Lebanon’s ‘Social Wage:' Catching Up with Inflation

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Lebanese Labor Minister Charbel Nahas has proposed a way out during negotiations with unions and employers. Nahas forwarded the idea of a ‘social wage,’ which accounts for exploitative market practices. (Photo: al-Akhbar)

By: Hassan Chakrani

Published Tuesday, October 11, 2011

Negotiations over an increase in the minimum wage are center stage in Lebanon. But talks were barely underway before Lebanese merchants responded with price increases. Labor Minister Charbel Nahas is proposing a ‘social wage’ as a countermeasure.

Prices in Lebanese consumer markets have greatly increased amid speculation that the government may soon decide to raise wages nationally. All markets are naturally responsive to public policy, but in Lebanon’s poorly regulated economy, businesses exploit every opportunity to increase their profits.

“The wage increases have been overtaken before they were even implemented!” says Zuhair Berro, head of Consumers Lebanon, a consumer advocacy group. According to a survey carried out by the agency last week, there has been an 8 to 30 percent increase in the price of 12 basic goods. The increases appear to anticipate the proposed minimum wage adjustments. According to Berro, the inflation is a result of “poor regulation, the absence of market controls, and the prevalence of monopolies in all market sectors.”

Current statistics indicate that for every dollar increase in wages, the market responds with a two dollar increase in prices, leaving the consumer the major loser.

Labor Minister Charbel Nahas has proposed a way out during negotiations with unions and employers. Nahas forwarded the idea of a ‘social wage,’ which accounts for exploitative market practices. He believes a social wage is useful because it would resolve both wage and cost of living issues by associating salary increases with developing affordable comprehensive health care and an effective public transport system to support those with a limited income. Of course, this must be accompanied by greater public control over the market, legislation regulating competition, and a confrontation with the monopolies.

Berro recognizes the innovation of Nahas’s initiative: “What is important about the social wage is that businessmen cannot devour it...It pushes forward dialogue between employer representatives and those of workers. We had hoped that such a meeting would lead to a solution.”

But Nahas received mixed reviews from members of the Price Index Committee, charged with proposing a new wage increase. According to Berro, members of the committee “glossed over this modernizing approach and decided to speak about wages only...They reduced the negotiations to this one issue: tell us how much you want us to increase wages so we can decide if we agree.”

For their part, employers insist on using figures from the Central Statistics Department which indicate that prices have increased by a modest 16 percent since 2008, a fraction of what the unions are demanding. “We as organizations understand what workers in Lebanon are going through, but at the same time, we know the challenges facing the private sector,” says Muhammad Shokair, head of the Lebanese Chambers Union.

Shokair expressed fears that the economic situation in Lebanon would become similar to that in Greece. “We might even come to the point of bankruptcy,” he says, “particularly when all economic indicators have shown a significant fall in the first nine months of 2011. There is not one positive indicator.”

Shokair adds that the proposed 250,000 Lebanese lira (LL) increase in the minimum wage (approximately US$166) to a total of LL750,000 (US$500) will “lead to ruin.” He says that 60 factories shut down as a result of the 2008 wage adjustments of LL200,000 (US$133), the first in 12 years. Shokair anticipates the proposed increase to lead to the closure of more than 100 factories.

Asked whether the wage hike will lead to an increase in internal demand, which would in turn be beneficial to Lebanese producers, Shokair insists that any increase in the minimum wage will lead to a higher inflation rate, thus driving employers toward failure.

Shokair points to the negative impact of political disturbances in the region on the productive sector, particularly in countries importing Lebanese products. He explains: “There is a sharp decrease in goods exports to Iraq, Egypt, and Syria.” Shokair also questions the effect on the national treasury, asking: “How will the government secure the necessary funds? And can we afford a wage increase when annual growth this year is expected to be around 1.5 percent?”

This article is an edited translation from the Arabic Edition.

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