The discussion of workers’ rights and wages in different parts of the world is of special importance. This importance is highlighted during economic crises, especially now that the global economy is facing the COVID-19 pandemic. In Iran, the thirteenth government has increased the minimum wage for workers by fifty-seven percent for the year 2022, which has resulted in different reactions from the labor and employer communities. As we approach May 1st, International Workers’ Day, this issue is being addressed from various perspectives.

The importance of the subject.

In many countries, policies are implemented to support the workforce, including the policy of minimum wage. Minimum wage is a policy that aims to provide access to the workforce based on the law in the economy or its sectors, in order to support the workforce, maintain and improve the purchasing power and well-being of workers, ensure their job security, and ultimately create a suitable environment for active members of society. This policy is implemented to reduce poverty and improve the quality of life for low-income groups. In many countries around the world, the policy of establishing a minimum wage leads to an increase in enrollment in primary schools, better job quality, and improved public health.

Global experiences.

In Article 23 of the Universal Declaration of Human Rights, it is stated: “Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity.” The idea of a minimum wage as a means to fight poverty and improve economic prospects has existed for decades.

In the United States, the minimum wage law was first introduced in the 1930s as a response to the “Great Depression,” which itself was a reaction to a severe decrease in production, prices, and employment. Currently, minimum wage for specified working hours exists in many countries around the world.

According to statistics published by World Population Review, the highest minimum wage among countries in the world belongs to Austria at $14.54, followed by Luxembourg, New Zealand, Monaco, and Ireland (table below).

20 countries with the highest minimum wage in the world (2022).

Minimum wage in Iran.

According to the law passed in 1325, the minimum wage is the lowest wage that employers must pay to workers according to the law, and it is adjusted annually by the “Supreme Labor Council” based on the inflation rate. If the growth of the minimum wage is lower than the inflation rate, it means that the purchasing power of workers has decreased and they have become poorer. According to Article 41 of the Labor Law, the Supreme Labor Council is obligated to determine the minimum wage for different regions or industries every year based on the following criteria:

1- The minimum wage of workers is determined based on the inflation rate announced by the Central Bank of the Islamic Republic of Iran.

2- The minimum wage, without considering the physical and mental characteristics of the workers and the nature of the assigned work, should be enough to support a family, which is determined by official sources as an average number.

Statistical evidence.

Comparison of Wage Situation in Iran with Regional Countries Indicates that Iran is among the countries with the lowest minimum wage. A look at official statistics shows that in the past decade, this is the sixth time that the increase in workers’ wages has been higher than the inflation rate. In the years 1393, 1394, 1395, 1396, 1398, and 1401, the increase in wages was higher than the inflation rate, while in other years it has always been lower. The table below shows the minimum wage for a single worker without overtime and work experience in the past five years compared to the official inflation rate announced by the Central Bank. As can be seen, only in 1398 was the increase in minimum wage higher than the inflation rate; however, according to the law, the criterion for increasing the minimum wage is the inflation rate announced in the previous year, which is not adjusted in this table and the inflation rate of that year is the criterion

Minimum wage for a worker during the past five years.

Minimum wage challenges.

Every year, in the final days of the month of Esfand, long negotiations are held to determine the minimum wage between labor representatives and employers, but there are many challenges surrounding this method. The first challenge is that the minimum wage is determined at the end of the previous year based on the inflation rate of that year, while the inflation that workers face occurs in the following year, which is usually higher according to the economic trend in Iran.

The second challenge in this area is related to employers preventing payment of this agreed amount. Many employers, for various reasons, refuse to pay this amount or threaten to adjust and dismiss their workforce. Many small business owners and trade units adjust their workforce or optimistically hire workers informally to avoid getting involved in labor laws, insurance, social security, and minimum wage. There is also no accurate executive guarantee for monitoring these businesses.

Employment challenge.

One of the most challenging issues in this area is its impact on employment levels. Opponents of this policy believe that if the minimum wage is set higher than the equilibrium level of the labor market, it will lead to a decrease in labor supply; furthermore, workers who are benefiting from this policy may lose their jobs due to employers’ opposition. Some opponents of this policy emphasize that there is a close relationship between inflation and the minimum wage, and with its increase, the cost of production will also increase.

Although opponents of the policy of increasing the minimum wage point to its impact on production costs and believe that this policy will not have any effect on the welfare and purchasing power of workers and will create difficulties for many small businesses, the exact impact of increasing the minimum wage on inflation must be examined by looking at the share of wages in production costs, which may vary from one enterprise and industry to another.

Although setting a minimum wage guarantees some of the basic needs for workers, the important point is that a large number of people are employed in the informal sector. Currently, fifty-eight percent of workers in Iran are employed in the informal sector, with the highest level of informal employment in underdeveloped and border provinces.

Grouping

The policy of setting a minimum wage is implemented in many countries around the world with the aim of preventing the exploitation of workers’ rights. The International Labour Organization (ILO), along with many economists, believes that labor should not be treated as a mere factor of production. Therefore, the income of labor should not be determined by supply and demand in the labor market, as the ultimate goal of economic growth and development is the well-being of individuals.

Although the minimum wage law was passed in 1325, in the past two decades, the practice of paying workers less than the official minimum wage has rapidly expanded in small, medium, and large economic enterprises. It seems that the minimum wage law is not effective for a significant number of workers in Iran, as the country’s economy is not functioning properly, unemployment rates are increasing, and labor market institutions have lost their efficiency.

In the current situation, it seems that controlling inflation has a greater impact on the purchasing power of workers than increasing the minimum wage; a topic that government officials and policymakers are likely aware of, but always resort to the easiest solution, which only adds to the volume and depth of workers’ problems.

Notes:

1- Mashfiq, Zahra and others, “Investigating the Effect of Minimum Wage on Women’s Labor Supply,” Scientific Quarterly Journal of Planning and Budget, 2014: Volume 19, Issue 3.

2- Official reports from the Central Bank on the growth of prices of goods and services.

3- Karimi, Zahra, Minimum Wage and Informal Employment Law in Iran, Political-Economic Information, Summer 1392, Issue 292.

The minimum wage is different in each state of America and many states have their own laws to increase this minimum.