Provide better wages and salaries for labour to increase economic productivity

The evolving African philosophy of law overshadowed by western principles
Michael Sumaila NLASIA

Workers – who need jobs in order to generate earnings to purchase goods and services – enter the labor market willing to supply their labor in exchange for wages or salaries. While wages are hourly or daily payments for work done during the working day, salaries are fixed upon payment agreed to by both the employer and employee. Wages or salary is most often than not, the primary incentive for increase productivity. That notwithstanding, it is workers labour that essentially generate or extract the wealth from productivity.

Therefore, the idea that increasing productivity will rather attract better wages for workers is unfounded and not progressive. It is a motivation for labour exploitation where workers are taking unfair advantage of. And considering the fact that the work force in Ghana is mostly in the public sector where the means of production is owned by government, it comes as a crooked thought by government to insist that extracting productivity from workers without giving premium to better wages for the workers is the best approach to redeem our moribund economy.

Recent studies undertaken under the International Labour Organization (ILO) have shown that increase minimum wages not only help to reduce wage dispersion and to channel productivity gains into higher wages, but they also can contribute to higher labour productivity – at the enterprises level to the aggregate economy-wide level.

Minister of Employment and Labour Relations, Ignatius Baffuor Awuah

At the enterprise level, workers may be motivated to work harder. They may also stay longer with their employer, gaining valuable experience and also encouraging employers and employee to engage in productivity-enhancing training. At the aggregate level, increase minimum wages can result in more productive businesses replacing least productive ones – and surviving ones becoming more efficient. These mechanisms can increase overall economy-wide productivity. What’s more, below are some reasons why government should adhere to the calls for better wages for Ghanaians workers:

  1. Workers are more motivated

A number of studies have supported the hypothesis that employees consistently provide higher effort levels in response to higher wages, the so-called “efficiency wage” theory. Most of these studies have focused on pay levels of individual agencies, organizations and companies, showing that higher pay compared to elsewhere can attract more experienced and motivated applicants. Higher pay can also elicit greater commitment and productivity from existing employees (Ehrenberg and Smith, 2009). The effect of better minimum wages on workers’ motivation has also been found to be positive.

  1. Efficiency of work

Although some labour experts argue that productivity increases may be the result of a fall in employment due to the minimum wage, as works substitute capital for labour and adopt more capital-intensive production technologies, this remains a distinctly insignificant as the minimum wage of some work is set high. In addition, increase in labour costs also increases labour productivity. Labour productivity changes do not come about through a reduction in workforce by laying off workers or through capital-labour substitution. Rather they are associated with increases in total factor productivity, consistent with organizational change, training and efficiency wage responses to increased labour costs from minimum wages. (Riley and Bondibene 2015)

  1. Increased efficiency at the macro level

At the macro-economic level, it can be observed that minimum wages may prompt low-productivity works or organizations to leave the market and higher-productivity firms to expand – thereby raising overall efficiency of the economy.

A typical example is the Chinese economy, in that in 2014, data shows that more than 160,000 manufacturing companies in China realized that increases in minimum wages resulted in lower survival probability of low-productive companies. They explain this finding by the fact that productivity in surviving companies improved significantly, allowing firms to absorb the higher labour costs without hurting their employment or profitability. They conclude that minimum wage growth allows more productive companies to replace the least productive firms and forces incumbent companies to strengthen their competitiveness.

National Financial Inclusion and Development Strategy (NFIDS) – Ghana

In 2018, Government of Ghana under the Ministry of Finance initiated the National Financial Inclusion and Development Strategy (NFIDS). This program which ends in 2023 seeks to reduce economic vulnerability and income inequality through the development of a broad financial inclusion policy. In addition, NFIDS aims to address the fundamental barriers preventing the underserved population from accessing financial products and services that would enable them to generate income, build assets, manage financial risks, and become economically empowered.

If government seeks to achieve this agenda, it must ensure better remuneration and incentives for our workers. The four per cent base pay salary increment recently announced by the Minister for Labour and Employment in the wake of the introduction of numerous new hefty taxes and the high cost of living in this COVID-19 era will largely increase the financial vulnerability or the financial gap for the Ghanaian worker.

Labour agitations

Government should therefore reconsider the withdrawn the four per cent increase in salary. The labour union leaders should, in good faith, continue to press home their demands from government for it to go back to the negotiation table with them to reconsider its decision. One of the core principles about negotiation as captured under article 97 of the Labour Act, 2003 (Act 651) provides that all parties to the negotiation of a collective agreement shall negotiate in good faith and make every reasonable effort to reach an agreement.

It is believed that there is room for further negotiations between labour and government and that negotiating parties are expected to be honest, faithful, believe in their course and observe reasonable standards or norms of the various organizations that constitute the public sector of the country to bring the impasse of strike and those looming to rest.

Those ones who understand the situation of the economy and manage should be in a better position to know that workers who struggle daily to contribute to the development of the economy deserve better salary, not otherwise. How can someone taking a salary of less than two thousand Ghana cedis survive after all these taxes are deducted in addition to SSNIT, and other levies? Adding to the fact that government claims that the four percent pay increase is due to the dire economic situation created by COVID-19, meanwhile, it has increased the salary of Article 71 holders astronomically does not sit well in mind. To labour, this explanation is discriminatory and unfair.


From all indications, studies have shown that there is positive correlations between wage increases and productive, and a regressive correlation between increases productivity and wages. For that matter, it dawns on government the responsibility to ensure that the Ghanaian economy in its ailing states receives the stimulus through the provision of better wages for workers to shore up the economic production in the country. This, most importantly, includes providing the teeming unemployed youth, who are the work force of the economy, jobs for the rapid growth of the economy.


  1. Ehrenberg R. G. and R. S. Smith, 2009. Modern Labor Economics: Theory and Public Policy, 10th Edition, Pearson.
  2. Riley, R.; Bondibene, C., R.; 2015. The Impact of the National Minimum Wage on UK Businesses. Report to the Low Pay Commission. National Institute of Economic and social Research and Centre for Macroeconomics.
  3. Mayneris, F.; Poncet, S.; Zhang, T.; 2014. The Cleansing Effect of Minimum Wage: Minimum Wage Rules, Firm Dynamics and Aggregate Productivity in China. CEPII working Paper.

>>>The writer is a Tax Analyst. He can be reached at [email protected]

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