A look at the minimum wage of workers in 1402.

Every year at the end of the budget season, the discussion of increasing wages for the next year becomes a concern that occupies the minds of both workers and employers. This concern is especially serious and important in recent years, when inflation rates have been on the rise and new thresholds have been set. With the exception of last year, when some workers’ wages increased more than the inflation rate, in previous years the wage growth rate has always been lower than the inflation rate, meaning a gradual decrease in the purchasing power of wages and salaries. This decrease in purchasing power for wage earners is a reality that has posed a fundamental challenge to a large portion of the country’s population; a challenge that has even extended to the survival and continuation of life.

In the month of Esfand, negotiations are taking place to determine the minimum wage for workers between the government, employers, and representatives of labor unions within a committee. There is tension within this committee to increase the minimum wage to a high level, which usually takes several weeks for these meetings. In the year 1395, the dispute over determining the amount of increase was so tense that the workers’ wages were set unilaterally and by order, without the presence of labor union representatives.

From 1360 to 1400, in simple terms, the minimum wage of workers has increased by about 1400 times, while according to Abdolnasser Hemmati, former head of the Central Bank, the value of Iranian national currency has decreased by 3,500 times from the 1950s to 1400.

In the past decade, workers have experienced the lowest increase in wages compared to inflation. However, after this long period, last year, following a 57% jump, the minimum wage for workers increased from 2,655,000 to 4,179,000 tomans. Of course, there were also other increases. In the meeting of the Supreme Labor Council in 1400, the amount of housing allowance and food allowance was also determined, and the amount of food allowance for workers reached 850,000 tomans and the housing allowance was set at 650,000 tomans. Another important decision of the Supreme Labor Council was a 38% increase in other wage levels except for minimum wage earners. These efforts were made to increase the purchasing power of workers.

However, the economic situation is such that eight workers are still not enough. In their continued protests against the 27% increase in their wages in 1402, workers have demanded the annulment of the decision of the Supreme Labor Council and an increase in the minimum wage to the official inflation rate in letters addressed to Ebrahim Raisi – which has been signed by more than 19,000 workers so far. Since the Nowruz holidays, Iranian workers and retirees in various cities have almost every day demanded an increase in the base salary of workers and employees by holding protest gatherings.

How and where is the real salary determined?

The Supreme Labor Council has been designated as responsible for determining the minimum wage for the working community in the predicted law. Representatives of the government, employers, and workers are present in this council as a combined institution. The legislator has also stated the criteria for reviewing and determining the labor wage and the way in which the Supreme Labor Council will use them in establishing workers’ wages. Based on this, decision-makers in the wage sector should consider the criteria in Article 41 of the Labor Law alongside other influential factors in the economy and the wages of the working community in determining the rights and benefits of the workforce.

Since 1369, ignoring labor laws in determining workers’ wages has led to a widening gap between the living conditions of workers and the minimum wage. With the predicted increase in wages according to labor laws, the minimum wage for workers should be determined by the Supreme Labor Council based on two indicators: living conditions and inflation rate. These two indicators have been neglected in past decades and issues such as official inflation rate and the cost of living for households have not been taken into consideration in wage decisions. One effective solution for increasing wages is to rely on official poverty line statistics. By officially announcing the annual poverty line, this important issue can serve as the basis for workers’ wage decisions.

The current labor law, in the balance of power between workers and the government of the Islamic Republic in the second half of the 1960s, was formulated and approved and shortly after its approval, it was amended to the detriment of workers. Initially, by adding a clause to the section on employment contracts, the way was paved for imposing short-term contracts on workers. The amending of the labor law continued through the addition of other clauses and through subsidiary regulations, such as bylaws. The legal deprivation of workers from forming independent organizations and the suppression of any efforts to create independent workers’ organizations strengthened the hand of the government and capitalists in suppressing workers’ wages and eliminating their legal rights. As a result, today more than 90% of workers are deprived of job security. (2).

The gap between the minimum wage and the actual cost of living has been increasing day by day, and many workers with years of experience and expertise are working on temporary or no contracts and receiving very low wages. Today, the absence of independent labor unions, the spread of poverty, and the population of millions of unemployed have greatly changed the balance of power between workers, the government, and employers to the detriment of workers. In this unequal battle, the government and employers can buy the labor force of workers at the lowest possible cost and employ them in the most insecure conditions, without even being accountable according to current labor laws. Even in its current form and without any changes, labor law does not play a significant role in regulating labor relations. In advanced societies, workers can disrupt the unfair balance of power by organizing themselves in independent unions and take steps towards ending poverty, humiliation, and discrimination.

When workers’ wages do not reach the poverty line.

The government, in this year’s meetings of the Supreme Council of Employment, emphasized on controlling inflation and “freezing” the wages of workers. As a result, the minimum wage for workers this year is 20% lower than the official inflation rate. Opponents of the legal increase in workers’ wages in the Supreme Council of Employment used the impact of wage increases on inflation as an excuse, while also emphasizing the government’s policies to reduce inflation and promising that if inflation rates exceed predictions and the government is unable to control it, another meeting of the Supreme Council of Employment will be held to adjust workers’ wages.

According to ILNA, the government’s promises and repeated statements by the Minister of Labor show that they are very optimistic about reducing and controlling inflation rates. In his latest remarks, the Minister of Labor has considered production growth as the key to controlling inflation; Soheil Mortazavi has put these two components on the same coin and emphasized that “special support will be provided for workers and employers to achieve these two goals.” But can we be optimistic about what government representatives say in this regard? Can we take the promises of controlling inflation rates and increasing production – without proper statistics – seriously? (3).

To answer this question, of course, we must examine the various dimensions of the government’s economic and political policies. However, there is a shortcut to exposing the failure of these promises, and that is to refer to the government’s wage policy. Because without considering the wages of workers and freezing them permanently, we cannot hope for growth in production in the country. And if, according to Sooleh Mortazavi, the Minister of Labor of the Rouhani government, “growth in production is the key to controlling inflation,” then with such policies, we cannot be optimistic about controlling inflation either.

The relationship between production growth and workers’ wages can be examined from two perspectives; first, the impact of freezing wages on the inability of a large portion of society to purchase goods and move towards economic recession, and second, the pressure on workers as the most important factor in production and their lack of motivation to engage in productive work.

In mid-December of last year, the second report on poverty monitoring was published by the Deputy of Welfare of the Ministry of Labor. According to this report, the poverty line in 1401 was estimated at nearly 15 million tomans for Tehranis and close to 8 million tomans for other parts of the country. If we put aside all the statistics and numbers and only focus on this official figure, we can understand the depth of the difficulties faced by workers in 1401. The minimum wage for workers last year, with a 57% increase, was between 6 to 6.5 million tomans in the best case scenario, including all salary benefits. This is while towards the end of last year, due to sudden increases in the price of foreign currency and gold, the situation became much worse than the months before. With these circumstances, the poverty line of 15 million tomans in Tehran and 8 million tomans in other parts of the country has undergone

With this introduction, the income of many workers in the past year did not even reach the poverty line, and many of them were unable to meet their basic needs. In such conditions, the government only increased the minimum wage for workers by 27% for the year 1402, which with this increase, the minimum wage for workers reached about 8 million tomans with receiving all the salary benefits. This amount is 7 million tomans lower than the declared poverty line of 15 million tomans before the currency shock at the end of 1401, and it is clear that if we also consider the increase in the price of currency and gold at the end of the year, this gap will be much larger.

Ehsan Soltani, an economist, has stated that with the increase in the exchange rate at the end of the year and a 27% increase in wages, the value of wages has reached its lowest level and the government’s policies have maintained the average wage below 200 dollars. According to Soltani, the shocks in the exchange rate and consequently the prices of goods and the freezing of wages are on the agenda and it is not guaranteed that the living conditions of workers will improve.

The leader of the Islamic Republic, at the beginning of the new solar year, as in previous years, has proposed an economic slogan as the name of the year. According to his statements, “controlling inflation” and “increasing production” should happen in this year. These annual economic namings, which have been in place for over a decade, have not had a clear and tangible impact on the multiple economic crises in Iran and have sometimes led to political interference and problems for the country’s economy.

How to determine the minimum wage in the world.

The basis for determining wages in a free economy is, in essence, the value of the worker’s final production, or in other words, a share of the real value of the goods or services produced that can be attributed to the workforce. In such a system, there is no concept of equal wages for two individuals in the same job, even if it is similar, and wage determination is not done in a command and coordinated manner, but rather based on the conditions of the labor market and the market for the produced goods between the worker and the employer. Therefore, in such a system, the focus of policymakers is on creating an environment in which investment can take place and demand for labor increases.

The focus of the workforce is on increasing efficiency to preserve jobs (not finding jobs) and, of course, the necessary condition for the formation of such a space is the adoption of policies aimed at economic growth and reducing inflation. In this system, the policy of setting a minimum wage is often followed for the implementation of social policies, and in this regard, the poverty line and the minimum accepted level of social welfare play a crucial role.

In a command economy, the government decides within a coordinated framework to classify the workforce into a few classes and determines the wages for each class every year. The main concern of the government is to secure the necessary budget for paying wages, and the concern of the workforce is to find employment (not job security) and move up to higher wage classes.

According to some activists in advanced countries, there is an argument and justifications for determining a minimum wage; in this regard, we can refer to the argument of “efficient wages”; meaning that if workers on the border, with little or no skills and low productivity, receive a sufficient wage, firstly, they will have the possibility of better nutrition and well-being, and in the work environment, they will be more efficient, and secondly, they will have more motivation to be efficient, learn and acquire skills.

Economic activists also emphasize that in other countries, as mentioned, the determination of the minimum wage takes into account the margin of the labor market, and weaker workers should be supported. However, in our country, the Ministry of Labor or the government generally does not see itself responsible for creating full employment and increasing economic capacity.

The minimum wage is established in 90% of the member countries of the International Labour Organization (ILO). According to reports from this organization, in 6% of countries, the minimum wage is negotiated through collective bargaining, meaning it is determined through legally binding agreements. In a significantly larger portion of countries (84%), the minimum wage is set by law, meaning it is determined by governments, with or without consultation with social partners. In some of these countries, in addition to the legal minimum wage, there are higher minimum wages in certain sectors due to multilateral agreements. (5)

Will increasing workers’ wages decrease production?

One of the most important arguments for preventing wage growth is the decrease in production, which is usually represented by employers. Now the question is, what is the relationship between production growth and workers’ wages? Or what impact does the economic crisis have on production growth? Some economists consider production growth as a prerequisite for income distribution. In other words, they believe that if production grows, income distribution will also happen, but another group sees income distribution as a prerequisite for production growth and believes that income distribution leads to production growth.

Contrary to the belief that increasing workers’ wages is destructive, if the labor wages increase, the demand for domestic production also increases, which prevents economic recession. Unlike the upper class of society, who usually use imported and luxury goods, the middle and lower classes, which consist of workers and employees, are the main consumers of domestic products. Therefore, if income distribution is done through proportional increases in incomes, the demand for purchasing domestic products also increases, and we can avoid the risk of economic recession.

In the current situation of the country, many economic units are experiencing recession due to lack of demand and their productions are stored in warehouses. The most important way to get out of this situation is to increase the purchasing power of these productions through income distribution and increasing workers’ wages, which will ultimately lead to economic prosperity and production growth.

Although increasing wages puts more pressure on small businesses, the wrong policy is to limit workers’ wages under the pretext of helping these businesses. The government should consider supportive policies for these businesses so that workers’ wages increase proportionally and these businesses do not suffer. In general, all production businesses benefit from the increase in demand for domestic products.

The policy of “freezing wages”, which has been implemented in all governments after the revolution, has been a major obstacle to production growth. A worker whose wages do not even reach the poverty line does not have the ability to meet the most basic needs of his family, let alone buy goods beyond that. Therefore, when the Minister of Labor talks about increasing production and claims that “special support will be provided to workers and employers”, it should not be taken seriously. In all post-revolution development programs, the target has been set at an 8% growth in production, but none of these programs have achieved this goal, because government policies are in conflict with their own plans.

The impact of wage freeze on production growth cannot be limited to recession, but rather wage freeze and the resulting pressure on labor force is one of the main reasons for the flight of labor, especially skilled labor, from production companies, which also has a negative effect on production. The result of this situation is the dissatisfaction of the labor force and the migration of talents, leading to a decrease in labor productivity and innovation, and ultimately the continuation of economic decline and backwardness.

If the workforce does not receive enough wages, they will have less motivation for productive work and will find less efficiency and productivity, which will ultimately lead to a decrease in production growth. If the trend of freezing wages continues, motivation for productive work will decrease.

A skilled worker who is willing to endure any hardship for the sake of migration, or if unsuccessful in migrating, prefers to stay at home and engage in buying and selling “cryptocurrency” in a production company, is a clear example of such a situation. Many of us are familiar with such individuals among our distant or close acquaintances.

من به دنبال یک تجربه جدید هستم

I am looking for a new experience.

Spiraling Wages-Inflation.

Employers usually see wage increases as a cause of inflation, in fact they refer to a theory known as “wage-price spiral”. With an increase in workers’ wages, they are able to increase their consumption demand and this increase in demand, if not accompanied by an increase in the supply of goods and services, leads to a general increase in prices and services. In addition, wage increases also lead to an increase in the cost of goods and services, and it is after this that the increased wages fall behind the inflation rate, and there is a need to restore the purchasing power of wage earners.

The relationship between the growth of wages and the growth of prices in recent years has been one of the most discussed and challenging issues among policymakers, managers, and workers. The challenge between workers and employers in determining the wage ceiling increases every year. The result of this debate is that workers demand an increase in the minimum wage equal to inflation, while employers emphasize increasing wages and salaries based on productivity. On the other hand, governments are always concerned about the effects of increasing wages.

Financial incapability and prevention of burdening the government with additional expenses, as well as supporting production by preventing an increase in production costs and preventing further inflation, are the main reasons why governments oppose increasing wages in line with the demands of the country’s workforce. According to governments and business managers, increasing the minimum wage or wages can lead to price inflation and have negative effects on exchange rates, economic stability, and the competitiveness of export products. The reason for this belief is that labor costs make up a considerable portion of production costs. In this case, increasing wages will put pressure on businesses to transfer this cost increase to the prices of their products.

In the meantime, governments are also concerned that increasing their employees’ salaries will lead to an increase in the budget size and deficit, resulting in further inflation. The country’s raw statistical evidence also shows a correlation between inflation and wage growth over the past three decades. There is a close relationship between inflation and wage growth in countries’ data, but there is no consensus in the empirical literature on the direction and intensity of this relationship. In fact, a significant portion of scientific research shows that it is price inflation that leads to minimum wage and wage inflation, not the other way around. One of the reasons for this difference could be the difference in macroeconomic conditions, meaning that different economic conditions of prosperity and recession can lead to different results in the relationship between minimum wage and inflation.

While employers and institutions such as chambers of commerce and even the government highlight the role of wages in inflation, on the other hand, labor activists and organizations such as the Workers’ House reject this approach and see it as exaggerated.

Supporters of increasing wages refer to the statistics center’s report and say that in 1401 (2022-2023), when workers’ salaries increased by 57%, the unemployment rate decreased from over 9% to 8.2%. The statistics center reported that in the fall of 1401, the unemployment rate for the population aged 15 and over was 8.2% and the economic participation rate was 41%.

Regarding the inflationary effect of increasing wages, proponents of the increase argue that there is still not enough evidence and reasoning to prove the significant impact of wage increases on inflation, and on the contrary, increasing wages leads to an increase in productivity.

Alireza Mahjoub, the secretary general of the Workers’ House, believes that increasing wages has a negligible impact on the rise of prices and inflation. “Although some people believe that the psychological burden of increasing wages leads to price increases and therefore inflation, according to the report of the Deputy for Labor Relations in 2017, the share of workers’ wages from gross domestic product was 6.58%, and according to the opinion of the Planning and Budget Organization, the highest figure is 10%, so even if workers’ wages are increased by 100%, its role in inflation will only be around 2%.”

He adds, “The government has announced a 67% inflation rate for last year, meaning the inflation that has affected the purchasing power of workers. For this year, a 30% inflation rate has been predicted, meaning inflation has been in favor of the rich and at the expense of the poor.” This labor activist believes that employers have increased their production costs and are calculating them excessively, so the best solution is for the government to provide essential household items for workers at a reasonable rate through a worker’s voucher or electronic food basket, in order to reduce the cost of living for workers. (6).

Suggestions for Replacing Current Policies.

As alternative solutions, some experts suggest “wage restoration conditions” to solve the problems of workers, according to which if inflation exceeds predictions in the current year or if the government intends to restore the rights of its employees and retirees like the previous year, the labor council meetings should be held again and steps should be taken to amend and restore the approved wages of workers in the current year.

According to these experts in the field of labor, the annual determination of workers’ wages based on Article 41 of the Labor Law, which is mistakenly referred to as a wage increase, is the only legal tool to maintain the purchasing power of labor. In this process, the increase in wages is nothing but a result and consequence of inflation in the economy. Therefore, in case of inflation and the imposition of new costs on the livelihood of workers, there is no other way but to compensate for these costs through an increase in the nominal amount of wages.

However, multiple university reports have emphasized a more comprehensive approach to this political issue and suggest a policy package instead of just increasing minimum wages. The Center for Development and Futurism in its report “Consequences of Increasing Workers’ Wages in 1401” published last year, has examined various dimensions of this issue. The findings of this research show that despite the importance of increasing minimum wages for workers, the chosen policy pattern by policymakers leads to negative effects such as increasing inequality between workers and salary earners, labor adjustment, vulnerability of the workforce, dissolution of small businesses, decrease in employment, and price increases. This is while the existing inflation in society changes the positive effects of increasing wages in the household basket. In these circumstances, it is suggested that the government first focuses on reducing inflation and then gradually and incrementally increases wages and salaries based on the household basket. The gradual increase in wages allows employers and the government to adjust to the changes and provide support such as tax exemptions, payment of insurance

Given the current problems in increasing workers’ wages, it is of great importance to examine ways to improve the current conditions. The report of the Planning and Budget Organization also states that increasing the wages of low-income groups is necessary to provide for the minimum standard of living and essential household needs. Failure to increase the minimum wage will have negative social consequences for the country. Therefore, increasing the minimum wage along with reducing inflation is of great importance. Improving the economic well-being of the people requires stability in the production and trade system. The government must improve the quality of economic governance and reduce inflation. Despite inflation and other problems in the country’s economic structure, not increasing wages will not necessarily lead to economic improvement and will have other negative consequences such as reduced productivity and labor migration.

In summary, if the government’s goal is to support the workforce, increase income while maintaining and increasing employment, it is necessary to avoid repeating and adopting one-sided policies, as the labor market is a field of interaction, action and reaction of all factors (labor market supply and demand, population and households, government, business environment, macroeconomic stability, etc.); therefore, attention and support for workers without a strategy and solution to improve the business environment, macroeconomic stability, and address the challenges of the labor market will be like flying with one wing. Based on this, it is initially suggested to develop a comprehensive and strategic model for the labor market instead of repeating procedures and ignoring criticisms, so that any short-term policy, especially determining wages and salaries, is based on this model and is in line with the conditions and challenges of other factors. Additionally, in the current situation, implementing incentive policies for production companies (with guaranteed purchases and marketing, etc.), targeted and performance-based financial support,

Footnotes.

1- A look at the trend of minimum wage growth for workers in the past 41 years, IRNA News Agency, February 11, 2021.

2- The dire situation of workers’ livelihood; what is the outlook? Radio Zamaneh, 24 Dey 1401.

3- The Minister’s promise to fix salaries, ILNA News Agency, 29 Esfand 1401.

4- Annual Report on Poverty Line Monitoring, Ministry of Cooperatives, Labor, and Social Welfare, December 2020.

5- The minimum wage is established in 90% of the countries that are members of the International Labour Organization, the labor market, 8 Bahman 1401.

6- The worker’s table should not be small; A conversation with Alireza Mahjoub and Iran Economist, 14th of Farvardin month, 1402.