Unstable inflation erodes minimum wage gains over last decade


Analysis done by the B&FT shows that within the last decade (2011-2020) unstable inflation rates have washed a chunk of, if not all, the minimum wage earned by average low-income earners in the country.

Data gathered from the Ministry of Employment and Labour Relations and Ghana Statistical Service (GSS) indicate that for seven of the last ten years, inflation has either taken more than half or all of the rate at which the minimum wage was increased.

For example, in 2013 while the monthly minimum wage was increased to GH¢141.48 – which represents a 16.9 percentage points increase from the previous year, average inflation for the year was 11.6 percent; indicating more than half of workers’ average income was eaten up by price effects. Then in 2016, while monthly minimum wage was increased to GH¢189 – which also shows a 16.6 percentage points increment – average inflation for the year was 17.6 percent.

These suggest that judging from the face of these figures, for seven years out of the last decade, income earners – especially those who earn around the minimum wage – have seen most the part of their income eroded by increments in the price of goods and services.

It was only in 2011, 2012 and 2018 that the average inflation rate took less than half of the rate by which the minimum wage was increased. For instance, in 2011 the monthly minimum wage was increased to GH¢100.71 – representing by 19.8 percent from the previous year, whereas average inflation rate for the year was 9.4 percent. And in 2018, the minimum wage was increased by 21 percent while average inflation rate for the year was 9.8 percent – indicating price effects did not so much affect earnings of low-income earner, which should have ideally been the norm.

Commenting on this, senior lecturer at the University of Ghana Business School, Dr. Patrick Assuming, said in an interview with the B&FT that it would be prudent for managers of the economy to focus on macroeconomic stability if the minimum wage is to really have real value for low-income earners.

“For the last decade that we are talking about, the medium-term target band for inflation was 6-10 percent. So any year that inflation is averaging more than 10 percent, then it is above the medium-term threshold; and that is enough to say the inflation rate has been high.

“But a minimum wage increment of 10, 14, or 15 percent, is not too low. If every year you are getting a salary increment of 15 percent, I don’t think it is a terrible thing. The fact that we have not been able to keep inflation where it should be is rather the concern.

“Let’s think about why inflation has been going up. Every election year we mess up our macroeconomy and inflation gets out of control and we spend years trying to get it back on track. The fiscal indiscipline that we see, especially around elections, is the main reason why inflation is high. So I think we have to improve the overall macroeconomy. We just have to manage the economy better, and once you do that it will help stabilise the economy and more jobs will be created,” he said.

For Dr. Assuming, focusing attention on increasing the minimum wage is only a temporary solution to a bigger problem. The best way to address this, he said, is by good economic management that will create decent jobs for the people.

“If you are generating more employment, many people will be taking wages above the minimum wage. So, it boils down to managing the economy better to ensure we are creating more sustainable jobs. It is easy to say government should increase the minimum wage, but that would also increase government expenditure on wages. So it’s not as simple as saying the minimum wage is low so it should be increased. You have to think about overall management of the economy.

“If we are generating taxes and people are paying their due, then we can afford to increase the minimum wage for those who are at the lower-end of the bracket. For example, if the rate of inflation is 5 percent a year, then a 10 percent increment in the minimum wage is not a terrible thing. It is more about managing the economy better,” he said.

Dr. Patrick Assuming, Senior Lecturer-UGBS                                       FIN

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