The recently set minimum monthly income level of EGP 1,200 for public employees is too low when considering poverty rates in Egypt, a recent study prepared by the Egyptian Initiative for Personal Rights (EIPR) has said.
The study noted that according to research from the state-run Central Agency for Public Mobilization and Statistics (CAPMAS), a five-member family in during the 2012/2013 fiscal year (FY) required EGP 1,620 per month to meet basic needs. This represents an increase from EGP 1,270 in FY 2010/2011.
The minimum income system, which guarantees workers EGP 1,200 a month, applies only to employees who work in ministries, government localities and service authorities, according to the Ministry of Finance.
EIPR’s study noted, however, that the selective application of the minimum income system “is not enough”.
The study detailed that the percentage of public sector workers under the poverty line increased from 11% in FY 2008/2009 to 13% in FY 2012/2013, and up from 16% to 21%, respectively, in the private sector. Workers outside either of these categories, including those in the informal sector, went from 30% to 36% below the poverty line in the same periods.
Determining the minimum income value should have been set through committees comprised of representatives of the government, workers, public and independent workers’ unions and employers, the study said.
It added that the increase in workers’ and public employees’ strikes recently reflects a weakness in the negotiation process between the involved parties regarding the minimum income system.
Egyptian workers in government-owned entities business sector public companies are not eligible for the minimum income system. Employees in ministries, government localities and service authorities are the beneficiaries of the system, according to Ministry of Finance.
The study explained that that applying the minimum income would not increase the unemployment rate; however, the countries that applied the system witnessed a hike in the employment process as “the demand on low-category workers increased”.
According to CAPMAS, more than 3 million Egyptians were unemployed in the fourth quarter of 2013, marking a 57.3% increase from the same quarter in 2010, and a 0.5% from the preceding quarter.
Discussing the affect of the minimum wage system on increasing the inflation rate, the study said: “It’s hard to say that applying the minimum wage system won’t result in an increase in the prices, especially in inefficient market of the developing societies,” but noted that the effect would be greater if funded by removing subsidies or printing more banknotes.
EIPR also raised potential means of financing the minimum income system, which will cost the state EGP 5bn from January to June 2014, according to figures of Ministry of Finance.
The first option is to balance the state’s expenses through setting maximum wages and regulating the bonuses system. “This, however, won’t save the needed amount of fund to finance the minimum wage system,” the study said. The application of the system is estimated to cost the state EGP 18bn each year.
The maximum wage law, originally set to kick off in January 2014, would cap wages for public employees at 35 times the minimum wage, or EGP 42,000. EIPR said that applying the maximum income system is “in question” as certain sectors have sought exemptions from it.
Funding the minimum income through loans, as a second option, may not be efficient “due to increasing internal debt to 75.5% of GDP in 2012/2013 fiscal year”.
Using grants and assistance packages from other countries is the nearest solution to the reality, the study pointed out. It would also help offset the ill-effects of a strategy to phase out subsidies, “a measure that will affect the poor in return”.
EIPR said that a successful implementation of the minimum income system would be achieved through an “integrated social justice system” that includes a social safety net and a “fair” taxation system that guarantees delivering tax revenues to the poor “whether in the form of pensions or services”.