How much should employees be paid?

The short answers to the question, ‘how much employees should be paid?’ would be as much as employers can afford, taking into employers’ other obligations. The other answer would be as much as employers can satisfy their employees. Of course, this is not as simple as this in real life.

When I heard that a Member of Parliament had passionately pleaded for a 20 percent salary hike for civil servants, I remembered a saying that most ‘people are very generous with what costs them nothing’.

Who does not know that the zero-deficit budget is an austerity one? Austerities mean people have to do with less than what in normal circumstances they would consume as regards necessities as well as spend on comforts and luxuries.

Democracy is, as Winston Churchill said, the worst form of government except for all the rest. What Churchill meant was that all governments are evil, but democracy is the least evil.

One major weakness of democracy is that in pursuit of popularity or the next vote, political aspirants do anything that they feel will please people; though when done, the results would be more sour than sweet.

Raising civil servants’ salaries by 20 percent will sound appealing to people who are not able or willing to think of the overall consequences.

In a profit-making private firm, salary hikes and bonuses follow a period of brisk sales and a healthy profit and loss account. Wages and salaries are not hiked in a year that business has performed poorly in the market.

In the civil service and other non-profit making entities, payments and increments cannot be based on profitability.

All the same, compensations must relate to what the government earns through taxation and charges for its services such as Immigration passports, road licences and others.

What a government earns in any year, apart from efficiency in collections, will depend on growth rates in the gross domestic product (GDP).

This growth in GDP must be in real and not monetary terms. It must be a positive growth of physical products as well as services.

If in one year, a country harvests three million tonnes of maize worth K6 billion and in another four million tonnes worth K7 billion, there has been real growth. It is growth both in real goods and monetary terms.

If in one year, an economy produces three million tonnes of maize worth K7 million and in another three million tonnes worth K8 billion, there has been change in monetary terms, but not in real terms.

The K8 billion in the second year does not reflect a change in the consumption of people because they still have only three million tonnes of maize.

In the second year even if you raise workers salaries by 10 or 20 percent, they will not be able to buy more than three million tonnes.

What will happen is that the maize will now cost more per bag. It is the price that will go up not food quantity.

We have been told through the press by international organisations such as the International Monetary Fund (IMF) and the Economist Intelligence Unit (EIU) that Malawi’s GDP this year will be much less than it has been in the pass five or so years.

In other words, the economy is in decline. To raise civil servants salaries by a whopping 20 percent will not make civil servants ‘20 percent better off’. This will only create excess demand or liquidity, resulting in inflation.

If at the same time, the kwacha is further devalued, additional inflation will result, making imported goods more expensive.

Apart from burdening those who earn fixed income such as pensioners and those who earn low wages, inflation makes exports uncompetitive.

Devaluation is expected to make exports cheaper by placing them ‘on sale’, but they may not become competitive if there is inflation even if it is mere galloping and not hyper inflation.

Those who are trying to stampede the government into extended devaluations and hiking the salaries of civil servants, including the Judiciary staff, should think over these things.

Wherever governments are insolvent at present as in some of the constitute countries of the EU, someone was trying to remain in office longer by succumbing to pressures for salary increases which were not in tune with GDP growth rates.

 

To be continued Thursday