To whom goes the compensation money? Workers? Really?

Collective Wage Adjustments

On Friday last week, the government announced that workers in Mauritius will be given as from January next year an across-the-board wage increase of Rs 150 per month as compensation against annual inflation. The quantum of compensation is usually arrived at during tripartite discussions involving the government, the private sector represented by ‘Business Mauritius’ (replacing the previous Joint Economic Council) and trade union representatives of workers. But trade union representatives were seen complaining, just after this decision was made public, that they had had no part in the discussions leading to this decision and that the figure of Rs 150 – which they considered totally inadequate — was imposed from above.

This situation must have triggered another round of discussions between the government and the private sector representatives. On Tuesday this week, the Minister of Finance announced that the previous decision had been varied. Accordingly, it was agreed between Business Mauritius and the government that workers drawing monthly pay of up to Rs 10,000 would now receive monthly compensation of the order of Rs 250 whereas those drawing a higher pay would receive a monthly compensation of Rs 150. The Minister has stated that he was “impressed” by the accommodating stance adopted by the private sector in this regard. It is estimated that the compensation payment next year will cost an additional Rs 290 million to the public sector and Rs 1.5 billion to the private sector.

While the agitation around the quantum of the wage compensation appears to have calmed down, certain trade union representatives took the opportunity to raise the issue of legislating a ‘minimum pay’ for workers, as it is stated in the electoral manifesto of the government in power. Others have complained that inflation statistics do not actually pick up the reality of erosion of workers’ purchasing power due to an almost continuous process of price increases practised by traders throughout the year. So, any compensation amount determined on the basis of official inflation statistics would be understating the amount of loss of purchasing power actually incurred by workers. Other trade unionists went further, asking that action should be taken to narrow down the widening income gap between those at the top and those at the bottom.

A long-standing tradition

In the slave society of a bygone era, slave owners gave the slaves the bare minimum to be able to survive – basic food, shelter and rudimentary clothes. On the other hand, they extracted the maximum amount of work from them. Under the indentured labour contract, employers specified the terms of engagement of the workers ensuring that there was to be no claim outside the contractually agreed amount, no compensation for inflation or to meet costs of medical treatment, no fringe benefits, etc. These were the vestiges of a ruthless feudal society of a bygone era.

It was in this light that we saw the emergence of a more compassionate society. There emerged politicians imbued with a sense of mission and an ideal to get workers out of a situation of being permanently imprisoned in the status quo and not being able to nurse the least aspiration towards a higher well-being. One should not take it lightly since the transition towards greater fellow-feeling for others proved to be an arduous task against the bastions of feudal conservatism. This feeling of empathy towards the rest of humanity took deep roots among social leaders in the wake of the extensive suffering, misery and helplessness to which people were reduced in Europe in the aftermath of the second World War.

Leaders of the Mauritius Labour Party of 1936 drew their inspiration for the social emancipation struggle out of this deep sense of conviction that it is only through a process of redistribution of social wealth through greater welfare spending that anything worthwhile could be achieved towards a betterment of the fate of workers and their families. So, it was a vein running deep into the innate conviction of Labour leaders that social uplift towards a more egalitarian society was necessary.

This philosophy got translated in the course of the pre-Independence and post-Independence struggle into improving the lot of workers both through welfare spending and pay adjustments from time to time. This is the reason several boards and remuneration bodies have been created in the country to ensure that workers do not fall behind to the point of utter deprivation as it used to happen in the slave and indentured labour societies.

Trade unions have cashed on this setup – at times for sheer political gains — but the foundation for the just society was laid down much earlier. And there are sincere trade unionists still today who stick to the original agenda and do not look to gains they can make for themselves by proper political alignment from time to time, depending on changing circumstances.

Market realities

It needs to be reckoned that the present wage compensation (Rs 250 – Rs 150) is being paid on top of the Rs600 monthly hike granted by the present government upon accessing to power early this year. It goes to the credit of the government that they’ve been able to reach a collective agreement with the private sector at a time the lately dissolved Mauritius Sugar Producers Association had been asking that workers should now be free to each negotiate on wages and such things at each employer’s level and not collectively. This collective bargaining mechanism acts a safety valve and is not limited to a sheer monetary role.

Having said this in favour of maintaining the collective mechanism, one has to bear in mind that neither employers nor employees should stretch the argument to breaking point. If, for example, legislating a minimum wage would, by the same token, imply that a certain number of workers currently employed will have to be laid off because of cost-competitive conditions, this may not be in Mauritius’ best interests.

Markets which buy our products are ruthless. They’ll shift over to the next most competitive supplier if we invoice them a price beyond what they can pay for the same item from another place. So, we must tread carefully and decide whether we want to preserve a maximum number of jobs at a time the world economy is not really set for a rapid uptake. Rhetoric is pleasant but it doesn’t uphold or sustain existing jobs at times.

Abusive Practices

Employers may sometimes agree to granting higher wage compensations if they are themselves compensated for this by other means. For example, governments may give them compensating tax reliefs. In a tight budget management condition, governments would make such concessions only if they can tap other sources of revenue. Current rising public debt indicates that we could be at such a point of tight budget management.

In such cases, the axe falls on taxpayers. We’ve seen such episodes in the past, the worst incidence of which was inflicted on the public in the late 1970s and early 1980s when not only were direct and indirect taxes escalating year after year; we also had two massive currency devaluation taxes with accompanying soaring inflation in 1979 and 1981. The public reeled under their combined negative effects. Extending welfare expenditures should be matched preferably with the upswing of the global economic cycle, not when possible downturns are on the horizon. A braking system helps contain excessive exuberance.

Finally, one has to bear in mind that laws which were applied in the past to bring under scrutiny and check excessive price increases by importers and wholesale and retail traders are no longer applied with the same rigour today. The latter are therefore at liberty to impose wild price increases on the public.

Take a recent example. We know that the Indian rupee which was exchanging at Rs 44 to the US dollar for long has slipped during the past year and it trades currently at Rs 66-67 to the dollar. Similarly, the South African rand has come down sharply from around 8-9 rands to the dollar in the recent past to currently trade at around 13-14 rands to the dollar. Both currencies have fallen sharply making imports from them cheaper.

We import a huge number of goods from these countries. One would have expected the price of our Indian and South African imports to mirror this situation by going down. Not so.

Just have a check at your supermarket: where the prices of goods from these countries have not been maintained at their pre-depreciation level, they are being escalated up constantly. Obviously, this kind of traders’ malpractice fills their pockets while keeping erosion of the public’s purchasing power on by way of continuously added inflation. Think deeply about it: before even workers have been given pay compensation for past inflation, traders have been pocketing it all the way. And they’ll do so again after the compensation has been paid by jacking up prices without justification. All this fight to recycle the compensation money! To whom? Workers? Really?

* Published in print edition on 11 December 2015