITTEE OF THE NATIONAL TRIPARTITE COMMITTEE ON DETERMINATION OF A NATIONAL LIVING WAGE

INTRODUCTION

AT its meeting on Tuesday, November 2, 2005, with the Minister for Manpower Youth and Employment the Technical Sub-Committee (TSC) of the National Tripartite Committee (NTC) was tasked to submit proposals for establishing a National Living Wage ——

TERMS OF REFERENCE

The terms of reference were as follows:

- To determine the formula for the establishment of a national living wage in Ghana.

- To discuss any other relevant matter.

The Sub-Committee was expected to submit its Report on Monday, November 7, 2005 to the Hon. Minister, Manpower Youth and Employment.

SCOPE OF WORK

The Committee approached its task by considering the following:

• Working definition of a National Living Wage;

• Determinants of a National Living Wage;

• Formula/Parameters of National Living Wage;

• Proposal for adjusting the National Daily Minimum Wage for 2006.

Explanation of Key Terms in the Definition

The Sub-Committee found it necessary to define the following terminologies in the definitions to be able to isolate the determinants:

SUFFICIENT:

Means that the employee's emolument is above the upper poverty line as defined in the Ghana Living Standards Survey (GLSS 4). The average annual household expenditure per adult for the upper poverty line was estimated at ¢900,000 which when adjusted for inflation translates to ¢2,800,000 by December 31, 2005. Full-time employee

A full-time employee is a worker who works full-time as provided in Sections 33 and 34 of the Labour Act 2003 (Act 651).

The Average Size of a Household

The meeting noted that the average size of a household was 4.1 in the GLSS 4 and therefore adopted 4 as a reference household size.

Basic Needs

The TSC agreed that basic needs comprise the following:

• Minimum Required Food and Nutrition as adopted by the GLSS 4; Housing; Clothing; Health Care; Transportation; Utilities: electricity and water; Recreation /Entertainment as defined by Ghana Statistical Service (GSS); Contribution towards Social Security (as provided for under the Social Security Law).

Optimal Productivity

Is the workers' contribution to the productivity maximizing process at any given level of technology

The TSC observed that in discussing a living wage it is important to consider productivity issues more seriously to ensure that a strong economic foundation that will sustain it is laid.

FORMULA / PARAMETERS

Given the time constraints, the TSC observed that the formula for the determination of a Living Wage should be an issue for subsequent research. It is suggested that the GLSS 4 could be explored to provide an initial outlook on the variables towards the determination of a formula for a national living wage.

IMPLICATIONS:

The TSC observed that the Living Wage has both social and economic effects:

- The potential social effect is positive impact on poverty reduction.

- The living wage could impact on employment, budget, taxation, sustainability of businesses, and enterprises. These economic effects are not known and need further research.

RECOMMENDATIONS:

- The TSC recommends that the National Tripartite Committee commissions a study into the relationships among the various variables and assign a weight to each in computing a Living Wage.

- The commissioning of the study should be immediate to enable the researchers complete their work by the next budget.

- That the NTC consider arrangement of a study tour of the TSC to acquaint itself with how the National Living Wage is determined in selected countries where this is being implemented.

- The TSC recognized that the cost of a Living Wage policy may be beyond the means of employers. The implementation of a Living Wage regime will therefore require the development of an effective social protection policy. In this regard, all the stakeholders have a role to play.

PROPOSAL FOR A NATIONAL DAILY MINIMUM WAGE FOR 2006

Given that it was not possible to develop a formula for the national living wage within the time frame, the TSC used the conventional method to propose the following adjustment in the national daily minimum wage for 2006. Information / Data for the Computation

The TSC was provided with the following statistics for the computation:

• National Daily Minimum Wage, 2005 - ¢13,500.00

• December 2005 estimated inflation - 15%

• Projected Inflation for December, 2005 - 13.5%

• Projected Inflation for December 2006 - 8.3%

Computation

Based on available information/data, the TSC developed two (2) scenarios of the National Daily Minimum Wage for 2006:

Scenario 1

• National Daily Minimum Wage for 2005 - ¢13,500

• Restoration

i.e. Actual Inflation (2005) 15%

Less Projected Inflation (2005 13.5%

Restoration 1.5%

Restoration Factor 1.015

• Estimated National Daily Minimum Wage inclusive of restoration (1.015 × 13,500) - ¢13,702.50

• Provisional Targeted Inflation for 2006 - 8.3%

• Estimated National Daily Minimum Wage inclusive of restoration factor and targeted inflation for

2006, (1.083 ×13,702.50) - ¢14.839.81

Thus, the increase in the minimum wage would be - 9.92%

Scenario 2

The Technical Sub-Committee considered the trends in the historical deviation from projected and actual inflation figures. It noted that the deviation averaged 1.2%. Therefore the Committee estimated an end of year inflation of 9.5%. This was used to develop Scenario 2.

• National Daily Minimum Wage for 2005 - ¢13,500

• Restoration i.e. Actual Inflation (2005) 15%

Less Projected Inflation (2005) 13.5%

Restoration 1.5%

Restoration Factor 1.015

• Estimated National Daily Minimum Wage inclusive of restoration (1.015 ×13,500) - ¢13,702.50 • Provisional Targeted Inflation for 2006 - 9.5%

• Estimated National Daily Minimum Wage inclusive of restoration factor and targeted inflation for 2006, (1.095 ×13,702.50) - ¢15,004.24

This analysis would result in an increase of - 11.14%

The Table below summarizes the various outcomes of a National Daily Minimum Wage Projections – 2006;

Summary of Outcomes of the Two Scenarios

Scenario 1 Scenario 2

Restoration Factor 1.015 1.015

Targeted Inflation 8.3 9.5

National Daily Minimum Wage 2005 13,500 13,500

Estimated Minimum Wage 2006 14,839.81 15,004.24

Percentage Increase Over 2005 Minimum Wage 9.92 11.14

CONCLUSION:

The foregoing has been the result of immense brainstorming and serious deliberations by the TSC from 4th to 6th November 2006. It is hoped that the result of our efforts would be found useful by the National Tripartite Committee to whom we express gratitude for having given us this golden opportunity to render useful service to the Nation. November 6 2005.

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