The struggle for survival is a term that is less used in today’s world and in the field of economy, but for workers, employers, and even the government, conditions have become so difficult and exhausting that they must fight for their survival and continuity of their activities. Workers and their families are worried about their low purchasing power and their livelihoods, and their survival in the current year. Employers, on the one hand, must be concerned about the various currency packages of the government in order to continue their activities, and on the other hand, they must be concerned about the small and large international sanctions. The government, on the other hand, must think about various restrictions that have disrupted its income and expenses stability, and on the other hand, it is concerned about inflation and recession that have put the country’s economy at risk of collapse. Despite the worries and problems of each party, they all come together in one field, in a battle that usually takes place at the end of December in a

“Minimum wage” is the lowest amount that employers pay to workers according to custom or law, or the lowest wage that workers sell their labor for. Criteria such as supply and demand, cost of living, ability to pay, and efficiency are used to determine the minimum wage, although this is not the focus here. The history of minimum wage dates back to the “Code of Hammurabi”, which set the annual wage for agricultural workers at 8 sheep, but in Iran, the history of minimum wage dates back to 530 BC when construction workers were apparently entitled to certain rights and insurance. The first time minimum wage was included in the law was in the 1946 Labor Law. In Iran, wages are defined at the national level and the Supreme Labor Council is responsible for determining them. According to the International Labor Organization, more than 90% of countries in the world have some form of minimum wage law.

The International Labour Organization (ILO) is the most important global institution that supports labor laws and addresses the social lives of workers and their families. According to the recommendations of the International Labour Organization, the minimum wage is determined through tripartite negotiations between workers, employers, and the government, taking into account the two criteria of workers’ and their families’ needs and economic conditions. In the first section, indicators such as cost of living, social security benefits, and overall wage levels are considered, while in the second section, factors such as the need for economic development, productivity, and employment levels are discussed.

According to the criteria of Iran and the proposed criteria of the International Labor Organization for determining the minimum wage, it can be observed that factors such as cost of living, wage levels and income in the country, and social security benefits in Iran are important. However, factors related to economic development, productivity, employer payment conditions, and labor market employment conditions are not considered as determining factors for the minimum wage.

For example, in Article 41 of the Iranian Labor Law, the definition of minimum wage is stated as follows: “The minimum wage must be sufficient to cover the living expenses of a family, taking into account the physical and mental characteristics of workers and the nature of the assigned work, and considering the inflation rate announced by the Central Bank of the Islamic Republic of Iran.” Ignoring the economic conditions is one of the most important criticisms that can be made against the rules and procedures governing the determination of the minimum wage in Iran. (2)

Workers and the concern of low purchasing power.

The concern of workers over setting a minimum wage is related to their low purchasing power and the increase in their cost of living. In the past six years, the average increase in minimum wage has been 33%, while the inflation rate has been reported at 42%, clearly indicating a decrease in workers’ purchasing power by up to 40%.

In recent years, the Supreme Council of Employment has consistently estimated the cost of living to be below the poverty line and has set the minimum wage – with all its benefits – lower than the inflation rate. The minimum wage has had an average growth of 33%, but the increase in exchange rates and the removal of preferential currency have rendered the nominal wage increase ineffective and left workers with emptier tables.

The decline in minimum wages due to inflation has led to a decrease in the purchasing power of the working class and an increase in the number of households living below the poverty line in the country; to the point that now not only all minimum wage earners, but also many who are slightly above this range and have families and children, are considered poor and are unable to afford the minimum standard of living. In the past year, the minimum wage has been at a level that only covers 60% of a household’s living expenses.

Products are categorized in the household basket and some products are placed in the category of essential goods, meaning that the consumer does not resist consuming these products and usually these less attractive products are more resistant to price effects. However, today the conditions have changed in a way that unfortunately the price effect has forced the consumer to adjust their consumption. This sensitive point is called “purchasing power crisis” because the consumer tries to maintain their consumption level for some products such as food and hygiene, but the purchasing power crisis has also caused workers to reduce their consumption of such products.

The Parliament Research Center announced in a report last year about the increase in the poverty line that this rate has risen from 19% to over 30% in a decade, and about ten million people were living below the absolute poverty line. In fact, more than 30% of the country’s population – approximately 30 million people – are living below the poverty line and are considered “poor” according to very minimal standards. However, a member of the Parliament’s Economic Commission has also stated that the poverty line in Tehran is 30 million tomans.

One of the arguments of few supporters of not increasing salaries as much as inflation is the rise in liquidity, increase in demand, and creating a gap between supply and demand, leading to inflation and the ineffectiveness of salary increases. However, when we examine the economic statistics of Iran, we realize that salary increases have a lesser impact on inflation and the rise in poverty line, and the equalization of the value of the rial with the dollar (exchange rate) has been among other factors considered as the main cause of inflation in the Iranian economy.

For example, in 1399, the increase in salaries was 32.2% and inflation was 47.1%, while in 1400, the increase in salaries was 36.4%, but inflation was only reported at 46.2%. This is while in 1401, although the increase in salaries was 41.4%, we faced 46.5% inflation. Referring to inflation statistics and comparing them with the minimum wage increase, there are many examples of this kind. This situation shows the lack of serious impact of salary increases on inflation. Therefore, there is not a strong correlation between salary increases and inflation.

Employers and the concern of production cost growth

One of the topics that is always brought up by the employers’ group in the meetings of the Supreme Council of Labor is that employers cannot afford to increase workers’ wages. With these arguments, every year the minimum wage set has a significant gap with the cost of living and inflation rates.

Every year, labor representatives carefully calculate the cost of living basket and bring it to the meetings of the Supreme Council of Labor. In the meantime, employers even try to raise the issue of increasing the minimum wage in these meetings, considering that the share of wages in the costs of small and medium-sized enterprises is high, which leads to an increase in these costs and unemployment among workers.

Employers’ representatives in the Supreme Council of Labor believe that the share of wages in total costs in large industries is between 1 to 10 percent, in small and medium industries between 30 to 50 percent, and in the service sector it is more than 50 percent of the total price.

On the other hand, the opinions of labor representatives differ to some extent from employers. For example, a labor representative in the Supreme Labor Council says: “Based on studies, the average impact of wages on the final price is between 5 to 6 percent, and even if we consider the maximum amount of 7 percent, it will not have a significant impact on the final price of goods.”

In the midst of this, the report of the Statistical Center of Iran is somewhat in line with the theory of workers’ representatives; in a way that the summary report of active industrial workshops shows that the share of wages and salaries from production costs, based on data from 1400, was about 8%. (4)

However, solving the puzzle of wage growth in terms of the share of wages from production costs is not as easy. Therefore, it is possible that the share of wages from production costs may vary among different categories, depending on the user or the capital-intensive nature of the workshops. On the other hand, the existence of production differences in different regions can also change this figure. Perhaps one aspect of the discussion about regional wages in the Supreme Labor Council this year is also this point.

But another important point in this area relates to the competitiveness and productivity of various industries and businesses. For example, in situations where certain sectors of the economy have lower productivity compared to global standards and the cost of goods is high due to high inefficiency, and on the other hand, the wage rate for labor is not high, it cannot be expected that wage growth can meet the interests of both workers and employers without improving productivity. This is a matter that, with the assumptions mentioned, will either lead to the closure of businesses or the laying off of workers.

The main point is that more than 90% of the total cost of a product is made up of indirect costs, raw materials, fees, taxes, etc. that the employer or producer pays. Therefore, the wages have a negligible share in the final price of the product.

In other countries, 50 to 60 percent of the total cost of a product is labor costs, and the employer does not have any problems in terms of providing raw materials. However, within the country, raw materials are procured at exorbitant costs due to various reasons such as long-term sanctions, removal of preferential currency, and outdated and un-updated machinery, which has a significant impact on the final product and its price.

The government and the concern of budget deficit.

What happened at this year’s meeting of the Supreme Labor Council to determine the minimum wage was the failure of the workers’ representative to sign the council’s resolution, which was accompanied by criticism and threats from the Minister of Labor to expel the workers’ representative from the council. The 35% increase in the minimum wage was approved by both employers’ representatives and the government, to the extent that in most discussions, these two groups had more coordination with each other. But the question that arises here is why, contrary to labor laws, wage growth has not been proportional to inflation?

As a rule, there are two main reasons for opposing an increase in wages in line with inflation; first, because an increase in wages leads to an increase in the overall cost of businesses, which was discussed in detail in the previous section. Second, because a larger increase in wages results in a budget deficit, and the government must resort to borrowing from banks (directly) and the central bank (indirectly) to cover the deficit. The result of this borrowing is an increase in liquidity and the monetary base, which in turn leads to inflation and a certain increase in the exchange rate, affecting what is known as the “inflation-wage spiral” and ultimately impacting the purchasing power of wage earners.

This hypothesis that budget deficit can be the root cause of inflation is somewhat confirmed by economists, but it cannot be solely attributed to salaries and wages. Considering the events of recent years, it can be said that the major root of inflation and economic problems in Iran is due to the government’s mismanagement and financial indiscipline, which is reflected in the budget. Additionally, the increase in salaries and wages in the budget is a small part of budgetary issues that contribute to inflation caused by budget deficits. When government mismanagement consumes a large portion of the budget, the increase in salaries and wages cannot be considered a major factor in budget deficits. Therefore, the government’s claim that a portion of budget deficits and inflation is caused by the increase in salaries and wages is not based on a sound and logical foundation.

Bureaucratic structures of the government, as part of the government structure, which should be responsible for formulating policies, legal attachments, and their implementation in different regions of the country, do not meet the international standards of government quality. The influence of politics in bureaucracy is high and this situation has become more severe at the local level due to supportive-follower networks, turning salary determination into a tool for periodic bargaining by power-seeking political groups.

The major part of the government’s budget deficit is due to another issue in Iran’s economy that has existed since ancient times; namely, the shortage of income. This leads to a deficit in the government’s budget. For example, the share of taxes from the general budget in 1403 was about 53%, which seems far-fetched considering the current economic recession. On the other hand, the income from the sale of oil and gas in this year’s budget is not fully realized due to the pressure of sanctions and restrictions imposed.

High inflation increases government revenues, but on the other hand, the government is forced to provide energy at lower prices to the people. Since the government is not allowed to change the prices of energy carriers, the only way it can save and reduce its expenses is by adjusting salaries and wages. Therefore, the government is not very interested in increasing them in line with the inflation rate.

In any case, the government uses methods such as budget monetization, money printing by the central bank, and increasing the monetary base to secure its budget, each of which forms the root and foundation of inflation, in other words, in recent years or in the past two to three decades, we have witnessed such actions by various governments every year, which have intensified in recent years.

Buttocks

Determining the minimum annual wages and salaries of the workforce is one of the most important decisions of governments, in cooperation with representatives of labor and employer organizations, in order to maintain and preserve the welfare and motivation of human resources in the country. However, the government, workers, and employers do not have the same opinion on setting the minimum wage. Workers demand a proportional increase in the minimum wage with inflation or the cost of living. The purchasing power of workers against double-digit inflation has decreased day by day. Many food items such as red meat have been removed from the workers’ table and fruits and dairy products are difficult to find. Workers are forced to work multiple shifts and have no time for leisure, which leads to a decrease in labor productivity and the continuation of the cycle of poverty in society.

Employers believe that the share of labor costs in the total price of goods and services is high, however studies on stock companies show that the share of labor costs in the total cost of businesses is around 10%. For consumer businesses, this share is higher and for capital-intensive businesses, it is slightly lower. The prices of these businesses’ products tend to increase at a rate similar to high inflation. If wages also increase at a high inflation rate, the ratio of labor costs to the total price does not change. Another point is that when looking at a 30-year period, studies show that the share of labor in the value added of production in businesses has decreased. Lastly, it is true that an increase in wages for one business alone can decrease its profit margin, but if this increase is widespread, it will strengthen effective demand in the economy and the profit margin of all businesses will increase. The starting point for any economic reform is to increase wages at least proportionally to inflation.

The best situation is to be able to define wages based on the existing features, opportunities, and limitations in specific social contexts, different geographical regions, various economic sectors, and conditions of prosperity and recession. Therefore, there is a widespread recommendation to establish a minimum regional wage, which suggests transferring the authority to determine the minimum wage from the national level to the regional level. Such a recommendation is essentially a call for changes in the economic and social structure of the country, while the necessary structural requirements for implementing such a task are not only lacking in terms of capacity, but also not available in the regions.

Notes:

1- Global prosperity in regional wages, Khorasan newspaper, 19 Esfand 1399.

Article 41 of the Labor Law and “Unfulfilled Promises”/ When the Supreme Labor Council renders a legal provision worthless, Daneshju News Agency, April 15, 2020.

3- We are facing the phenomenon of “purchasing power crisis”/ Middle class citizens have also fallen into the trap of poverty, Khabar Online website, 28 January 2024.

4- The Statistical Center estimates the share of wages in production costs, Khorasan newspaper, 20 Farvardin 1402.

5- Three Approaches to Solving the Budget Deficit, Donya-e-Eqtesad Newspaper, 23 Dey 1398.