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The document discusses counterarguments one would bring to a negotiating table with trade unions to fix new minimum wages and collective bargaining agreements. It argues that wages should be linked to labor productivity and value added by employees. It also states that setting minimum wages at sector levels is complex due to lack of data, and different sectors should set their own minimum wages.

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Kerjaan Fira
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21 views1 page

Forum Topic 1

The document discusses counterarguments one would bring to a negotiating table with trade unions to fix new minimum wages and collective bargaining agreements. It argues that wages should be linked to labor productivity and value added by employees. It also states that setting minimum wages at sector levels is complex due to lack of data, and different sectors should set their own minimum wages.

Uploaded by

Kerjaan Fira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Nester Mukwehwa

M4 Forum Discussion Topic 1

Q. You are at a negotiating table with Trade Unions to fix a new minimum wage and several
collective bargaining agreements in different sectors. Trade Union provides data demonstrating that
average growth has lagged behind average labour productivity growth since 1980 in your
country.Labour share of GDP has declined from 67% in 1982 to 52% in 2019.For this reason, also
inorder to correct possible negative macro-economic imbalances, Trade Unions argue that a strong
increase in wages is much needed. What counterarguments would you bring to the table.

Answer

Wages are negotiated by workers and employers with two competing interests. The objective of
workers in the negotiation process is to push for wage adjustments on the basis of erosion of
disposable income due to high inflation. The objective of the employer on the other hand is to
maximize profits. For the employer to maximize profits five key decisions should be made. These are,
what to produce and the quantity, how to produce, how to organize and compensate employees,
how to market and price the product, what to produce itself and what to buy from others. Instead of
focusing on one factor of production which is labour each time there is profit, other factors such as
capital, raw materials should be considered in order to arrive at a fair allocation of resources. The
production function should be considered in order to arrive at fair allocation.

Wage adjustment should be linked to labour productivity taking into account the Net Value Added
by each employee. The information put on the table by the Trade Union shows a decline in GDP of
15%. It will be difficult to support the demand by the unions in the absence of growth in GDP. The
negative GDP put on the table in the absence of value added by the workers weakens the position of
the workers on the demand for wage adjustment. Instead of adjusting wages, resources should be
allocated to other factors to enhance productivity. More resources should be allocated to
innovation, development of knowledge and skills and infrastructure.

Setting of minimum wages at sector level is a complex matter. For measuring productivity in
companies, the information from financial statement is used to calculate Gross Value Added and Net
Value Added. The financial statements of listed companies are available and those for unlisted
companies may not be available. The absence of aggregate corporate data makes the determination
of added value per employee or per hour worked complex. It follows therefore that instead of fixing
a minimum wage for all sectors, different sectors should fix minimum wages for their sectors taking
into account different levels of innovation ,education ,physical and infrastructure, trade openness
among others as hey factors that promote growth.

18 October 2020

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