How should minimum wages be determined?

A technical session on Minimum Wage determination was organised as part of a knowledge sharing initiative by the BMZ funded project of the ILO ‘Labour Standards in Global Supply Chains: A Programme of Action for Asia and the Garment Sector’ (LSGSC).

Press release | Islamabad, Pakistan | 10 December 2018
ISLAMABAD (ILO News): A technical session on Minimum Wage determination was organised recently in Islamabad, as part of a knowledge sharing initiative by the International Labour Organization (ILO) project ‘Labour Standards in Global Supply Chains: A Programme of Action for Asia and the Garment Sector’ (LSGSC), which is funded by BMZ on behalf of the German Federal Ministry for Economic Cooperation and Development. The technical session saw the participation of various key stakeholders in wage-setting in Pakistan, including provincial departments of labour, academic institutions, and the Pakistan Bureau of Statistics, amongst others. The technical session was facilitated by Mr Xavier Estupinan, Wages Specialist with ILO’s Decent Work Technical Team for South Asia.

According to ILO’s recently launched Global Wage Report 2018-2019, minimum wages are a nearly universal policy applied in some form or another in more than 90 per cent of countries around the world.

In Pakistan, minimum wages are set at the provincial level by Minimum Wage Boards. These bodies comprise representatives of government, employers, and trade unions. Pakistan’s provinces are currently reviewing the minimum wage rate, which is PKR 15,000 (US$ 112) per month in all provinces except Sindh province, which most recently notified the minimum wage at PKR 16,200 (US$ 121.12) per month. The provincial Minimum Wage Boards are taking into account inflation and the Consumer Price Index (CPI) in their discussions. However, as highlighted in the technical session, these may not be the only factors that could be considered when setting and adjusting the minimum wage. Moreover the process by which minimum wages are set is also an important consideration.

During the technical session, Mr Estupinan emphasised that the purpose of minimum wages is to protect workers against unduly low pay. As such, minimum wages help ensure a just and equitable share of the fruits of progress to all, and a protection floor to address low paid workers. Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women, highlighted Mr Estupinan. Minimum wage systems should be defined and designed in a way that supplements and reinforces other social and employment policies, including collective bargaining between works and employers, added Mr Estupinan.

In facilitating the session, Mr Estupinan shared that the principle that there should be full consultation and participation, on a basis of equality, of employers and trade unions in establishing, operating and modifying a country’s minimum wage machinery is one of the pillars of international law, in particular the ILO’s Minimum Wage Fixing Convention, which has been ratified by more than 50 countries around the world, as well as the Minimum Wage Fixing Recommendation.

Mr Estupinan emphasized that the involvement of trade unions and employers in minimum wage adjustment allows the concerns and priorities of those most directly affected by the minimum wage policy to be taken into account more effectively. This in turn is likely to secure greater authority and support for the minimum wage that will be fixed, and tends also to facilitate its effective implementation.

Participants in the recent technical session agreed that clear criteria to guide discussions on the level of minimum wages, as well as reliable statistical indicators to support governments and social partners in their deliberations, are crucial success factors for effective determination of minimum wages in Pakistan.

Subsequent technical sessions to be organized by the ILO through its LSGSC project to provide members of from Khyber Pakhtunkhwa, Punjab, Gilgit Baltistan, Sindh and Baluchistan in Pakistan with hands-on experience to test some best practice approaches and methodologies for determining minimum wages that could be applied in Pakistan and which will address issues of gender inequalities, disparity in wages in different occupational groups or that for categories of skilled and unskilled workers.

On the issue of the gender wage gap, the ILO’s Global Wage Report 2018-19 estimates the global gender pay gap at 16 per cent. According to the report, Pakistan has the highest overall hourly average gender pay gap of all 73 countries covered by the study, at 34 per cent, which is more than double the global average. Minimum wages can be one effective way to address gender pay gaps: According to ILO’s Minimum Wage Policy Guide, the link between minimum wages and reduced gender pay gaps has been empirically documented in countries as diverse as Indonesia, Macedonia, and the United States.

It is hoped that the government, employers and trade unions will continue to discuss the extension of statutory minimum wage coverage to workers in the informal sector, and measure to reduce the persistent and significant gender pay gap in Pakistan.