The Role of Trade Unions in Minimum Wage Setting in Selected Asian Countries

Minimum Wage Setting in Selected Asian Countries: The Role of Trade Unions

Pong-Sul Ahn

Senior Specialist on Workers’ Activities ILO DWT, Bangkok

ahn@ilo.org

Contents of presentation 1. Wage tends in Asia and the Pacific

2. Minimum wage setting in selected countries - Cambodia - Lao PDR - Thailand - Malaysia - Myanmar

3. Concluding: suggestions in minimum wage setting

and application

Wage trends in Asia and the Pacific

1. Minimum wages is important in protecting low-paid workers and alleviating poverty but the current minimum wage system is not well functioning in many countries.

2. The minimum wage reaches around 60 – 80% of the median wages

in almost all Asia and the Pacific countries. 3. The enforcement mechanism is overall negligent so the vulnerable

employment like in the informal economy is often out of the purview of the MW system.

4. Many countries do not have standing MW setting machinery which

can provide supporting data for the MW adjustment. 5. Collective bargaining does not effectively play a supplementary role

to improve non-wage benefits as its power is relatively weak and its coverage is low.

Comparison of minimum wages among ASEAN countries

ASEAN countries Lowest minimum wage (US$) Highest minimum

wage (US$) Effective

Brunei Darussalam - -

Singapore A progressive wage model, based on skills and work experiences

April 2013, starting with the cleaning

sector

Myanmar No minimum wage but the tripartite discussion on its setting is on progress

Cambodia $100 $100 February 2014 for

textile, garment and shoe industries only

Lao PDR $78.87 (LK626,000) $78.87 1 January 2012

Viet Nam $90 (VND1.9 million for region 4)

$128 (VND2.7 million for region 1)

1 January 2014

Indonesia $85.7 (IDR830,000 for central Java)

$227.2 (IDR2.2 million for DKI Jakarta)

1 January 2013

Malaysia $263.4 (800 ringgit for Sabah and Sarawak)

$296.3 (900 ringgit for peninsula)

1 January 2013,

Thailand $256 based on a daily minimum wage of TB300 $256 1 January 2013

Philippines $120.3 $288.6 Late 2012 Source: Pong-Sul Ahn. The minimum wage setting and its relevance to socio-economic progress in Lao PDR. Forthcoming publication in 2014.

Cross-country comparison of labour productivity performance, measured as GDP

per worker in 2010 (US$’000s)

Source: Asian Productivity Organization. APO productivity databook 2012 (Tokyo, APO, 2012), p. 62.

Growth rate of real average wages Country 2000-05 2006 2007 2008 2009 Source of info (NSO)

Source: ILO, Global Wage Report 2010-2011 (ILO, Geneva, 2011)

Reasons for declining real wages in many countries in the A&P region -. jobless growth -. expansion of informal economy -. increasing numbers of migrant workers -. low collective bargaining coverage

Minimum wage setting in selected countries - Cambodia - Lao PDR - Thailand - Malaysia - Myanmar

Cambodia

Legal framework • Chapter 6 (Wage), Article 104 of the

Labour Law

- The wage must be at least equal to the guaranteed minimum wage; it must ensure every worker of a decent standard of living compatible with human dignity

Minimum wage fixing mechanism • Labour Advisory Council (LAC) - Chair by the Minister of Labour and Vocational Training - deputy-chair by a representative from trade unions and a

representative from CAMFEBA - 14 government representatives - 7 employers’ representatives - 7 workers’ representatives

• Non-standing consultative tripartite body - Irregular meeting based on the interest of the state and upon request in writing by either the union or the employer

Average nominal wage growth vs. Inflation, 2001-2010

Minimum wage increases 1. The first tripartite agreement on the minimum wage of

US$45 in 2000 2. The 2nd agreement on US$50 in 2007 [plus US$5 for

living allowance] 3. The 3rd agreement on US$61 in 2010 [plus US$5 for

healthcare allowance] 4. Increments of allowances for transport, attendance and

housing in September 2012 5. The 4th agreement on US$80 effective in May 2013

[US$5 of the healthcare allowance was added to the MW]

6. The 5th agreement on US$100 effective in April 2014 7. Tripartite consultations taking place for an increase in

the MW to be effective in 2015

Key challenges

• No reliable socio-economic data for justifying the increment of the minimum wage

• The LAC is a tripartite minimum wage setting machinery but its decision is influenced by the government and the CPP

- CPP-supporting unions are predominant in the LAC and mostly aligned with the government to support a government proposal

• The coverage of the minimum wage is limited to only workers

in garment and shoe industries – Around 80% of 7.48 million workforce are in the informal economy inapplicable for the minimum wage.

• The unionisation rate in the garment and shoe industries is relatively high but the number of genuine collective agreements is only a few

- Union negotiation power is rather weak as trade unions are fragmented.

Cambodian trade union proposal

• Urge the Ministry of Labour and Vocational Training (MoLVT) to reform the Labour Advisory Committee (LAC) to ensure transparency and accountability in the consultation and decision-making of the MW

• Form a so-called “inter-union committee on minimum wage setting” to unify union views and present on a single voice of labour on the figure for an increase of the MW;

• Request the LAC to readjust the MW once a year on the basis of the economic performance indicators resulted from a third party’s study.

Lao PDR

Legal framework • Article 46 of the Labour Law, determining the level of

wages - The determination of the minimum wage is aimed at

securing the basic minimum living standard of the employees consistent with the level of the change in the cost of living in each period

• Labour Minister’s Prakas • Prime Minister’s decree

Minimum wage fixing mechanism Tripartite Committee on Industrial Relations • Constituted by 18 members • Co-chaired by the vice-minister, a vice-president of the

LFTU, and a vice-president of the LNCCI

- 6 representatives from the LFTU - 6 representatives from the LNCCI - 6 representatives from the government Tripartite Committee meeting - taking place at irregular intervals at one of three

partners’ office on a rotation basis

Criteria of the minimum wage fixing • The price of food and non-food items • Companies’ ability to pay • Comparison of the neighboring countries’ minimum

wages [Thailand, Vietnam, Malaysia] • LFTU and LNCCI conduct a survey on the cost of living,

which is based on costs of 8 items - food, food ingredients, clothes, shelter, transport, healthcare, social and religious activities, and personal socialization.

National minimum wages, 1991-2011 (Unit: Kip)

26,000 34,00093,600

290,000348,000

626,400

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1991 1997 2000 2005 2009 2011

Wage/Month

Consumer price index, inflation rates based on the GDP deflator (1997–2012)

Source: Pong-Sul Ahn. The minimum wage setting and its relevance to socio-economic progress in Lao PDR. Forthcoming publication in 2014.

Wage rises in Laos between 2001 and 2009 (Unit: US$)

Source: Ministry of Finance and Investment, Cost of Doing Business (2005), World Bank, Lao PDR Civil Service Pay and Compensation Review (2010)

Key challenges • The determination of the minimum wage was not supported by a

quantitative economic data, but it has been driven by the political implications and the Prime Minister’s Office;

• Need for establishing the standing minimum wage fixing machinery in order to provide essential data and administrative services for tripartite consultations;

• Regular revision on the minimum wage is needed to minimize its negativity on business

• There is a lack of understanding on the MW system by both the employers and the workers. So a wide range of awareness raising is needed for the effective implementation of the system

LFTU proposal • Awareness-raising and training for the minimum

wage system to tripartite constituents

• Strengthening of an enforcement mechanism to implement the minimum wage at workplace

• To increase the coverage of CBA to private and public enterprises in order to improve non-wage benefits

Malaysia

Legal framework

• National Wages Consultative Council Act, 2011, recommend the government to make minimum wages order

• A minimum wage is the lowest hourly, daily or monthly wage that employers shall legally pay to employees

- MW means “basic wages” to ensure basic needs of an employee and his/her family

Minimum wage fixing mechanism • National Wages Consultative Council - Constituted by 23-28 members appointed by the

labour minister - A Chairmen [as a third party] - A Deputy Chairman [as a third party] - A Secretary [public officer] - 5 members from the public officers - 5 member from trade unions - 5 members from the employers - 5 other members

5 criteria of the minimum wage fixing • Poverty line income – determine the basic needs of the

worker and his/her family

• Median wage – employers’ ability to pay

• Changes in CPI – to reflect changes of cost of living

• Productivity growth – to align productivity growth with wage increase

• Labour market situation – do not hamper the market ability to create and sustain employment

The minimum wage as a hot potato of politics in Malaysia

• In 2008, Slengor province (governed by the opposition party) announced RM1,500 as the provincial minimum wage

• The Malaysian government’s vision 2020’ plans to upgrade its industries with a high wage policy

• National Wages Consultative Council proposed RM800 for Sabah and Srawak and RM900 for the Peninsula effective from January 2013.

• The minimum wage applies to all enterprises employing more than one worker from January 2014.

Key challenges • The 2010 National Employment Returns showed that

34% of Malaysians earned less than RM700, below the poverty line

• 2.5 – 3.0 million migrant workers are paid the minimum wage but a levy is deducted from their salary.

• Collective bargaining agreements cover about 700,000 unionised workers out of 10 million workforce

MTUC proposal for the minimum wage

• Since June 2007, MTUC proposed a national MW of RM900, but two different MWs are enforced. MTUC requests the Govt to apply a single national MW;

• Review the minimum wage based on the economic growth and an increase in costs of living;

• The enforcement of the minimum wage to all workers

without regard to the size of enterprises and nationalities

Thailand

Legal framework • The law on the minimum wage (MW) setting was

established in 1956

• The Labour Relations Act (1975), stipulating a fair treatment of employees with better wages

- The minimum wage covers employees who are employed by employers for remuneration, regardless of his/her title;

- It does not cover government, public enterprises, agricultural sector

Minimum wage fixing mechanism before 300 baht in 2013

1. 15 members of the national Wage Committee - Chair by Permanent Secretary of the Ministry of Labour - Four representatives from the government - Five representatives from the employers - Five representatives from trade unions * One secretary from the Ministry of Labour 2. Wage Sub-Committees at 76 provinces 3. Technical and Screening Sub-Committee

4. The 28 zonal minimum wages were fixed by the

national tripartite “wage committee” on the basis of recommendations by the provincial wage committees

3 key criteria of the minimum wage fixing

1. Necessity of a worker to living costs [based on cost of living index, inflation, goods and service prices]

2. The employers’ payability [based on production cost,

labour productivity, and business paying capacity] 3. The overall economic and social aspects [based on GDP

growth, economic and social risk factors like the unemployment rate]

Provincial minimum wages effective from 1 April 2012 • Bt 300 –– Bangkok, Phuket, Nakorn Pathom, Nonthaburi, Pathum Thani, Samut Prakarn and

Samut Sakorn • Bt 273 –– Chonburi • Bt 269 –– Chachoengsao and Saraburi • Bt 265 –– Ayudhya • Bt 264 –– Rayong • Bt 259 –– Ranong • Bt 258 –– Phang-nga • Bt 257 –– Krabi • Bt 255 –– Nakorn Ratchasima and Prachinburi • Bt 254 –– Lopburi • Bt 252 –– Kanchanaburi • Bt 251 –– Chiangmai and Ratchburi • Bt 250 –– Chantaburi and Petchburi • Bt 246 –– Songkhla and Singhburi • Bt 244 –– Trang • Bt 243 –– Nakorn Srithammarat and Angthong • Bt 241 –– Chumporn, Pattalung, Satun, Loei and Sakaew • Bt 240 –– Prachuab Kirikhan, Yala, Surat Thani and Samut Songkram • Bt 239 –– Narathiwat, Udonthani and Ubolratchathani • Bt 237 –– Nakorn Nayok and Pattani • Bt 236 –– Trad, Lampoon, Buengkan and Nongkai • Bt 234 –– Kampaengpetch and Uthaithani • Bt 233 –– Chainat, Supanburi, Kalasin and Khonkaen • Bt 232 –– Chiangrai, Buriram, Nakorn Sawan, Petchaboon, Yasothorn, Roiet and Sakolnakorn • Bt 230 –– Chaiyapoom, Mukdahan, Lampang, Sukhothai and Nongbualampu • Bt 229 –– Nakornpanom • Bt 227 –– Pichit, Pitsanuloke, Prae, Mahasarakam, Maehongson, Utaradit and Amnatcharoen • Bt 226 –– Tak and Surin • Bt 225 –– Nan • Bt 223 –– Srisaket • Bt 222 –– Payao

300 Baht as a national minimum wage

• During the general election held July 2011, the Pheu Thai Party initiated a new policy on a minimum wage of daily 300 Baht for all workers

• Approximately an average of 40% increase from the existing MW

• Since 1 April 2012, 7 provinces have been applied by the minimum wage of 300 Baht as a pilot basis

• From January 2013, the minimum wage has been effective throughout the country

Key challenges 1. After the increase of the MW to 300 baht per day, bonuses and

allowances were added to the calculation of the MW 2. MW covers approximately 8.9 million workers in the private sector

out of 38 million workforce 3. The enforcement of the MW to some 24 million informal workers

[accounting for 64% of the total workforce], including some 3 million migrant workers, is weak.

4. Around 550,000 workers or 1.5% of the total 38 million workforce

are unionized - In 2010, only 331 collective bargaining agreements were singed,

covering around 222,000 workers - CB power is weak to push wage rises in general

Thai trade union proposal 1. Request to redefine the minimum wage for “a fair wage”

2. The minimum wage should be paid on the basis of a wage

for a worker and 2 dependents

3. Campaign for the ratification of ILO conventions No.87 concerning freedom of association and No.98 concerning the right to collective bargaining to increase unionization rates and collective bargaining power

- On 7 October 2013 on the World Day on Decent Work, a MOU between trade unions and the Deputy Prime Minister was signed, but the government was resolved after the coup in 22 Feb. 2014

Myanmar

Current development • The Minimum Wage Act was adopted in 2012 and took effect

in January 2013

• A National Minimum Wage Committee was formed with 23 members including 5 union representatives

- The first sitting of the Committee was held in October 2013 - Similar regional and sectoral committees to be formed

• The Act guides multiple minimum wages based on region and

sector

• A survey on costs of living has been carried on to serve as a basis for tripartite consultations on the fixing of the first MW

- Tripartite partners have a consensus to adopt a daily minimum wage.

Key challenges • How to manage the complex, multiple minimum

wage

• How to formulate the first minimum wage

• How to avoid the regional income gap and improve the living standards to minimize the movement of labour from low wage areas to high wage areas

Union common position on MW setting Controversial issues Union position Legitimate reasons Actors of the national MW Committee

Workers, Employers, the government

Tripartite structure only

Composition of the MW Committee

15 persons (5W+5E+ 5G) Up to 20 pers in case the Govt has 2 seats

Based on the principle of equal footing; the limited number of the MW Committee will help in making quick decisions

Implementation of the MW Act

In 3 months from now As soon as possible as the enforcement of the Act has been already delayed for one year since its promulgation in 2012

Revision of the MW Once a year Taking into account inflation rates and increasing living costs

MW modality Nationwide single MW for all workers in principle and in a long run

Taking into consideration on the fast national economic development, which would lead regional economic developments and job creation throughout the country

Calculation of the MW Hourly-based Most popular method of MW calculation in other countries

Proposed MW 700 kyat per hour and 150,000 kyat per month

Based on 8 working hours per day and 26 work days per month

MW setting criteria Food, shelter, health, Clothing, transport, Telecommunication

These are the proposed criteria in determining the minimum wage

Concluding

1. Over the last decade, in Asia and Pacific, workers’ real income has rather declined as wage rises have been stagnant and inflation rates high.

- It is because the unionisation rate has declined, reducing the CB power - So, the minimum wage plays an important role in reducing poverty and

improving living standards - The minimum wage is not enough to reduce poverty unless it is linked to

extension of social security to the vulnerable groups

2. Capacity of the MW fixing institution - Need data collection and analysis - Effective enforcement mechanism

3. Trade union capacity - needs to conduct a living costs survey to strengthen its position and

argument - Need to increase CB power - Need to joint hands with other countries’ trade unions and campaign

together for higher wages as it is a common issue for all workers in the region and as the international buyers directly and indirectly play a role in wage adjustment, especially in export-led countries

Key issues in MW setting 1. Goals – what should be achieved through the MW? 2. Target beneficiaries – who should be included? 3. Institutional framework – who are the actors?

Composition? Expert groups? 4. Different rates of the MW - national; multiple rates by sector or region? 5. Criteria determining the MW 6. Frequency of MW adjustment 7. Supporting data and information – how to do it and

who is responsible for that? 8. Enforcement mechanism

THANK YOU

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