Is now the time to raise the minimum wage rate?

The government will look through the situation to increase the minimum wage rate, according to the Labour Minister

As the country’s economy begins to recover from the COVID-19 pandemic, there has been widespread reporting of ongoing labour shortages, especially in lower-wage industries, such as construction and businesses, that were hard hit by the crisis.

Some economists argue that now, more than ever, the government should increase the minimum wage, believing that higher wages will entice more workers to return.

However, others contend that raising the minimum wage could have unintended consequences for workers and businesses, especially small- and medium-sized businesses still reeling from the pandemic.

According to Labour and Human Resources minister Karma Dorji said that increasing the minimum wage is likely to exacerbate unemployment and the prevalence of informal employment, which could have negative consequences for labour productivity and businesses as a result of reduced investment in employee training and loss of productive workers.

“Minimum wage increases can increase informal employment since the formal workers who lose their jobs are absorbed by the informal sector of the economy.

“In the current situation, the government’s main priority is to revive the economy and creation of more job opportunities by increasing the national minimum wage rate,” Lyonpo said adding it is true that government couldn’t increase the national minimum wage rate as of now.

Lyonpo shared that as of now we cannot increase the minimum wage rate considering the current situation of the country’s economy as there will be more negative impacts than benefiting the country.

“The minimum wage rate couldn’t be increased as of now due to the implications such as chances of leading to unemployment, however, the government will look into it as and when the economy improves,” Lyonpo said.

In addition, the minister mentioned that in some of the service sectors, the employee is paid between Nu 7,000 to Nu 10,000, which, the increase in the minimum wage rate might affect the employee of those sectors.

Meanwhile, there are two kinds of wage rates including the national wage rate of Nu 125 per day and the minimum wage rate for the national workforce is Nu 215 (Unskilled) per day.

One of the pledges made by the current government includes increasing the national minimum wage rate by Nu 420 to Nu 450 per day.

Local economists thought that raising the minimum wage to make the low-paid better off would be counterproductive. Increased costs for employers would ultimately lead to job losses. But some still think that large increases like the government’s pledge to raise the minimum wage are risky at the moment.

According to Labour and Human Resources Minister Karma Dorji, if the government increases the minimum wage rate, then the rule will be implemented and the employer who doesn’t give the revised minimum wage rate will be penalized, chances of leading to laying off the employees are high for some sectors in this current situation.

Lyonpo shared that in the current situation if government increase the daily minimum wage rate, then the employees of those service sectors might lose their job. “Especially sales boy, sales girl, helpers among others who are mostly from a poor family background would lose the job.”

Lyonpo added that the government will look through the situation to implement the minimum wage rate when the economy of the country recovers.

“The daily wages, especially in working service sectors also depend upon the economic activity of demand and supply including the market forces,” Lyonpo said adding that the wage rate will also depend upon the market force with demand and supply.

Sherab Dorji from Thimphu