Monday, September 12, 2011


Last week the issue of the living wage reared its head again.

Members of Parliament called on government to set a minimum wage to stop worker exploitation by investors.

They argued that despite the rising cost of living businessmen have continued to pay their workers peanuts.

In 1995, sh75,000 was recommended as the minimum wage for unskilled labour. This was never effected.

Proponents of the move say that improved wages will lead to higher worker productivity.

While government and opponents of the minimum wage bill have argued that to raise labour costs would dissuade investors, because one of Uganda’s main attractions for investors is low-cost labour.

As with many of these arguments both sides are right but not in the way that either intended.

One of the things holding back the economy is the low productivity of the Ugandan labour force. Compared to our neighbours the Ugandan worker produces less per unit input compared to his Kenyan or Tanzanian cousins.

The State of Uganda’s Population Report released at the end of last year showed that six Ugandans are employed to do a job that can be done by one Kenyan. Also, one Tanzanian national can do a job that is done by four Ugandans.

There are questions about our people’s work ethic, while this has something to do with our dismal figures, low productivity is more a function of how much capital is injected into our work processes.

A farmer using an ox plough is using a much more capital intensive approach to his farming than his hoe using neighbor.

Two things can happen for the ox-plough farmer.

To begin with he needs considerably fewer workers for the same piece of work, invariably increasing the productivity of his labour, meaning he can cultivate more land.

Secondly, with the increase in revenues and the reduction in staff numbers he can afford to pay his workers better even if his neighbour’s workers are toiling “harder” and longer. It is also in his best interest to pay his workers higher because they now have higher skills that are not readily available in the area. But also he needs to pay them higher to discourage his rivals from poaching his already trained workers.

Using this analogy the opponents of a living wage are right that a higher wage will dissuade investors from setting up shop on our shores, but the investors it will be discouraging are the investors who cannot or will not invest in higher technologies or capital intensive industry. Our low labour costs make us ideal for the “hoe-farmer” investor.

The pro-living wage lobby are right that low wages offer little incentive for higher productivity, but not for the reason they suggest. A higher living wage will force businessmen to invest more in technology, cut down on their workforce and pay the higher skilled labour a higher wage.

It seems like a chicken and egg question. Do high wages cause higher labour productivity or does high productivity raise wages?

Our poor productivity numbers are related to the low quality of the investors we attract.

The question then will be, what will we do with the newly, inevitably redundant workers?

That is where education comes in. The smarter workers will look to constantly upgrade their skills, keep in touch with the latest technologies and improve their own work processes. Government too should be constantly be revising curriculum at the school level and encourage an adult education industry to help workers retool.

So yes for the greater good of the economy and to catapult us to the next stage of development, we need to set and enforce a minimum wage for our workforce.

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