WAGE DETERMINATION INSTITUTIONS

The wage determination system in Mauritius is characterised by a multiplicity of institutions and a high degree of Government intervention. Salaries in the public sector are determined by the Pay Research Bureau (PRB) while minimum wage rates and working conditions for about 80 percent of private sector employees in 29 sectors of economic activity are set by the National Remuneration Board (NRB) through Remuneration Orders (RO). Both the PRB report and RO are periodically reviewed to adjust the salary scales of employees. Pay increases are also awarded by the Permanent Arbitration Tribunal (PAT) in settlement of industrial disputes. In addition, wages have been adjusted annually since the mid 1970s by tripartite negotiations with the view of compensating workers for the loss in purchasing power due to rising prices.

TRIPARTITE NEGOTIATIONS

The birth of tripartite negotiations can be traced back to the 1973 Sedgwick report on the pay structure in Mauritius. The report recommended pay increases to public sector employees but wage adjustments were extended to the private sector as well. In the wake of the Sedgwick recommendations, frequent increases in pay were granted to employees at six month intervals between 973 and 1976 which proved detrimental to enterprises and the economy. Hence, Government duly decided to institutionalise the tripartite ritual and allow wage negotiations once a year to decide on the quantum of pay compensation to be granted.

It is often argued that wage compensations determined by tripartite negotiations have contributed to a fairer distribution of income and the promotion of social peace. But the inbuilt inflationary bias has played an important part in raising labour costs and decreasing competitiveness. The annual wage compensation, which is paid over and above other pay increases granted to employees on the basis of performance and merit, has consistently been set above productivity growth. Given the challenges of eroding trade preferences and globalisation, the existing tripartite wage bargaining had to be reviewed to fit within a new economic model based on global competitiveness.

THE NATIONAL PAY COUNCIL

The setting up of the National Pay Council (NPC) in 2007 provided a pragmatic, structured and coordinated approach to wage bargaining, bringing together social partners, i.e. employers, unions and Government, to work together to promote sound employment relations and enhance productivity and competitiveness. As such, the main object of the NPC as a centralised tripartite body is to determine an annual pay compensation that is sustainable in the long term by formally taking into consideration the macroeconomic situation prevailing in the country. The terms of reference of the NPC clearly specifies that the determination of the wage compensation should be based not only on inflation but also on national productivity and competitiveness, national capacity to pay, employment and the unemployment rate. However, this is now being put under a stern test by the trade unions.

THE DOMINANT TRADE UNION STRATEGY

The basic formula proposed by the trade unions for determining the wage compensation is the increase in consumer prices. Headline inflation is estimated at 8.7 percent for the financial year ending June 2008, down from 10.7 percent last year. Yet workers are increasingly feeling the pinch of the significant rise in food prices. As noted by the Monetary Policy Committee (MPC), food inflation has risen from 14.7 percent in June 2007 to 17 percent in May 2008. This implies a significant bearing on the purchasing power and standard of living of workers given that expenditure on food is by far the biggest component of the average Mauritian household budget, making up 26.5 percent of total spending. In this context, the dominant strategy of trade unions is simply the maintenance and improvement of the real wages of workers.

The unions? wage demand is also influenced by the improved macroeconomic situation which is an indicator of a higher national ability to pay in the short term. Economic growth is on an upward trend, private investment and FDI are rising and many sectors have registered a noticeable expansion of activities. However, little weight, if any, is given to factors that may well affect the medium and long term economic performance of the country such as the global economic slowdown, the energy and food crises, high inflation and unemployment rates and the challenges posed by globalisation and the erosion of trade preferences. The trade unions? position is for the most part geared toward safeguarding the immediate interests of insiders, i.e. the incumbent experienced employees whose jobs may not be on the line and in most likelihood at the expense of outsiders, those who are unemployed and on the fringes of employment in the formal sector. This is consistent with the unions being wage-oriented rather than employment-oriented (which would have meant moderating wage claims in order to preserve and promote employment).

?Whilst recognising that inflation is an important criterion for shaping employers? wage offers, the MEF believes that productivity and capacity to pay are determining factors bas well.?

EMPLOYER'S PERSPECTIVES

Employers, on the other hand, are relatively more concerned about the fragile economic recovery which remains exposed to external shocks and the many challenges facing Mauritian enterprises such as rising costs of production due to increased prices of raw materials and petroleum products, high freight charges, growing international competition, low productivity, lack of competitiveness, shortage of skilled labour, infrastructure bottlenecks and red tape. They are, as such, in favour of a wage compensation that would promote macroeconomic consolidation, employment creation and the competitiveness of enterprises. Granting wage increases that are in line with gains in productivity is seen as a more sustainable option for raising purchasing power and standards of living in the long term.

In its memorandum submitted to the NPC, the Mauritian Employers? Federation (MEF) also argues for a flexible approach in wage bargaining. Whilst recognising that inflation is an important criterion for shaping employers? wage offers, the MEF believes that productivity and capacity to pay are determining factors as well. Disparities in productivity levels across the different economic sectors should be taken into consideration and moreover, enterprises should not be viewed as homogeneous units since even within the same sector they tend to vary significantly in terms of workforce size, cost structure, profitability, productivity, human resources and general management practices as well as reward and benefit systems. Employers would, therefore, want a minimum compensation to be granted coupled with the flexibility of paying more than the prescribed salary compensation depending on their capacity to pay.

GOVERNMENT

Government, meanwhile, will be wary of the capacity of the economy to absorb generous wage increases without fuelling inflation especially in the context of an imminent salary review of public sector employees. The PRB package is reportedly expected to be of the order of Rs 5 billion. A massive cash injection in the economy is likely to have second round effects on prices, throwing policy makers into a major conundrum. Up to now, Government has adopted an expansionary fiscal policy, lowering taxes to boost investment and growth. Similarly, the Bank of Mauritius has favoured a loose monetary policy stance to ward off the prospects of a slowdown and in particular, put the brakes on a rapidly appreciating rupee which had started to eat away export competitiveness. Considering the difficult global economic environment, the downside risks to growth and employment, high inflation and now the probability of a vicious wage-price spiral, the Bank of Mauritius fittingly urged for wage restraints in its latest MPC statement.

STRONG TRIPARTITE COOPERATION

Wage bargaining through the NPC has so far been marked by much controversy and criticisms. It remains to be seen whether the NPC will stand the test of time and be recognised and respected as a premier tripartite wage determination institution in Mauritius. For this to happen, it is important that the NPC operates as a truly independent body and enlarges its sphere activity to conduct labour market research and offer guidelines on wage and other wage-related matters whilst promoting strong tripartite cooperation for improving productivity and the development of skills. There is a pressing need for reform in the formulation of wage policy to be consistent with the ongoing broad-based economic reforms and the impending labour market reforms. A flexible employment relations framework that promotes collective bargaining at the enterprise level, under the guidelines of the NPC, would be desirable. But most importantly, strong cooperation between the social partners is necessary to improve and sustain our economic competitiveness and achieve continued employment growth in the long term.

Dr Vishal RAGOOBUR

Economist Mauritius Employers? Federation