Dynamics of Wage Fixation in a Developing Economy: The Case of Papua New Guinea

DYNAMICS OF WAGE FIXATION IN A DEVELOPING ECONOMY: THE CASE OF PAPUA NEW GUINEA

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DYNAMICS OF WAGE FIXATION IN A DEVELOPING ECONOMY: THE CASE OF PAPUA NEW GUINEA

BENEDICT Y. IMBUN

Nova Science Publishers, Inc. New York

Copyright © 2008 by Nova Science Publishers, Inc.

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Published by Nova Science Publishers, Inc.

New York

DEDICATION This work is dedicated to my wife Lyn, kids Wap-hill, Sidney, Kimberly and Richard who graciously sacrifice my abrupt absences at times for me to engage in scholarly pursuits.

CONTENTS Preface

ix

Chapter 1

Dynamics of Minimum Wage in Developing Countries

Chapter 2

Employment and Wage Fixation in Colonial Papua New Guinea

13

The Emergence of Minimum Wage Determination System

23

Chapter 4

Wage Determination in Post-Independence Period

33

Chapter 5

The Deregulation of Minimum Wage System

47

Chapter 6

Labour Market Performance in Post-Deregulation Period

79

Chapter 7

The 2000 Minimum Wage Policy

93

Chapter 8

Misconceptions and Politics of Minimum Wage Determination

109

Chapter 9

Implications of Minimum Wage Policy

119

Chapter 10

Conclusion

131

Chapter 3

1

References

135

Index

143

PREFACE Despite the enormous significance of wage as the most dominant form of remuneration for workers, there is paucity of literature examining particularly minimum wage determination in developing countries. The reasons are numerous, however in contrast with the developed countries, most of them do not have wage related issues of high employment, advanced regulatory employment system and, single dominant formal monetary system. What is although obvious is that the determination of minimum wage in developing countries is fraught with inherent contradictions and dilemmas influenced by labour surplus, wide differentials in skills, dominant informal sector, struggling formal economy and sometimes wages paid do not reflect productivity. These factors exist simultaneously, if not in complete defiance of the usual small formal labour market. A lot of the differences and inconsistencies in the function of minimum wage in developing countries often reflect the political, social and institutional set up which in turn influence the general level and structure of wages. In such contexts, it is common for governments to play a dominant role both in setting up the wage fixation machinery and influencing the determination of minimum wage. The minimum wage fixation machinery in many developing countries is pluralistic in character and allows equal participation from key parties, such as unions, employers and government. However, this is in theory as arguably the government and to some extent employers often become dominant in influencing the fixation of minimum wage. Such a scenario would occur in times of sudden and prolonged economic downturn where inflation, inequitable distribution and inefficient use of resources coupled with inflated level of unemployment might become rampant that require direct government intervention. This book is a microcosm of issues of minimum wage determination in developing countries examined in the context of Papua New Guinea (PNG). With

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provision of parallels, it discusses the critical issues, process, and actors involved in determination of minimum wage. Like most governments in developing countries obsessed with economic development, the critical issue for the PNG government has been to ensure that wage levels and the wage structure harmonise as far as possible with the national development aspirations and on the other hand, social objectives are maintained through the prevention of exploitation of workers. Although, the twin issues of economic efficiency and social equity have not been easily compatible, this book’s testimony of experiences in accommodating the issues has been the most challenging for PNG. The challenges faced and lessons learnt in determining and regulating minimum wage would reflect similar experiences for many developing countries. The book written with a comparative perspective of developing countries in mind has ten chapters, including the conclusion. Chapter one provides a pragmatic analysis of the significance of minimum wage in the context of mainly developing countries. In particular, the chapter looks at the salient characteristics of minimum wage and reviews popular debates surrounding its application. However, wherever possible parallel with developed countries are drawn to highlight the essence and universal application of the concept. As most of the developing countries inherited their wage fixation systems from their departing colonial powers, PNG was no exception. The reflection of decades of regulation of indigenous labour in the country is analysed in chapter two. Probably the biggest influence upon formal or official wage determination system in developing countries in the early phase of their development had been their colonial governments. Chapter three looks the emergence of a centralized wage system in PNG and discusses the political and economic circumstances prior to and after the country’s political independence. Further, chapter four is set on the challenges of wage determination PNG went immediately after political independence, which was relatively felt in many developing countries as their governments began to assert their authority on an inexperienced indigenous state. The next chapter looks at the deregulation of labour markets in the country as a result of prolonged economic stagnation and mismanagement compounded by broad social, political and economic factors. The performance of the labour market in the post-deregulated period is examined in chapter six. Chapter seven discusses the most recent minimum wage determination in the country. This is succeeded by chapter eight which provides a condensed discussion of the misconceptions and politics of wage fixation policy in PNG. Moreover, wage policy in developing countries is based on its various social and economic circumstances. Chapter nine discusses the challenges and implications of wage fixation policy in PNG. This is one of the most pragmatic

Preface

xi

chapters in the book as it points out the main policy objectives of wage policy making in the three decades of the country’s existence and also offers suggestions for a viable wage policy framework for developing countries. Chapter ten briefly provides concluding remarks on the challenging task of minimum wage determination in PNG and other developing countries. The book is written with several objectives in mind. The first is to do immediate justice to the scattered literature on minimum wage policies of PNG in providing a comprehensive single text, which can exist as a reference point for future wage policy making. More importantly, this book has been intentioned to offer implications for minimum wage determination for the wider developing country context and also thereby exist as a source to the limited number of works on minimum wage. Finally, it is relevant for students and policy markers interested in minimum wage in general and minimum wage determination in developing countries, in particular. It is hoped that the book may exist to trigger more work in what tends to be a dormant scholarly interest in the issues and dilemmas of minimum wage fixation in developing countries. Finally, the author is grateful to several people for contributing and providing useful comments upon an initial draft of the manuscript. In particular, Modowa Gumoi, a former colleague and senior economics lecturer at the University of PNG contributed chapter eight in the book. The author is grateful to him and Shane Ipatas, an Economics student, at the University of Western Sydney, for prove reading the manuscript. Further, John Paska, the PNG Trade Union Congress General Secretary is acknowledged for his generous support to me over the years as I took on the part to write on labour dimension of economic development in PNG. Last, but certainly not the least, I am grateful to my family for their unrelenting patience they have shown throughout my scholarly life. Of course, any omissions or errors, which might be found in the book is the responsibility of the author.

Chapter 1

DYNAMICS OF MINIMUM WAGE IN DEVELOPING COUNTRIES The issue of minimum wage is acute in theoretical discourse and wage policymaking, both in developing and developed countries. It is a priority concern because minimum wage determines the standard of living for many workers. Most countries have had debates on the application of minimum wage in their labour markets and the issue is ever present as costs associated with living constantly change. Therefore, workers expect employers and their government to set or adjust the floor wage to respond accordingly. As it is not a straightforward exercise, numerous wage theories and assumptions had evolved to explain the dynamics and idiosyncrasies of minimum wage policy. However, the concept is challengingly complex in application to particularly developing countries, as a significant portion of its population live divorced from the formal economy (Imbun, 1994, 2003, 2005). This chapter looks at the concept of minimum wage, its history, salient characteristics and reviews popular debates surrounding its application. However, the discussion is in the context of developing countries-references to developed countries are provided wherever possible.

CONCEPT OF MINIMUM WAGE Most developing countries have minimum wage either legislated or tacitly applied in employing arrangements of labour markets. It is a wage for mainly lowskilled workers who are first time entrees to the labour market. Often perceived minimum wage in any country (including developed countries) should be high

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enough to accommodate the basic needs of workers (Lustig and McLeo, 1997; Saget, 2001). At the least, those needs should ensure reasonable and sufficient income for workers for them to subsist and recreate to continue to provide labour. At the most, the needs, which are considered, will be those, which enable them to participate as full citizens. In other words, the wage earned should be sufficient and in developing countries, minimum wage laws are popular as they are intended to lift the living standards of working poor (Jones, 1997). As minimum wage is legislated by law for work performed on a time basis, it is usually legally enforceable. The objectives of minimum wage are two fold. First, minimum wage has a social face – that is to safeguard low-skilled workers from exploitation and poverty. In other words, the wage earned should be sufficient in order to allow the workers maintain basic standard of living. Second, the minimum wage also has an economic face – that is to share the proceeds of a country’s economic growth and in turn motivate workers to work and contribute to the economy. Minimum wage is justified and therefore workers and trade unions are vigilant to the changes in the cost of living in order to bargain for proportionate increase in the prevailing minimum wage.

HISTORY OF MINIMUM WAGE In developing countries, minimum wage legislations have been either colonially legislated or developed with influences from developed countries. Which ever is the case the development of minimum wage has a long history. It is, generally considered that minimum wage was first developed in New Zealand (1896) followed by Australia (1899), Britain (1909) and much later in most of states in United States (1934), although the state of Massachusetts legislated minimum wage in 1912. Basically, minimum wage legislations were introduced to combat appallingly low wage paid to mainly factory and farm workers who were mostly women, children and indigenous workers. However, in the US they were introduced in response to the Great Depression. Many developing countries, which were colonies earlier, tried to regulate the use of minimum wage in an attempt to safeguard the welfare of mainly indigenous labour. For example, the Home Work Act of 1918 in Argentina was introduced by the Spanish colonial government, which was intended to protect lowly paid home-workers. Similarly, the British colonial government in Sri Lanaka legislated the 1927 Minimum Wage Ordinance in support of local plantation workers and urban indigenous labour (Lee, 2003).

Dynamics of Minimum Wage in Developing Countries

3

The universal application of minimum wage in employment situations did not come about until after the depression of the 1930s and Second World War. Preceding that (with the exception of few countries), generally little interest was shown by governments in developed and developing countries to use minimum wage as a labour market policy to regulate employment relationship. However, probably the biggest single influence upon formal or official had in minimum wage and labour in developing countries had been that of the International Labour Organisation (ILO). It, through its several notable conventions for adoption by law in member countries on minimum wage, popularised the concept. The first major convention of ILO on wage policy was the Minimum Wage Fixing Machinery (No.26), which called for member countries to ‘ … create or maintain machinery whereby minimum rates of wages can be fixed…’ (ILO, 1928:14). This convention paved the way for minimum wage to be effectively regulated through collective agreements with the involvement of major parties (i.e. unions, government and employers). It was followed by the 1951 Minimum Wage Fixing Machinery (Agriculture) Convention created particularly for the agricultural sector, which spelt out the factors (i.e. cost of living, reasonable value of services rendered and comparable work) needed to be considered to determine similar work under collective bargaining in agriculture. However, the 1970 Minimum Wage Fixing Convention (No. 131) was one of the comprehensive pieces that identified the critical factors in shaping of a minimum wage (ILO, 1970). The participation of government, unions, employers, position of the economy and economic activity of the poor are just few of the essential factors considered in making a viable minimum wage policy. Although these conventions are too general and do not provide prescriptive policies, they have played a valuable part in protecting disadvantaged groups of wage earners, and they continue to pay special reference to the needs of developing countries. Notwithstanding the widely acknowledgement of minimum wage principles, implementation of it had been relative to historical and institutional developments in many developing countries. However, in many developing countries the legislation of minimum wage has been recent due to internal economic constraints and partly as a response to social pressure groups. The creation of niche industries played a huge role in creating a minimum wage for the workers in order to reflect the unique working conditions. In South Korea the minimum wage was legislated for the first time in 1988 as a safeguard to protect the “very low paid workers” in the manufacturing industries before it gradually spread across other industries (Khan, 1994:25). While external economic imbalances and associated adverse impact on the Indonesian economy in the early 1980s, had led to the imposition of regional minimum wages. Still there are exceptions as to the establishment of

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minimum wage as Malaysia for instance does not have a minimum wage. Despite legislative frameworks are in place, bulk of the Malaysian workforce seem to have preference of the prevailing labour market to determine their wages. Most African countries had legislated minimum wage, however, over the decades stagflation and declining economic investment have massively eroded the real value of the purchasing power. In Ghana, for instance, the minimum wage eroded unabated for decades and in the 1990s recorded 500 percent (Jones, 1997:5). Although minimum wage had been embraced by developed and developing countries as an important social policy tool to legislate against exploitation and establish a floor wage, acute underemployment and unemployment crisis in the 1980s and thereafter have forced developing countries to re-examine the importance of minimum wage for it to be relevant to economically and socially challenging times. In the last two decades increased emphasis on job creation in developing countries has led to deregulation of labour markets in Africa and South America where minimum wage laws have been seen as institutional rigidities (Lustig and McLeod, 1996).

SALIENT FEATURES OF MINIMUM WAGE In order to ascertain the significance of minimum wage it is appropriate to identify its three main features, which provide the platform on which it is being implemented in countries. They are first the mode of classification or categorisation, second, level of application and third, level of coverage. Depending on the social and economic circumstances, each developing country will differ from having a particular form, level of application and level of coverage in industries.

MODES OF CATEGORISATION Many developing countries resort to legislation on minimum wage to be responsive to a particular demand in the labour market and industry. The extensive intervention by governments of developing countries is done to maintain social justice, maintain competitiveness, and therefore attract foreign investment. The mode of categorisation of minimum is also influenced by the level or lack of collective formation of workers and unionisation in a country. There are various modes of categorisation, which include emergency direct intervention in regulating minimum wage to deregulating the wage fixation

Dynamics of Minimum Wage in Developing Countries

5

system which may result of advanced trade union organisations present in the country. Although currently there is an increasing trend in many countries, where workers are resorting to individual arrangements and therefore minimum wages existing as only foundation wage. However, the rationale and purpose of minimum wage is apparent the degree of embracement by developing and developed countries varies according to many inherent socio-economic and political factors. The objectives of minimum wage, mode of categorisation of various sections of the workforce, processes involved in determination, use of criteria and adjustment required also vary. Yet, what can be seen as common features of minimum wage application in the countries take the form of level of application and level of coverage?

LEVEL OF APPLICATION The application of minimum wages in the labour market of developing countries can take several levels, which are determined by the nature and complexity of each economy. There are four such levels of applications however the extend of application of minimum wage in a certain category of labour market in a country is preferred on the basis of choice of objectives (Infante, Marinakis and Velasco, 2003). Usually the first level takes the form of a national minimum wage (NMW), which has jurisdiction over the entire country. This often comes about through a pluralistic determined minimum wage fixation system where unions, employers and government have agreed on a NMW. As a result it is legally binding and has national coverage of which Asian countries such as South Korea and Vietnam, most African countries and Latin American countries like Uruguay, Chile, Brazil and PNG are examples. Most developed countries such as the US, France and Australia use the concept of NMW in regulating their minimum wage. Whilst the second level of minimum wage application reflects a decentralised structure and occurs in certain sections of an economy. Indonesia and China have regional minimum wages where it is based on a needs basis of each region. Enforcement is usually lax in both countries (Khan, 1994:26). Japan determines minimum wages based on relative economic development and placing its 47 regions into three major groupings. Several guidelines are produced by the government from time to time in regulating the administration of the minimum wage in each of the region groupings taking into account of prevailing economic circumstances. Similarly, Germany, Denmark, Finland and Sweden also determine minimum wage through enterprise bargaining units based on the performance of the particular economic sectors.

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Third, minimum wage can be determined for particular regions, as evidenced in some developing countries such as Brazil and Mexico. Whilst is common in Japan where prefectures or provinces determine minimum wages which are applicable in those regions where similar degree of economic development and labour market are the significant indicators of this approach of minimum wage application. The final level of minimum wage application is more fragmented however less widely applied and take the form of a minimum wage being for each of several nominated professional categories. In developing countries, some of the professions may cease to exist relative to performance of the economy. Infante, Marinakis and Velaco (2003) observed that Costa Rica had some 520 minimum wages for a host of various categories of jobs and became too problematic as either the new jobs were not there or fast disappeared and had to settle for a manageable 72 minimum wage having more generic coverage of the professions.

LEVEL OF COVER Although many countries have national minimum wage coverage for their lowly paid population, prevailing distinctive factor (s) in an economy can demand a separate minimum wage for a certain segment of workforce. The exceptions to the general (national) minimum wage coverage can take several forms. Usually the three common ones are allowing a separate minimum wage for a restricted industry, incapacity to pay by an industry and separate catering for the young segment of labour market entrees. The industry specific minima are set from time to time in order to respond to its particular needs. In several Asian countries separate minimum wages are set for workers in niche industries such as clothing industry in the case of Cambodia and Philippines where an ‘appropriate’ wage is set to allow for the industry to be sustainable whilst simultaneously catering for the workers. Whilst the demand for a specific minimum wage sometimes result from a struggling industry, which may find unable to pay the national minimum wage to its workforce. In the eighties, the Portuguese economy was stagnant and that forced many of its struggling firms to apply to the government for special minimum wage consideration, which they could afford in order to contain much of the workforce. The unemployment problem was largely avoided and that happened in many South Korean industries, however usually the special considerations are removed when the particular industries regain normal economic performance. Additionally, one notable exception to the NMW prescription is the accommodation of young workers in the minimum wage framework. Only

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became evident in the last decades, minimum wage regulators attempt to determine an appropriate minimum wage for young people who would be most likely to be unemployed than other aged groups and once employed their productivity would be less than of the mature workers. In Uruguay young people are paid 25 per cent less of the NMW wage whilst in Netherlands, Belgium, France, New Zealand, Norway, Portugal, Spain and Australia pay young people from an elevating scale beginning at age 15 and once they reach the age of 23 they receive the entire minimum wage Lastly, workers who are thought to be vulnerable in a particular industry are singled out and a separate wage is set a side for them. This might happen in cases that there is no union representation or collective worker grouping and the workers in a profession or industry seem more vulnerable to exploitation. Domestic workers would fit this category of having restricted minimum wage pertaining to their profession (Infante, Marinakis and Velasco, 2003). However, in any case, the special allowances for having a sperate minimum wage for the particular circumstances have to be approved administratively by each of the different governments either through their minimum wage boards or through labour departments.

CURRENT DEBATES IN MINIMUM WAGE REGULATION The current debates in minimum wage regulation are applicable to both developing and developed countries. Yet, the debates are spurred on from the adverse economic slump experienced most by developing countries than developed countries in the 1980s and continued unabated thereafter. The main argument in opposition to continued use of minimum wage is centred on the notion that minimum wage establish limits to the scope of the labour market. In other words, under employment and unemployment would be created if minimum wage is paid above a certain level and therefore assist in the increase of poverty for poor battlers. A supplementary argument has been the bulging of informal sector activity in developing countries has been blamed on minimum wage for shifting jobs into the informal sector (Kibbe, 1988; Lee, 2003; Jones, 1997). Notwithstanding, it is perceived that any wage determination, particularly minimum wage, should have the capacity to accommodate the needs of workers. At the least, those needs should ensure reasonable and sufficient income for workers to subsist and recreate to continue to provide labour. At the most, the needs, which are considered, will be those, which enable them to participate as full citizens. Above all, minimum wages can be justified because they protect workers against being forced into poverty and because they provide the means for

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workers to participate in economic wellbeing, both in social and political affairs. One of the practical distinctions is the extent to which the adjustments in level of the minimum wage are justified against changes in the cost of living or gaining access to a share in the increase in national economy. The assumptions advocate that minimum wage fixation fall into two extreme poles. On one extreme are those labour market economists, policy makers and politicians who advocate for a deregulated labour market and, therefore, leave market forces to determine a ‘going rate’ of wage for minimum wage earners. While equally on the other extreme, there are proponents of NMW who advocate based on welfare and social concerns of particularly the minimum wage earners. Many of the advocates are also economists, social and welfare activists whose arguments rest on the pillar of those first workers have to earn a reasonable minimum wage in order to work hard and therefore increase productivity at enterprise level. This and other points of contentions are worth noting. Yet, most of the arguments are standard as they have relevance for both developing and developed countries.

MINIMUM WAGE AND EMPLOYMENT CREATION The argument of classical economics is that low wage creates more employment opportunities. This is particularly plausible for many developing countries with huge populations most of them in the informal sector. Governments of these countries endeavour to have a reasonably viable minimum wage, which would be beneficial to the economy. The employers then have the capacity to employ more labour. In practical application of the assumption effects, centralized wage fixation bodies alter or abolish the indexation method of wage fixation and institute productivity as a medium for wage setting. The theory is based on two main arguments. First, the wage an employer is prepared to pay is equal to the ‘marginal output’ of the worker. Hence, if the wage rate is lower, employers can employ more workers in a profitable way. Second, a fall in real wages reduces the relative cost of labour compared to that of capital. In this scenario, employers will use more labour intensive production methods instead of capital investment. However, there are equally some strong and alternative views, especially about creation of minimum wages and employment. One argument is that the increased minimum wages enhance employment by stimulating demand and the purchasing power of workers and their families. This is partially a ‘Keynesian argument’ that the demand for goods and services, which employers produce, is

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the critical factor in determining employment levels. For developing countries, increased purchasing power may lead to increased imports. A number of studies in the US and Britain, up until the 1990s, concluded that the impact of a minimum wage on employment was negative, however, in the majority of modest cases. Card and Kreuger (1984), in their seminal work, examined enterprises paying minimum wages in United States and found that increases in the minimum wages either influenced increase in employment or did not affect any major change in employment level. This significant work was used as a reference point to justify wage increases imposed by the US Federal Minimum Wages Board. They concluded that the employment effects of minimum wage changes are so relatively small that “opinions about the desirability of a minimum wage are based largely on distributions issues” (1995:32). Similarly, Saget (2001) concluded that for a relatively low value of minimum wages with small internal increases had no adverse impact on the formal level of employment in several developing countries. In other words, these works argue that minimum wages are less likely to increase unemployment, although the impact would be relatively small. For qualification purposes, it is suggested that a ten per cent rise in the minimum wages would reduce employment level by one to two per cent (Paska and Guille, 2000, Imbun, 2005). Interestingly but not surprisingly, the World Bank has tried to put the opposing views into perspective in its own orthodox economic view of minimum wage fixation. Its views have become more apparent in the last few years, as it had firm grip on many of the developing countries’ economies whose one of the major economic policies is the fixation of minimum wages. Its view was even more obvious in the mid-1990s. In one report, it contained ambivalence about the impact of minimum wage increase on employment. The World Bank stated Proponents believe that minimum wage legislation can raise the incomes of the most poverty-stricken workers at little or no cost to overall employment. Opponents argue that minimum wages make things worse for poor workers by raising production costs in the formal sector and reducing employment…. Both sides are partly right…(If) employers have some market power; a small increase in the minimum wage could actually raise employment. Of course, if the minimum is too high employers with market power will choose to hire fewer workers (World Bank,1995:74).

In the current context of globalisation and competitive edge, some developing countries would see embracing higher minimum wage as a disaster for their economies. In the case of Thailand, its minimum wage was blamed for the falling standard of competitiveness in the manufacturing industry in the height of the

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Asian financial crisis in the late 1990s. However, an ILO study later found that it was not the level of minimum but “other macroeconomic factors such as a fixed exchange rate and falling productivity of Thai industries, which caused falling competitiveness, eventually leading to the economic crisis” (Lee, 2003:2). Similarly, in other developing countries, there is desire for a viable wage system, which would facilitate skill formation and productivity enhancement to avoid the trap posed the heavy reliance on minimum wage.

MINIMUM WAGE AND POVERTY Often one of the major arguments put forward by proponents of minimum wages is the maintenance of social justice in an already stratified society. As minimum wage and poverty levels are close to each other, it is presumed that an increase in the minimum wage would lift the poor out of poverty. This is in complete contrast to the classical economics theory, which favours economic explanations of low wage, unemployment and poverty and, therefore, regards regulated minimum wage as a luxury for employers. Studies done on several developing countries (Lusting and McLeod, 1997; Saget, 2001) content that an existence of high minimum wage has a positive impact on the level of poverty to drop. While for the developed countries there is also evidence that suggests that the level of minimum wage does influence poverty (Sage, 2002). In the 1980s increase in inequality between the poor working category and average of US wage distribution played a significant part in the reduction of the real value of the minimum wage (Lee, 2003). Teulings, Volgels and van Dieten (1998) reported similar impact in Netherlands of the increase in minimum wage on inequality. However, the relationship between minimum wage and poverty particularly in the developed countries is not without criticism. It is often conversely argued that minimum wages constitute a weak measure to challenge poverty. For example, many of the wage earners in the poor category are actually low paid teenagers or working partners from relatively well-off families (Gollan, 1997). However, in contrast, Dickens and Machin (1996) observed that those who shape the bottom heap of the social ladder are the result of the growing wage inequality and the changing composition of households. Low pay, mainly in developed countries, is linked to poverty, which is caused by low-paid breadwinners. Therefore, they are insecure in their jobs and there is a massive increase in the proportion of single households, engaged increasingly on casual employment. According to Golllan (1997) the Australian Bureau of Statistics indicated that, in 1990, 44 per cent of the children lived in families whose income was $350 a week or less. The

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argument is that the regulation of minimum wage and therefore an increase in the relative minimum wage level will promote greater social equality in incomes and assist in contributing to social stability in society. In developing countries, although it is more plausible higher minimum wage would reduce poverty of the people, for the near majority of population this is hardly the case. First, most of the workers in the developing countries live out the formal jurisdiction of minimum wage legislation. In some African countries, most of the people live on the land and consume everything or sell little and therefore do not earn a minimum wage, which effectively distance them from the formal economy. Squire and Suthiwart-Narueput, (1995) found that a near 98 percent and 80 percent of firms in Niger and Swaziland hardly complied with minimum wage legislation. Second, lax employment and minimum wage lax laws do little to scrutinise the activities of many employers where compliance level is so low. Therefore, groups of workers such as part-time workers, domestic servants, selfemployed and child workers are seldom paid the prevailing minimum wage. However, as Jones (1997) argues even in countries whose compliance with minimum wage legislation is high, demand for workers are reduced with the effect of slight increase in the minimum wage. Firms would continue to employ current workers than hire new workers. As a result, new workers either are discouraged from entering into the formal wage earning sector or remain in the ‘uncovered’ sector for the duration of their lives. Finally, in countries where minimum wage is low does not appeal highly to the people however in Mexico it had an enormous impact on the informal sector where wages were paid pertaining to the prevailing minimum wage (Saget, 2002:70). Above all, Levantis (2000) argues that it seems those who are in employment in the developing countries are privileged. Therefore, the notion of inequalities in the labour market and poverty are misnomers as it is the fortunate few whose work are the elites against the majority of the population who command unregulated income in the rural areas.

MINIMUM WAGE AND PRODUCTIVITY Equally contentious are the views on minimum wage and its relationship with productivity. Antagonists of a welfare-orientated minimum wage argue that productivity growth is the key in the improvement of employment opportunities and income growth, and unless that happens, any wage increase at all is not justified. In other words, wages should be relative to increase in productivity. However, a rise in wages above the level, consistent with productivity, would have disruptive effects on the economy. Employers and governments, mainly in

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developing countries, observe that low productivity is characterized as one of the major symptoms of under-development and backwardness while high productivity is associated with high growth and improved wages (Levantis, 2000; McGavin, 2001). On the other hand, protagonists of minimum wages (Howard and Paska, 2000) maintain that it could be improved through higher wages and better labour practices in developing countries. There are three ways in which minimum wage may increase productivity. First, workers are motivated to work hard when paid the decent wage and second, labour turnover costs are reduced and finally sound employment relations is maintained between workers and employers as a result of sustaining an appropriate wage (Saget, 2000). In contrast, even if that does not happen the protagonists would pose the question of how could productivity in the workplace be raised when workers could not afford the minimum of balanced diet and living conditions needed to attain a high level of efficiency and productivity. For them, minimum wages set a link between productivity and investment, as the minimum criteria forces organizations to compete on price, quality, and development rather than adopt the slash-and-burn approach of cutting labour costs. According to this scenario, higher wages increase motivation, improve training, require better work organization and, therefore, stimulate productivity. However, despite the plausible linkage between wage increases with productivity, in practice it poses a huge problem in measuring labour productivity of minimum wage earners at the individual, sectoral, workplace and national levels.

MINIMUM WAGES AND WORK INCENTIVES The argument that less privileged sections of society, who are willing to be part of the formal workforce, find it hard because of less availability of work incentives does not carry much conviction. Most of the poorest families in developing countries do not seem to have many working members and for them access to employment is the major problem because many obstacles they are confronted on a daily basis. The lack of adequate job availability in their skill category and insufficient knowledge of the labour market dynamics and tradition effectively belittle their confidence of venturing out and looking for jobs (Imbun, 2003, 2005). In the developed countries, Gollan (1997:14) observed that the “…benefit system is designed so that jobless household face punitive rates of benefit withdrawal if they move into low wage work. In the context of developing countries, where social security benefits are not an obligation of the government, most people prefer to indulge in the informal sector than look for a low paying job

Dynamics of Minimum Wage in Developing Countries

13

in the labour market. The earnings from various economic activities in the informal sector are high by minimum wage standard, which discourages them from entering the formal labour market. What transpires out of this arrangement is the existence of dual labour market (Lustig and McLeod, 1996). Those jobs that have desirable characteristics, such as high wages, good working conditions, employment stability and changes of advancement, seem to be located in the primary labour market. While those jobs that possess the characteristics of low pay, poor working conditions, high labour turnover, little chance of advancement and arbitrary supervision, seem to be located in the primary labour market (Doeringer and Piore, 1971). However, the point of endorsement is the existence of low minimum wage, which only perpetuates the status quo in society. In such cases, jobless people are discouraged from either entering the labour market because of benefit withdrawal or find the informal economy more comfortable. It appears that there is a relationship between the benefit system and the changing composition of labour, which continues to offer low wage for bulk of the new labour market entries, and which, in turn provides as a barrier. In order to ratify this occurrence of labour market inflexibility, it can be suggested that more appropriate government policies are needed to free up accessibility of potential and current workers into the labour market in terms of increasing the nominal wage of minimum wage and also reforming the benefit system. In that way, the formal labour market, in the context of developing countries, would be equally inviting as well as the informal sector in accepting particularly new workers.

DISCUSSION The arguments disapproving and endorsing minimum wage have never been reconciled. However, there is mounting evidence that economic arguments against minimum wages reduce employment by pricing workers out of their jobs forms a poor mechanism for reducing poverty and holds little water. Existing evidence point out that minimum wage reduces wage inequality, may alleviate poverty, have very little impact on unemployment, and encourage enterprises to invest in workplace arrangements in order to increase a high level of efficiency and quality in its products and services. Much of this evidence stems from four main pillars in which minimum wage is very much entrenched. Therefore, it advocates for promoting a higher minimum wage structure. First, minimum wages tend to create fairness and equality in the wage structure by compressing pay distribution. Secondly, the existence of minimum wage provides the floor or basement on which enterprises can promote efficiency in their operations. The assumption is

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that once the minimum criteria is established it forges a link between productivity and investment and therefore forces enterprises to compete on price, quality and development rather than on an ad hoc basis of slashing labour costs. Further, a regulated minimum wage allows the genuine employers to pay appropriate wages to workers, while, at the same time, discourages rogue employers from evading it. Finally, there is a compelling argument that minimum wage is one of the most efficient and effective allocation of resources by assisting the poor section of the working class. Their propensity to spend their earnings on local and domestic goods and services is much higher than other strata of the working population. This is most observable in many developing countries as minimum wage earners spend virtually their entire pay on basic necessities, most of which are produced in the country. In many cases, regulation of minimum wage is supported on the basis of what is stated, as it is the sound economic policy that promotes human resource development and increase in sales and profits. This is despite the compelling economic arguments, supporting minimum wages. What is required is to set minimum wages, which are reasonable to the wage earners but not so high that it might have adverse impacts on the economy.

CONCLUSION Fixing minimum wage poses a challenge for many developing countries. In an effort to shape a wage threshold for the unskilled workers in the formal economy, particularly developing countries are often confronted with varying objectives of workers and employers. As responsible for the management of the economy, a developing country has to find the middle ground in facilitating the converging of the different views. For workers, most importantly minimum wage plays a significant part in sustaining their livelihood and therefore it is a fair wage for their effort and time they put in their employment. Whilst for the employers, although it is obviously a cost, paying a decent minimum wage to workers can lead to an increase in productivity and avoid social and industrial problems at the workplaces. From the perspective of the government, minimum wage can lead to alleviating poverty in many developing countries and promote productive employment, which can result a demand driven economy. However, given the diversity of objectives of workers, employers and government, it is of less surprise that fixation of minimum wage has created a fierce debates between proponents and antagonists on the relevance of minimum wage in an economy. The prevailing argument is that minimum wage is relevant in so much as overwhelming evidence point out to the fact that minimum wage

Dynamics of Minimum Wage in Developing Countries

15

reduces wage inequality, may alleviate poverty, and have very little impact on unemployment. Further, the challenge of wage fixation is particularly more in developing countries, as surging population and little economic activities make it extremely hard to absorb employable people in the labour market, and even also to provide continuity of employment for those few already employed.

Chapter 2

EMPLOYMENT AND WAGE FIXATION IN COLONIAL PAPUA NEW GUINEA This chapter concentrates on the development of labour and wage fixation prior to the emergence of the modern state of PNG in 1975. Particularly, this period was characterised by the introduction of indentured labour system and agreement system. Both arrangements facilitated the accessing of untapped indigenous labour supply. The colonial state did that to facilitate for adequate supply of labour to plantations and mines. This chapter discusses the significance of these labour arrangements and also the subsequent developments in industrial relations and monetary work. The history of employment and wage fixation in any developing country can be traced back to how the system has developed before capitalism or market economy became widespread. In PNG, in the first half of last and this century the economy had two main sectors. One was the traditional, subsistence sector, comprising the activity of the people in the villages who grew crops or produced other goods for their own consumption, or to exchange with their neighbours. This kind of activity rarely involved money, and never involved the employment of anyone. It was, and remains today, a very important part of production in PNG, providing food, shelter and other things for many people. The other sector comprised of crop production and material goods for sale and could be broadly called the market economy.

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THE INDENTURED LABOUR SYSTEM From the early 1900’s to the 1930’s in PNG the commercial activities grew in towns and elsewhere as money started to enter this sector as colonial plantation owners and miners sold agricultural products and mineral at world markets. The plantations and mines needed a large workforce, for work that was often hard and unpleasant, yet they argued that they could afford only low rates of pay (Hess, 1988). As a result there was a chronic shortage of labour. In order to secure a labour force for the plantations and mines, the Australia colonial administration took on and organized the indentured labour system, which had been previously left behind by the German administrators of the 1900’s to 1918 (Ward, 1990; 275). The indenture system of labour was an arrangement whereby the independent miners and farmers with the assistance of the colonial state and the chiefs or ‘bigmen’ in the traditional social system recruited able labourers to work for them. Further, the indentured system and the bonding of labour, often convict, was common in 18th and 19th century European colonies including South Africa, Malaysia, Fiji and Australia (Murray, 1980). The Australian colonial administration had inherited this infrastructure (system) with little modification from the previous German and British occupation of the island. In this system the labourer (who was a male native) was subject to criminal penalities if he ‘deserted’ his ‘boss’ or failed to work diligently. The terms and conditions of the indentured labour system were set up by the National Labour Ordinance (NLO) of 1907 (Waiko, 1993:69). In actual practice of the indentured labour system workers agreed to work for a fixed period of time of up to seven years on mines and plantations remote from their villages. While working at the mines and plantations workers received their basic subsistence of food and shelter at the end of their employment or ‘indentured’ a fixed amount of money. While ‘indentured’ a worker was subject to laws, which required him to work ‘diligently’ and to submit to the authority of the plantation owner and to complete his term of indenture. He could be heavily penalised if he broke his contract to work for the agreed period and deserted. In the case of mining there were other main aspects of the system in the shape of a package of measures that protected the ‘native’ from exploitation by the miner. The labourer worked and remained at the mine for at least eight months before he was sent home. The ‘contract’ system of employment saw a significant increase from 17, 500 in 1914 to 42, 200 in 1937. The principle areas of recruitment of indentured labourers for plantations in New Britain and New Ireland came from Sepik and Madang (Gupta, 1982:3; Nelson, 1976; Imbun, 1999).

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Employment and Wage Fixation in Colonial Papua New Guinea

On the whole, the indenture system was fraught with problems and notably one being the desertion rate of native labourers. The major underlying reason for the relatively high desertion rate under the indenture system was reflective of the economy. The existence of near entire subsistence economy meant that labourers saw no real need to embrace the constraints inherent in that employment. However, several colonial commentators were prepared to accept the shortcomings of the arrangement and foresaw those were inevitable. One in particular characterised the system as ‘an attempt to balance the necessities of European enterprise, without which the advancement of the territories would be seriously impaired, with the interests of the indigenous inhabitants whose welfare was officially regarded as paramount, and whose interests were held to be furthered by participation in the European economy because few other means of economic or social advancement were available’ (West, 1958:95). Table 2.1. Indentured labourers – district of birth and district of employment, New Guinea, 1934 Kieta

Madang

Manus

Morobe

New Britain

New Ireland

Sepik

Total

1996

2

2

1

16

10

67

2,094

Madang

3

2735

2

69

27

7

629

3,472

Manus

7

51

619

18

89

4

523

1,311

Morobe

10

1019

26

5075

487

44

2742

9,403

New Britain

496

462

87

655

4960

631

1516

8,307

New Ireland

90

371

56

169

389

2813

1402

5,290

Sepik

1

14

1

6

14

3

946

985

Totals

2603

4654

793

5493

5982

3512

7825

3,0862

Kieta (Bougainville)

Source: Smith, 1975:35. Notes: Table 2.1 documents the origin and place of employment of the indentured work force in New Guinea in 1934. No comparable figures are available for Papua for this period. The total indentured workforce of each year is a component of the total workforce and each district is seen as a participant as user and supplier of labour in the indentured system.

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Most of the statistics available highlight the indentured labourers as major component of the total workforce in a district where plantations and other work arrangements were found. Table 2.1 documents the indentured workforce and Table 2.2 documents non-indentured labour in New Guinea in 1934. At the same time in Papua there were some 2,564 free or casual workers and 9,994 indentured labourers. Although there is no documentation of any casual composition of the workforce, it is fair to assume that they were a substantial composition of the workforce (Smith, 1975:35-6). Table 2.2. Non-indentured labour in New Guinea, 1934 (Estimate only) District Kieta New Britain

Non-indentured workers 30 1000

New Ireland Morobe

706

Manus Madang Sepik Total

2936

1200

Notes Mainly in plantations. 500-600 occasional stevedoring employment, 200300 on plantations, and the remainder in domestic service. 414 on plantations and the remainder in domestic service and other duties. Mining, plantation work, carrying and domestic service. No details given. No details given. No details given.

Source: Smith, 1975: 36. Notes: In Papua in the same period some 2,564 free or casual labourers and 9, 994 indentured labourers were in employment. A considerable number of the causal labourers were in the domestic service. Because of the nature of their work, majority of the casual workers were resident in their home districts.

The system was carefully policed by the Administration, which ensured the interests of the employer and the safety, health, and general physical welfare of the labourer (Fitzpatrick, 1978:106). The relationship between the farmers and miners and their labourers were generally characterised by a bland paternalism but the labourer’s discontent with some aspects of his work or employer were met with withdrawal of his labour for a day or total disappearance. The colonial state was interested in making sure that wages were kept down and ‘thus placed a ceiling rather than a floor on wages (Gupta, 1982:4; Smith, 1975). Wages on the plantations and mines in 1940 did not exceed six shillings months, however, the

Employment and Wage Fixation in Colonial Papua New Guinea

21

compulsory rule applied where half of the pay were retained for ‘safe-keeping’ therefore limiting the motivation to leave in between the contract period. In the eight years preceding the Japanese invasion of January 1942 there was an average of between eight and ten thousand indentured native labourers and between a thousand and five hundred Europeans working in the Wau and Bulolo goldfields. At around the same time some ten thousand labourers were in the plantations (Waiko, 1993:69). Table 2.3 illustrates the actual flow of indentured workers in district employment in New Guinea in 1934. However, a ‘free’ market in wage labour would not have produced a large enough supply of labor for the mines and plantations. Few workers would have the freedom to work voluntarily for the wages the mines and plantations could have offered. They would have preferred to spend their lives in the village, working for themselves. Conversely, had the mines and plantations offered much higher wages, in order to make work there more attractive, it is likely that most workers would simply have reduced the time they wanted to work. The indentured system was also claimed by colonial administrators, miners and plantation owners to protect those in it from ‘exploitation’. It was claimed that the indentured system was to be on an irregular basis rather than permanent way of earning a living. Taxes forced people into the indenture system, since it was difficult to gain money from work in the traditional subsistence sector to pay the taxes. Further, many people were also compelled to work for the mines and plantations in order to acquire trade goods such as salt and steel axes for bride prices purposes. The laws, which regulated the indenture system, favored the plantation owner or manager rather than the worker. That’s why some commentators, including a colonial governor of Papua described it as ‘really rather like slavery’ (Imbun, 1999:45). The minimum conditions of employment laid down by the NLO of 1907 were often not followed. In fact, the first legal minimum wage for the combined Territories on PNG was determined by the NLO of 1945. The minimum conditions ranged from provision of accommodation and other necessities plus cash of 15 shillings a month and retention of a proportion that was to be paid out to the worker upon end of the contract. The subsequent years saw slight changes to the minimum wage where casual employment provisions came to play in the form of 15 shillings per calendar month, with a cash allowance instead of issues (McGavin, 1991:51). Waiko (1993) observed that Papuan workers were better looked after than workers under the former German and subsequent Australian controlled Teritories.

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THE AGREEMENT SYSTEM In the 1950s, the indenture system was changed to the ‘agreement system’, but its essential character was unchanged with civil penalties replacing criminal penalties. The provisions also changed where a weekly payment of the allowance took the place of the monthly payment in which daily minimum cash wage of six shillings for day labour. In the next years the component of the issues were increasingly becoming smaller as cash allowances dominated which set the pace for the total introduction of case income (McGavin, 1991:31). These changes were necessary in order to try to increase the supply of labour recruit in the newly opened areas (highlands) of PNG, which had previously been forbidden. The NLO raised the minimum rates in 1954 and thereafter several changes were made where cash instead of rations could be earned were broadened. In the early 1960s, restrictions were removed on the hiring of casual labour and in the late 1960s increments were provided in reward for service in excess of one and two years. These developments directly led to the tenfold increase in the supply of casual labour. But in the 1950s and 1960s, the agreement system came under increasing pressure, including criticism from both colonial administrators and employers. In particular, it failed to overcome the shortage of labour because most workers’ experience of plantation work was so bad that they refused to re-engage. It was also undermined by the growth in the number of workers who worked on a ‘nonagreement’ workers in the Territory basis, in other words as free’ waged workers. Some 25, 000 ‘non-agreement workers were recorded in the 1950s and upon independence in 1975 the figure had multiplied to over 100,000 workers (Ward, 1990:26). However, the pressures directly influenced the setting up of the National Employment Board Ordinance (NEBO) in 1957-58. It consisted of two representatives each from the employers, employees and a chairman with another two members representing the government bringing to a total of seven members. This Board was to be responsible for wage fixation for employment of native labour. In 1960 the NEBO initiated an enquiry (the Caterson Enquiry) into the “Wage Scales for Natives” and introduced an all-cash urban wage of $6 per week for Port Moresby and Lae and the following year the principle became a common rule. From this the first urban wage was made applicable to other urban towns in the Territory (Smith, 1975:90). However, Table 2.4 illustrates the prevalence of cash employment commencing 1934 as after World War II agreement employment of shorter tenure replaced employment on plantations and cash wage employment became more common.

Employment and Wage Fixation in Colonial Papua New Guinea

23

Table 2.3. District contribution to and employment of the New Guinea indentured work force, 1934 District

Contribution to Territory work force

Kieta

No. 2,603 793 7,825 4,654 5,493 5,982 3,512 30,862

Manus Sepik Madang Morobe New Britain New Ireland Total

% 8 3 25 15 18 19 12 100

Employment in district No. 2,094 1,311 985 3,472 9,403 8,307 5,290 30,862

% 7 4 3 11 30 28 17 100

New flow into (+) or out of (-) district. - 509 + 518 -6,840 -1,182 +3,910 +2,325 +1,778

Source: Smith, 1975:37. Notes: Table 2.3 documents total number of employed in district and they are compared with the total contribution the district made to the Territory work force. The comparision is highlighted by the use of net flow figures. It can be seen that for Kieta (Bougainville) and Manus total employment roughly matched total workforce contribution while the Sepik and Madang districts made a contribution to the workforce well in excess of their employment and supported New Britian, New Ireland and Morobe districts as net importers of labour.

Table 2.4. Workforce for Papua New Guinea, persons, selected years 1934-68 Year 1934 1950 1953 1960 1965 1967 1968

Agreement workers 40.856* 16.890 29.390 31.192 26.215 24.569 22.746

Territory workforce 46.356 50.817 59.459 72.938 91.753 109.000 115.517

Sources:McGavin, 1991:61. Notes: As seen in Table 2.4 agreement workers in 1950 accounted for only a third of wage employment in the then Territories of Papua and New Guinea. However, there was considerable increase in wage employment throughout the 1960s; it is difficult to qualify as not until 1968 that data were collected for non-indigenous wage employment.

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In 1962 the Industrial Relations Ordinance (IRO) replaced the NEBO of 1957-58 and one of the functions of the IRO was to make awards and common rules for the native workforce in urban towns. A general minimum wage of $5.90 per week was determined by the IRO and was applied throughout the urban areas of Rabaul, Lae, Madang, Wewak, Popendetta, Goroka, Daru, Mt Hagen, Lorengau, Kavieng and Port Moresby. However, also in the urban areas awards provided for minimum wages in excess of the $5.90 and in the rural areas only the minimum prevailed. The awards made in Port Moresby were the highest for any urban general minimum wage for unskilled adults and unskilled married juniors, entitling them to a minimum of $8 per week for 44 hours work under the Port Moresby General Employment award 1971. Other awards such as the Port Moresby Shipping Award entitlement was only $6.50 per week, although employees were paid in cash as well as in kind such as accommodation, food and issues (Carroll, 1993:45). There were also additional employment conditions in the urban award provisions, which ranged from two weeks annual leave to shift allowances and other penalty rates. However, there was a wish to establish a single man’s wage and from there when time permitted a family wage was to be determined taking into consideration of labour and family situation in PNG.

THE DEVELOPMENT OF WAGE LABOUR AND URBAN EMPLOYMENT The agreement system brought about the need to regulate free wage labour and make them ‘non-agreement’ workers. Regulation could prevent exploitation or abuse, encourage effective industrial relations and promote other aims such as better productivity, higher wages or low industrial description. From the end of the 1950s the colonial administration turned to the question of the indentured and agreement systems and the development of industrial relations. The birth of trade unions and the origin of PNG industrial relation institutions was the cause of the 1950’s greater economic development, which steadily increased the number of workers who were taking part in the cash economy, and in particular the number of waged employees in urban areas like Port Moresby and Lae. Not only that from the mid-1960s as global political forces were influencing decolonisation process in the African continent, external pressure was placed on the colonial administration in PNG Territory to pave way for more progress in areas of administration and employment (Gupta, 1982:6). This gave rise to increasing concern about such issues as the level of wages paid, and the

Employment and Wage Fixation in Colonial Papua New Guinea

25

rights of these workers. The decisive step came in 1958 when the Kerema Welfare association was founded in Port Moresby. It was an interesting early type of trade union. Rather than bringing together workers in a particular workplace, trade or occupation, it was designed to represent the interests of workers from the Kerema region of PNG who had come to Port Moresby to work. This showed the workers in Port Moresby were as loyal to their village background as they were committed to life as a waged worker in an urban workplace in Moresby. Partly in response to the formation of the K.W.A the colonial administration further strengthened the NEB to promote and develop the industrial relations system. This would make it likely that the administration would be sympathetic to employers’ concerns about the impact on profits of any improvements to working conditions and wages. Second, employers often preferred to keep industrial relations issues regulated by the law, rather than by institutions (such as bargaining councils or industrial relatives. This is because employers expect that courts will interpret their rights and obligation sympathetically. One of the roles of law is to protect private property, and enforce contracts made between buyers and sellers. Often employers expect that the law will be sympathetic to them in protecting the contracts they have made with their employees, and protect the rights attached to their ‘private’ property: their business enterprise. Unlike industrial relations regulations and laws, the laws of contract and private property do not recognise the fundamental inequality of bargaining power between individual workers and their employer. However, in this period flexibility in wage fixation was drawn in as workers were gearing up to belong to workers organisations and at the same time employers saw the need to pay more than the minimum to get the labour that they needed. This was the transition period particularly leading to the late 1960s and thereafter employers were beginning to rely less on the Ordinance to pay workers. On the other hand, the Workers’ Association negotiated with employer groups for wage increases estimated to be between 50 and 100 percent of prevailing rates, and secured agreement on 26 June 1960 for an all cash minimum wage for Port Moresby, Lae and Rabul of K6 per 44 hour week, effective 1 November 1960 (Hess, 1983:65; McGavin, 1991). Table 2.5 shows the minimum weekly wages prior to the MWB determinations, in which there were slight increases from mid1960 onwards. During the 1960s however the five employers groups realised that simple opposition to the NEB would not be enough. Rather than wait for the administration to act, it began to negotiate on a voluntary basis with a newly formed trade union body: the Papua and New Guinea Workers Association. This was in effect the first collective bargaining to take place in PNG. It resulted in an

26

Benedict Y. Imbun

agreement on a minimum cash wage for urban workers of the employers concerned in the negotiations. Drawing on the Australian tradition of state regulation of industrial relations the NEB declared the agreement reached between the PNGWA and the employers to be a common rule. The effect of that was to apply the agreement reached by negotiation and collective bargaining to all similar workers and employers in urban areas. Table 2.5. Minimum Weekly Wages prior to Minimum Wages Board Determinations, Kina 1945-1972 Year

Rural

1945 1946 1950 1956 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972

1.50*

Port Moresby

Constant prices of 1990 Rural Port Moresby

2.64+ 3.30 2.50* 3.01 3.15 3.56 3.00 3.61 3.34 3.29 3.59 4.83 4.83 4.83 5.33 5.90

6.00 6.00 6.00 6.00 6.50 6.50 6.50 6.50 6.50 7.00 8.00 8.00

14.83 12.53 14.68 13.05 12.27 15.31 20.20 20.20 19.86 20.57 21.45

25.00 25.05 24.40 23.45 24.23 27.72 27.19 27.19 28.79 30.88 29.09

Source: McGgavin, 1991:33 Notes: Table 2.5 presents the cash component per calendar month as in most cases it also included rations and issues which included accommodation in some cases.

EMERGENCE OF INDUSTRIAL RELATIONS FRAMEWORK This development left industrial relations in PNG in a consensus position. In fact an agreement covering thousands of urban workers had been reached by bargaining between employers and a trade union, and in town the state had taken

Employment and Wage Fixation in Colonial Papua New Guinea

27

this agreement as a basic for regulating wages for all urban workers by leaving it into a common award. Yet this had all been done without any framework of laws to determine the rights and obligations of employers, unions or the state. Nor were the institution on either the employers ‘or workers’ side long established or stables ones. By making a common award the colonial administration was adopting an important feature of the Australian industrial relations system. But this did not mean that PNG should copy all the features of a system designed to deal with a very different kind of society, economy and culture. The administration set about regularising the situation by introducing two laws, which have underpinned industrial relations in PNG ever since: the Industrial Relations Ordinance (IRO) and Industrial Organisation Ordinance (IOO), both enacted in 1962. These laws were designed to set a voluntary framework for employers and trade unions to meet together to settle disputes, and to permit government to interview, both to ensure that there was a logical structure to the agreements reached (so that different agreements between various employers and groups of workers were consistent) and to try to resolve or prevent disquiets between employers and trade unions such as strikes. The IOO governed the registration of organisations. This was necessary because of the way collective bargaining ruins counter to some of the main principles of private property law. Hence the IOO provided for the registration of trade union in PNG. As Hess (1989) pointed out, the administration did highly influence the form PNG trade union took though the registration requirements. But in practice it was also concerned about the difficulties, which faced workers in PNG trying to establish trade unions at all (Imbun, 1999). They had little experience and few workers in the private sector had the management and literacy skills needed. They had no financial or organisational resources. Employers were often hostile. Yet the efficacy of the procedures established in the 1962 legislation depended heavily on there being trade unions capable of submitting and bargaining about wage claims and other grievances. In order to promote this, the Department of Labour was established, with the aim of promoting ‘responsible’ trade union organisation. The colonial administration’s hope was that with the creation of effective trade unions, employers would accept the need to voluntarily bargain and negotiate with them and that on top of such a voluntary system the administration could intervene in three main ways. It could help in conciliation if employers and union found it hard to reach agreement. It could make common awards, which could ensure consistency in arguments across different workplaces. Finally, if necessary it could activate where employers and union found it impossible to agree, or refuse to register an agreement if it thought that it would

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Benedict Y. Imbun

be against the national interest. However, industrial relations did not develop quite thus in practice. Although in the 1960s there were many agreements reached without reference to arbitration, the explanation for this is probably that the unions concerned by the objectives of employers. By the 1970s it became much more common for employers to try to avoid dealing with union at all, if they could help it, and rely on ambition. This enabled them to avoid recognising the need to negotiate seriously with trade unions at the workplace. This also had the effect of drawing the state in PNG more directly into industrial relations: both before and after independence. It represented an ambition of a tradition of paternalist regulation of labour by the state that had existed in PNG for many decades in the indenture and agreement system. In 1972 the Minimum Wages Board (MWB) was established. This required two corresponding developments. The first was the pressures from both the employers and union sides in urban industrial relations to favour arbitration in wage determination. The second was the need to bring wages for the greatly increased numbers of rural workers not covered by the agreement system into system of regulation. However, wages in the rural sector of the economy lagged well behind the towns because of the backwardness and inefficiency of the plantations, Plantation owners with low profit from old production techniques, inadequate technology and poor organisation maintained that they could not afford the wage levels paid by urban employers. Trade union weakness continued to be a central problem. At this time the colonial administration argued that the state was a better protector of indigenous worker’s rights and conditions than trade union or any form of representation, negotiation or arbitration. The administration had no policy objection to trade unions but it believed it would better serve the interest of the workers by retaining full responsibility for their conditions of employment and for their welfare generally. This outlook reflected a paternalist and racial attitude towards indigenous workers. Most colonial administrators simply assumed that they were cheap and decide labourers whose long term future lay in agriculture and the village, not in industry, or workforce on the way industrial relations for everyone in PNG involved. In 1952 an Arbitration Ordinance (AO) was introduced which covered the public servants in the colony (who were all expatriates). They had formed themselves into a trade union, the Public Services Association. The AO copied the provision public servants in Australia, so that for the first time in the colony, the principles and practices of the Australian industrial relations system were introduced. In the cause of the 1950s some indigenous Papuans and New Guineans raised though the public service to jobs where they became members of

Employment and Wage Fixation in Colonial Papua New Guinea

29

the PSA. As such, they were part of a tiny system of industrial relations on which it would be logical for the colonial administration to build when it sought to regulate the employment of ‘non-government’ labour on a longer and larger scale.

CONCLUSION The introduction of plantations and mines into the TPNG in the late 1800s and thereafter by the colonisers was done with a determination to accumulate more capital and in doing so systematically tie the colony into the world monetary system. In this the colonial state successfully introduced the indentured labour system and its successor the agreement labour system where it minimised the reproduction cost of labour. But as developments in the mode of labour increased so did other sectors began to increase in significance, therefore stablisation of the labour force. However, the fixing of wage in the form of a fraction of money and rations that characterised the indentured and agreement systems took phenomenal twist with the introduction of peak bodies responsible for wage fixation. This led to the gradual surrender of the dominant role of the state in wage fixation; however it still had a largely influential role that saw the interest of employers was upheld. Further, the development of trade unions as a result of the expansion of the economy in the colony also led to the introduction of other significant statutes which led to the establishment of essential organs of the government that was to play a significant role in wage fixation and general industrial relations system. In fact, the colonial government and economy set the infrastructure and ground work for the future advancement in fixation of wage.

Chapter 3

THE EMERGENCE OF MINIMUM WAGE DETERMINATION SYSTEM This chapter looks at the emergence of a centralized wage determination system in PNG sometime around 1970, which has continued even after independence. It discusses the political and economic circumstances, which prevailed before independence and influenced each particular course of wage policy. Also discussed are the specific objectives, which guided and still guide wage fixation in the country today. Further, the analysis take into consideration of the several MWB determinations that occurred from 1970 to 1974 and what is important to acknowledge is the entrenchment of the centralized wage fixing system into the industrial relations system of Papua New Guinea.

TRANSITION TOWARDS MWB Any formal wage fixation in colonial Papua New Guinea was largely the responsibility of the government and its administrators. It was often a decree or common rule that was used to regulate and adjust wages up to 1960. In the 1950s, the minimum rates in cash and rations were increased for contract workers and more progress followed with the removal of restrictions on casual labour in 1963. However, from the mid-1960s, wage fixation in the colony was influenced by the broad changes that occurred on the international scene. The decolonisation process in Africa particularly exerted pressures on the remaining colonies to become responsible for its actions and also to do things more justifiable than ever. Therefore, PNG was no exception and the colonial government, while making

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progress in other areas of administration, took it as a duty to look into the process of wage fixation in the country (Gupta, 1982:6). In 1969-70, two reports on minimum wages were commissioned. The first was an autonomous Board of Inquiry, comprising of two Papua New Guineans and two Australian academics, set up by the Administrator of the colony to investigate and report on three major factors. The first point of investigation was to look at the possibility of making any change to the level of minimum wage in the Territory under the NEO of 1958-68. The second factor of consideration was to investigate the option of converting component of the rural wage to an all cash wage. If done, at what amount and with what deductions, if any, e.g. on rations, issues and accommodation. Finally, the Board was to explore the possibility of establishing an appropriate machinery for determining and reviewing the minimum wages. The inquiry was to be conducted against the background of some broadly stated socio-economic objectives and policies in PNG. The Cochrane-chaired inquiry, put forward on the basis of estimates of highest capacity, to pay in the agricultural industries, that the national minimum wage is to increase from $5.90 to $6.40 per week. Additionally, it also recommended the establishment of a Wage Board. The subsequent Issac Report recommended $300 per year as the minimum after calculating the average value of production in the traditional sector. It took 50 per cent as the relevant supply price of labour. Although bit problematic and baseless of the figures involved, the recommendations of the Cochrane Inquiry were accepted by the Administrator for implementation in the Territory (Smith, 1975:93). However, only after the mid-1970s and thereafter the MWB made its determination on the minimum wage within the minimum wage guidelines established by the colonial government resulting out of the Cochrane Inquiry. Eight broad guidelines were intended to steer the MWB in the determination of a minimum wage, which met expectations of all the vested parties, including the community. Later, they remained part and parcel of every minimum wage determination. These guidelines included: Table 3.1 Guidelines of MWB determination 1

Protection of the living standards of wage earners and to ensure that living standards in some areas are not maintained at the expense of others. Also ensure that wages determined should not allow the country into stagflation;

2

Encouraging and promotion of orderly industrial relations involving a consistent approach to wage adjustments;

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Table 3.1 (Continued) Making sure that the national wage bill is economically viable and sustainable over the years; 4

Accommodation of wage policies should have no adverse implications on the economy. Such policies should avoid shaping an elitist class of wage and salary earners on the expense of the rest of the population and prevent any further disparity in the rural-urban gap. They should also have the impact of narrowing the gap and, at the same time, boost rural employment opportunities;

5

Allowing the flexibility in order to accommodate tough times in the economy;

6

Having an appropriate taxation policy in place which will ensure that profit margins are within the appropriate limits;

7

Facilitating and promoting the creation of employment opportunities and also to ensure that interest of the subsisting rural population is protected. Further,

8

Appropriate policies are to be in place to minimise the level of rural-urban migration in order not to place much stress on the existing urban labour market;

9

Finally, to reduce anomalies in the existing wage structures and, at the same time, reduce the creation of any issue problem

Source: Carrol, 1993:60.

These guidelines established the parameters in which the centralized wage fixation system was to be established, which reflected a tradition of wage fixation by a central authority (Carrol, 1993:60). The MWB’s decisions were to have legal implications, reflecting its own semi-legal existence and it was only the cabinet in government which was to have the power to veto determinations made by the Board. When such likelihood occurred the award or determinations of the MWB had no legal basis, as it was not permitted to be published in the government gazette (Daly, 1987:63). The veto power emanated from the Industrial Relations Act of 1964, which had rest of the provisions on the establishment of MWB and its functions. However, apart from the guidelines and legality in its decisions, what also emerged was a clearer understanding of the composition of the wage boards, which was pluralistic in character, and, therefore, had to accommodate views from the government and interest groups concerned with wage fixation. The Cochrane-

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chaired Inquiry proposed a tripartite nature in composition of the MWB, which called for representatives of employers, workers and government with an independent chairman. Members of the Board were to be appointed by the Minister of Labour on the basis of expertise and knowledge they possessed in the areas of labour relations and wage fixation. The Cochrane Report (1970:177-8) ensured that such a Board would deliberate on the appropriate levels of minimum wage in the Territory. In doing so, it would not obstruct the processes of collective bargaining that was gradually gaining momentum in the Territory. This recommendation was inserted into the IRO of 1962 that saw the formation of the first MWB of 1972 (Daley, 1987:69). In fact, the tripartite tradition of MWB remained thereafter and it added credibility into the centralized wage fixation body.

WAGE FIXATION IN PRE-1975 There were several independent and competent MWBs which met and determined the minimum wages of the colony prior to the country’s political independence in 1975. The period between 1970 and 1975 is important in that it began operating on the then newly introduced centralized wage fixation system, which became entrenched upon the industrial relations system of PNG. In other words, it laid the foundation of, what was to become, the wage fixing system of the country (Carrol, 1993:57). This period also characterized the ad hoc nature of the several MWBs, which sprouted out of an unstable economic environment in which setting them up became an industrial necessity. They directly led to inflated wages and often this period is referred to as the ‘wage explosion’ years (Gupta, 1992:98).

1972 MWB The 1972 MWB was historical in that it was the first Board which began wage hearings to set a single national minimum wage in order not to discriminate against married men, as proposed by the 1970 Cochrane Report (TPNG, 1970a: 58; McGavin, 1991:35). The issue that this Board had to consider was the appropriateness of the prevailing minimum wage levels, which were being paid under awards and common rules for unskilled adults and unskilled married juniors in Port Moresby and surrounding areas. The 1972 MWB felt that they were making a significant determination, which was to have far-reaching implications

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on the area of paid work in the Territory. In the words of the Board, the decision would ‘determine a minimum wage for unskilled labour in an urban area, a wage which will not only become the foundational wage for all employments in the country’s largest centre but will inevitably be of great significance in respect of other towns and areas of employment’ (MWB, 1972:7). Indeed, this determination was to lay the basic structure for urban minimum wages and would have wide influence not only on Port Moresby but flow-on effect to other awards in the country. The principle criteria in which the 1972 MWB dealt with the issue of increase in minimum wages were based on the ‘needs’ of minimum wage earners and employers’ capacity to pay. The parties represented in the tripartite arrangement made submissions to the Board, which reflected their own needs and aspirations. Charles Lepani, on behalf of the unions, argued for a minimum wage, which would provide the minimum needs of a family unit consisting of a man, his wife and three children. This proposal had resemblance of the 1907 Harvester Judgement of Justice Higgins’ decision as President of the Arbitration Court of Australia. The unions demanded $20 per week for this unit. They substantiated the submission by referring to earlier decisions made by the NEB of 1960, where it had envisaged the arrival of a family wage, compatible only with capacity to pay, in an economy coupled with its growth. Earlier, John Langmore of the University of Papua New Guinea, on behalf of the PNGWA of Port Moresby, had made a presentation to the 1970 Cochrane Inquiry for a man, wife and two children (McGavin, 1991: 35). In fact, the concept of needs criterion was floated around in the earlier wage deliberations. It was only in 1972 MWB that the unions strongly advocated for inclusion in the wage fixation system. They felt that the urban employers and the general economic environment in the country was capable of absorbing an immediate transition to a minimum wage appropriate for sustaining a family unit with five members. Equally, the Employers Federation, including planters, advocated against a wage increase in that any substantial increase in minimum wages would have inflationary impact and also adversely affect the growth in employment, particularly in the agricultural sector. One notable submission by John Langmore proposed to the Board for wage restraint, which would deter the unskilled rural workers from migrating to urban areas, was to limit adverse social and economic dislocations, often associated with rural-urban migration. The submission also called for an equitable wage setting in both urban and rural areas. Several social organisations, in their submissions to the Board, went beyond the union demands and recommended even a higher minimum wage, which would alleviate the

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physiological and sociological impact the low wage has on minimum wage earners. However, the 1972 MWB rejected views that called for an accelerated increase in minimum wage and that also went for the position expressed in the Cochrane Inquiry of 1970 that favoured “a living wage through the basis of needs” (Cochrane Inquiry, 1970:59). It stressed that the “primary principle” of achieving a family wage “should not be confused with the question of capacity to pay” (McGavin, 1991:35). Influenced by sentiments from the ILO, emphasizing minimum wage fixation in developing countries, the Board instead made a partial ruling on the union’s submission, based on a family unit of five members, and accepted an urban minimum wage applicable to a man and his wife (International Labour Conference Convention 131, 1970). The decision was in itself an increase in the minimum wage, which reflected the tone of all the submissions made, favouring an increase in urban and rural minimum wages. The increase quantified a minimum urban weekly wage of $11.50 from 28 September 1972, increasing it to $13.80 on 19 September 1973 and based it on a man-and-wife’s annual requirement of $718 (Ibid: 36). The actual increase was minimal, as most of what was provided by the employers was to be paid for by the employees. This included the compulsory 87 cents a week for accommodation, $2.50 a week for food, 36 cents a week for clothing, 25 cents a week for repatriation expenses and few others. The total increase was $5.90, although it was substantial as compared to the increase gained before 1972 (Gupta, 1992:98). However, the decision not only saw the new wage as a threshold wage that was appropriate for unskilled labour in Port Moresby but also the foundation wage upon which rates for semi-skilled and skilled employees would be built. Further, as for the Board, the general economic development was seen as not ready to accommodate a family wage but that the move to a married wage was in the right direction.

1974 MWB This was the second MWB, the first being in 1972. It made some notable decisions. Actually, there were several minimum wage determinations made in 1974 under various economic and political circumstances. Those decisions were significant in that they introduced wage fixation principles, which were to be part of the country’s centralized wage fixation systems. The 1974 MWB, under Lukas Waka’s chairmanship, was also responsible for making decisions which inflated

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minimum wages to a new level. The period is referred to as “the 1974 wages blow-out’ (McGavin, 1991:37; Gupta, 1982:9). The 1974 MWB met to hear submissions and deliberate on two issues. The first involved the National Minimum Wage (NMW) of $5.90 and the other concerned the basis on which an employer was to take deductions from an employee. The unions requested for an increase in the minimum wage, as the purchasing power eroded in the whole of 1973. According to Gupta (1982:8), the country saw a period of boom profits with Bougainville Copper Mine but 1973/4 was also the year, which saw inflation rising by 29 per cent in the country and which had an impact due to the sky rocketing international prices of food, materials and fuel. The Public Service Association (PSA) submitted for $15 per week as the minimum wage, with no deductions by employers for accommodation. While the Rural Employers’ Association argued against any increase in the prevailing minimum wage as their industry would have a reduced impact on their overall investment, employment and output. Others presented that either there should be an increase in the minimum wage or the deductions for accommodation should be stopped. The Board, in its deliberations, weighted all the submissions, which were presented and settled for an increase in the NMW of $5.90 per week. The decision became unpopular with the rural employers as they argued that any increase above the minimum wage would reduce their profit level to 15 per cent, which was necessary for continued investment. In fact, their argument seemed most plausible in that they were the largest private wage employing sector and between 1969 and 1973 employment peaked around 53, 000 (Gupta, 1982:11). However, the Board acknowledged that the cost of living had reached an unprecedented 29 per cent and applied 27 per cent to the sum of the real wage of $5.03. An increment of $1.37 was provided and it raised the nominal wage to $6.40 per week. The Board removed accommodation and repatriation deductions, although allowance was made for employers to continue to provide accommodation for employees if there was no alternative accommodation available. If the first 1974 MWB followed a path of Australian-style ‘need basis’ in minimum wage determination, then the second 1974 Board introduced another important concept of ‘indexation’, which has been the cornerstone of wage fixation in PNG. Coupled with an ever increasing costs of living, particularly in the urban areas and a robust plantation sector in the country, the second 1974 MWB felt that “the purchasing power of wages should be maintained [and] … wages should be increased at a rate sufficient to compensate employees for increases in the prices of food and other consumer goods” (1974 Interim Determination No. 1:1). The Board chaired by Charles Lepani, made a bold

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decision in spite of the available bureaucratic reports advising against such a move to automatic cost of living adjustments on the minimum wage (TPNG 1974). Table 3.1 shows urban minimum wage determinations made in 1972 and 1974 that reflected the ‘needs’ capacity of a ‘regimen’ for a man and wife for Level 1 centers that included one child (for the first time) in 1974. The introduction of wage indexation in the 1974 minimum wage determination was a direct influence of the Australian Conciliation and Arbitration Commission. In fact, it was at the 1974 Australian National Wage Case that the Consumer Price Index (CPI) wage fixation principle was heard from the submission of the Australian Labour Party (167 Commonwealth Arbitration Reports 37). Notably Bill Kelty, who represented the Port Moresby Council of Trade Unions, advocated the principle at the second 1974 MWB. For the unions and workers the decision was met with joyous approval. However, one critic later labeled it as “the fatal Australian system of wage indexation was in place” (McGavin, 1991:37). Table 3.2. Yearly requirement used by Minimum Wage Board in determining Level I, urban minimum wage, Kina

Component Food Clothing Toiletries Household equipment Furniture Transport Rent Water and services Fuel Cash Total: yearly Weekly

Needs Allowance 1972 260 28 13 20 11 75 146 49 58 59 718 13.80

1974 722 52 21 24 13 93 150 75 76 119 345 25.80

Note: The 1972 “regimen was for a man and wife. The 1974 Determination extended this to a man, wife and one child (p.4). Sources: McGavin, 1991:40 citing Determination, 1972 Minimum Wages Board: 17. Determination, 1974 Minimum Wages Board: 8.

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The second 1974 MWB’s decision was nullified when the Minister responsible for National Development, including economic policies, reconvened another Board to particularly look into the interests of the rural workers. There was an assumption that the welfare of the rural workers was compromised with the urban workers and, therefore, they were least paid for their labour. According to one observer, this was a “honeymoon period” between workers and (indigenous) politicians and when the latter ‘…in Government tend to back the workers against employers’ (Gupta, 1982:9). This is precisely what might have transpired that led to the convening of the third 1974 MWB. This Board had to consider whether the minimum wage of $6.40 per week should be varied and, if so, by what amount. After the ‘usual’ round of viewing submissions from interested parties, the Board considered the issues of social justice, need for a stable workforce and productivity before arriving at a decision. The decision of the third 1974 MWB not only increased the rural minimum wage but also put in places the method by which minimum wages should be adjusted. The Board disagreed with the previous method of wage fixation, based on CPI and the crop price index. The Board abandoned the tying of wage movements to movements in the crop price index and recommended that only the cost of living adjustments should be made. It also opted for six monthly adjustments of the minimum wage rather than annual as the previous Board had endorsed. A minimum wage of $8 per week was recommended for workers directly engaged in tree crops, vegetable growing areas and livestock raising areas. This was an increase of 12.5 per cent on the NMW and was seen as a first step towards introducing a married wage, while a NMW (Rural) of $10 was set for all other workers in the rural setting. The Board acknowledged the wage differentials between rural and urban areas but the urban drift was not seen as in the context of wage differentials. However, the Board agreed that the differentials should not be allowed to widen dramatically for equity considerations. In fact, the decision of the Board was not unanimous in arriving at the decision, as there was opposition to the increase in the rural minimum wage. One notable dissent of the decision was James Jacobsen, an employer’s representative on the Board and a businessman. He presented a minority proposal in that the agricultural sector was not prepared to accommodate an increase in the minimum wage. His other concerns ranged from a possibility of job loss and lamented that the rate of industrialisation in the country was too slow. Therefore, it was unable to offer any tangible employment opportunities for the labour market’s entry. He also saw the move from a single man’s wage to a married wage every six months when supplemented by CPI it was not going to bring about a stable workforce, as it was thought. Even the government’s

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submission, through the Department of Finance, shared the same sentiments in that it’s own minimum wage earners (as cleaners, messengers, assistants, watchmen, drivers, gardeners, and handymen) would suffer from the substantial wage increase. It also submitted that “firms that have the highest percentage of indigenous labour cost to value the output are the least capable of any increased labour cost” (Department of Finance Draft Submission, p. 11). Despite the dissenting opinions, the Board institutionalized indexation as the form of wage fixation, which were to continue until 1992. The fourth 1974 MWB set about to look into the then prevailing rates of pay under the provisions of all urban general employment awards and related urban awards in PNG. This Board, like the previous three in 1974, made some notable decisions in wage fixation, which were to remain in the centralized wage fixation system for the next eighteen years. First, the fourth 1974 MWB introduced a dual system of urban wage structure, where those towns or centres in Level 1, should be paid higher than those people in the Level 2 centres. The classification of towns was done on the basis of rate of urbanization where those in employment in Level 2 centres were removed from the Level 1 centres in that they were generally situated in the proximity of the rural areas. The Board approved $25 per week for Urban Level 1 centres, based on a family unit of a man, woman and one child, which was a further endorsement of the regimen established by the 1972 MWB. On the other hand, there was $20 per week for Urban Level 2 centres, based entirely on the 1972 minimum wage determination for a family unit with no children. Reasons for the classification of the centres included anomalies between centres and the relative strength of trade union bargaining powers. It led the Board to regulate by establishing the classification of centres to allow for an equitable application of the minimum wage determination. The fourth 1974 MWB also endorsed the previous Board’s decision of adjusting wages to the CPI and decided that July 1, 1975 indexation would take place, calculated from the percentage increase in the preceding quarter CPI (1974 MWB No.4:7). In the short history of minimum wage fixation under the centralized wage system, the 1974 MWB determinations have been referred to as the period of “wages blow-out”. This was the period when unprecedented increases in minimum wages were awarded both in urban and rural areas under the auspices of family unit with one child in the urban centres and just family unit in rural areas respectively (Ibid: 7f). The justification of what led to the wages blowouts in the respective decisions of the four 1974 MWB sittings rested heavily on several broad assumptions. The main ones included equity, labour productivity and domestic savings amongst others (1974 MWB No. 3:5). In all four 1974 minimum wage determinations, the Boards felt that expatriates could accommodate the

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increases as their profits accounted for 98 eight per cent of all profits in the country. However, additionally, the effectiveness of the unions in making their presentations to the various Boards in 1974, advocating a “need based” criterion was also a contributing factor in the wages blow-out. Hence, what the four 1974 Board sittings had in common was a concerted effort of the Boards to increase the level of minimum wage in the country.

ANALYSIS OF MWB DETERMINATIONS The decisions of the 1972 and 1974 MWB had huge impact on the minimum wage earning population and the general economy. Whether the decisions achieved or deviated from the established goals put forward by the government to guide the minimum wage fixation in the country is another matter. The protection of the living standards of minimum wage earners was adequately taken care of with the embracing of indexation. In fact, the 1974 MWB cemented the concept of indexation and this was to remain imbedded in the system until 1992. Further, the 1974 Board determined wages not only for unskilled workers but also for a range of semi-skilled and skilled classifications. So, from then on the MWB was to become the instrument through which wage policy is to cover wages overlapping from minimum wage earners to skilled workers as well. Additionally, the fixing of wages on a need basis assisted particularly the urban minimum wage earners, while allowing for a disparity to exist between urban and rural wage earners. The higher incomes sustained in the urban areas was one of the motivating factors for people to migrate to urban towns, while the two-tier wage system did not provide incentives for rural people to remain in their villages. One of the guidelines of wage fixation was to shape a policy, which would minimise rural-urban migration. However, it never occurred. One of the objectives of national development policy was the avoidance of creating any section of the community in times of economic downturn. The opposite occurred in the decisions of the 1972 and 1974, which “created a labour elite by insulating the wage earners from the effects of inflation” (Carrol, 1993:88). Only 15 per cent of the workforce was protected as their wages were indexed. However, this was done at the expense of 85 per cent of the population who lived in the rural areas. Additionally, the 1972 and 1974 MWBs decisions saw the promotion of orderly industrial relations with a consistent approach to wage adjustments. Employers agreed with the increase in wages but the level of increase was the debating point. As one can acknowledge, the increase in the minimum wages for

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urban workers (100 per cent) was more than that of rural workers (50 per cent). One should also bear in mind that before this, the increase in wage levels was only $8.88 in the urban and $5.90 in the rural areas. The low base was due to the lack of bargaining power of the native labour (Mannur, 1991:18, Hess, 1989). As for the public sector employees, during this period the Government granted an increase in the excess 20 per cent was prescribed under the MWB determinations. However, the “wage explosion” period of 1972-75 was seen as unwarranted and the critics, like the World Bank, argued that PNG’s wage structure continues to be out of bounds with productivity (Imbun, 1994:34). Above all, the broad implications of the fixation of centralized minimum wages in 1972 and 1974 had a political tone. It implies that “wages were essentially raised at this point to prove the value the Independence would make” (Carrol, 1993:89). Similarly, Mannur (1991:12) argues that policy concern for government was one of social justice and self-reliance. The territory was about to become a country of its own and “nationalism” was very high on the agenda. Coupled with this was the eagerness of the aspiring national leaders to introduce wage equity into policy making. It was also the ‘preparedness’ on the part of the Australian Colonial Administration to “ease the consciences of any concern for past exploitations and vast inequalities in living standards before they handed over the ‘reins’ to the people of Papua New Guinea’ (Carrol, op.cit). Turner (1962) argued that increases in wage were often used as an ‘opportune’ justice to ease the conscience of colonial government for past exploitations. In fact, this may have happened prior to PNG’s gaining of political independence in 1975. However, the focus was on social justice at the expense of other objectives the MWBs were to look into. This includes, amongst others, the stalling of flexibility in wage fixation in the ad hoc nature of the Boards and therefore the limited expansion in wage employment opportunities. Additionally, despite the fact that PNG had ‘selfgovernment’ in 1974 there was a predominance of Australian influence in the form of personnel, ideas and policies.

CONCLUSION The period prior to independence in 1975 is significant as the various MWBs began operating on the then newly introduced centralized wage fixation system, which became entrenched upon the industrial relations system of PNG. It laid the foundation of, what was to become the wage fixing system of the country. This period also characterised the ad hoc nature of the several MWBs, which sprouted out of an unstable economic environment in which setting them up became an

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industrial necessity. They directly led to inflated wages and often this period is referred to as the ‘wage explosion’ years. Further, the introduction of wage indexation in PNG wage fixation system was an influence of Australian politics. The MWBs, before independence, challenged all odds to establish a wage that was relevant and appropriate for all parties, including the general economic welfare of the country. The significance of the tripartite nature of the MWBs played a crucial role in collective determination of wages. The wage deliberations that were met from 1970-74 set the benchmark on which future deliberations were to be made after independence.

Chapter 4

WAGE DETERMINATION IN POST-INDEPENDENCE PERIOD Many developing countries immediately after political independence went through a challenging period as governments endeavoured to continue on from the colonial rule with the minimum fuss and problems and at the same time gain respect from their people. It was a common problem as they faced hurdles in the beginning which in many cases was a reality of naivety in indigenous leadership, lack of proper infrastructure and a host of other complex issues. This chapter discusses similar circumstances PNG went through in the initial stages of nationhood and most importantly the wage determinations in the immediate post-independence period. After political independence in 1975 PNG was confronted with the lack of a skilled national workforce and the absence of infrastructure in the country posed immediate problems for the newly independent country. Many commentators, both internal and external, of the country predicted a disastrous start and even collapse of the country once the colonial administrators withdrew. Goodman, Lepani and Morawetz (1985:25) discussed that the experience of other developing countries predicted that a weak and ineffective bureaucracy had freely entertained the wishes and expectations of their masses that had led to bankruptcy. The impact of external factors on the newly independent country was equally threatening to its livelihood. The first oil crisis, economic recession and unprecedented stagflation adversely affected the country. The openness of the country made it extremely hard for it to insulate itself against these economic shocks. The stagflation rate reached 23 per cent around independence period (Ibid: 26).

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1975 AND 1976 MWBS The 1975 and 1976 MWBs can be discussed together, as both of them dealt more with the rural minimum wage sector. In 1975, the national government immediately re-established the MWB to attend to some pressing matters overlapping from 1974. The Board was asked to deal with the stagflation of the previous year, which was still prevalent in 1975, and adjust the rural minimum wages for CPI increase. Seeing the skyrocketing inflation, the government recommended for a wage freeze. The Board took that up but it was a temporary wage freeze to end the inflationary wage spiral and it was only applied to the urban areas. As for the rural areas, the Board adjusted the wages to narrow the gap between the rural and urban areas. The 1975 MWB did that by adjusting the rural minimum wages for CPI increases. It increased the rural primary minimum wage from $8.50 to $9.50 and rural (Other) from $10.00 to $10.26 (MWB, 1975). It was a substantial increase making a relative gap and had the incidence of narrowing the urban-rural wages. In other words, “Essentially what has happened is that minimum wages in some of the Level 2 centres had almost been low, as the rural minimum in 1973 increased substantially by 1975” (Gupta, 1982:9). The subsequent MWB looked into the rural minimum wage fixation method. The 1976 Board laid the procedures to merge the rural (primary) and rural (other) minimum wages into one. A 5.9 per cent CPI increase for the last six months of 1975 was passed onto both of them. Only the rural (primary) minimum wage was indexed to the CPI and urban minimum wage for Urban Level 1 and 2 centres was partially indexed by two-third of the percentage increase in CPI. A ceiling of 12.5 per cent increase in CPI was put on the indexation of wages (MWB., 1976; Carrol, 1993). The Board arrived at the decision to partially index the rural minimum wage because of the decline of 8.8 per cent in the employment level in the private sector, excluding mining. Submissions by Government and employers called for reductions in real wages (McGavin, 1991:38:

1977 MWB The 1977 MWB, under the chairmanship of A.K. Joel, who was also to chair the next five Boards, met to complete what the previous Board could not complete. This Board speeded the amalgamation of the rural (primary) and rural (other) minimum wages with the injection of a cash adjustment at six-monthly intervals for three years to the rural (primary) workers. Other changes made to

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both rural minimum wages were based on the percentage increase in CPI up to 12.5 per cent and was indexed by 50 per cent. While the minimum wage earners in Urban Level 1 and 2 centres had their wages indexed by 12.5 per cent, indexation of 50 per cent of the CPI increase in excess of 12.5 per cent was awarded to minimum wage earners at Level 2 centres (MWB., 1977). One major change in the yearly convening of the MWB was the introduction of the three-yearly cycle of determination. The subsequent Boards were to meet once after every three years. This decision would come to have great significance in future wage determination as is demonstrated by the very words of the 1977 MWB: “The whole success of our determination regarding both urban and minimum wage rates will depend on our further recommendation that for a three year period employee unions pursue no further claims for extra wages or improved employment conditions, except to conduct work value cases aimed at adjusting relativity where anomalies exist.” (quoted in McGavin, 1991:40).

Another implication of this shift was to allow for ample period of time for the implementation of the new minimum wage. Therefore, it would allow for sufficient information to be deliberated at the convening of another Board. The 1977 Board also introduced six monthly adjustments of wages, rather than yearly adjustments, based on the 1976 MWB figure of 12.5 per cent.

1980 MWB The 1980 MWB, chaired by A.K. Joel, became the beginning of the reconvening of the Board under a three-yearly sitting established in 1977. Amongst the issues that the Board dealt with ranged from considering the appropriateness of the NMW, as it related to rural employees and the method of adjustment of all minimum wages. Further, the Board considered the appropriateness of the formula, method and conditions of wage determination set down in the last wage determination. The Government set some guidelines for the 1980 MWB as well as for the subsequent Boards to follow in setting minimum wages for the country. The criteria includes the need of workers throughout PNG, the relative living standards enjoyed by different groups of the country and the needs of the economy in terms of economic growth and management (Carrol, 1993:96).

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THE “NEEDS” CRITERION Following the tradition in wage fixation, the 1980 Board called for submissions from employers, unions and other interested groups and individuals addressing the criteria set by the Government. The needs of the workers formed the first issue on which submissions were made to the Board. For the submissions received in critiquing the protection given to the urban workers in maintaining a reasonable standard of living, the Board was defensive of its actions. Influenced by ILO policies, the Board mentioned that it was not the desire or intention of the Boards to set a dual wage system for urban and rural areas. But referring to the ILO Wage Policy Report, the Board saw ‘’certainly, the basic needs of workers and their dependents must be borne in mind when determining minimum wages” (ILO Wage Policy Report, 1977:45). In considering the needs of the urban workers the Board strongly acknowledged the existence of the “concept of living wage’” that had become part and partial of wage fixation in PNG since 1974. The Board also emphatically maintained the principle of providing the continued platform on which this Board and subsequent ones were to base their determinations (MWB, 1980:24). Further, the needs of rural workers got equal attention and some of the submissions from the employee groups felt that the rural areas were the hardest hit by inflation. The Board refuted those remarks and argued that the rural workers enjoyed a higher level of insulation from inflationary effects than urban workers. It further added indexation method of wage fixation and reasonably served the needs of the rural workers. On top of that, the Board also acknowledged the existence of subsistence sectors which, more than adequately supplemented the needs of the rural workers. The 1980 MWB, therefore, felt that irrespective of rural-urban wage differential, rural workers’ wage increases were sufficient. In fact, “rural workers were favoured rather than disadvantaged by the use of CPI, as a method of indexation” (Ibid:25). However, one stumbling block in Board’s deliberations concerning needs of workers was the issue of the rural-urban differential. The Board saw this issue as one of the most difficult aspects of its deliberations and made the following acknowledgement. “Reduced to the basic skeleton, the fundamental problem, which the Board had to face, was to attempt to reconcile the economic realities in the rural sector, with the social realities in the urban sector, and, at the same time, to prevent any further widening of the rural-urban wage differential” (MWB,, 1980:68). The Board admitted that they had succeeded in the former, but made less progress on the latter. Further, it (wage differential) was not affecting the

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availability of labour in the rural areas. However, the Board did acknowledge that it was one of the factors that contributed to the rural-urban migration.

CAPACITY TO PAY The next issue on the agenda of the 1980 MWB was economy’s capacity to pay, particularly of the employers and the Government. The capacity to pay criterion was to be applicable to upper layers of wage bracket but there were other factors, as the Board found, which could modify wage limit ranging from an expansion of employment opportunities, incentives to investment relativity between different groups in the country (Carrol, 1993:100). Unlike previous determinations, it was for the first time that this Board shifted away from the well-entrenched perception of viewing higher minimum wages as a medium to induce improved efficiency and thus increase in the capacity to pay. This Board, however, did make a careful consideration of the then prevailing economic environment and made sure that the recommended wage did not “cause incapacity to pay, except in the case of marginal or substantially nonviable enterprises” (MWN, 1980 36). The Board was presented with submissions, which reflected the various sectors of the economy. The Government proposed to the Board that the mining industry had the capacity to pay, and, therefore, should not be seen as part of the minimum wage fixing regime, as this industry was unique and quite different from other industries, because of its capital intensive nature. The forest and fishery industries were ruled out, as incapacitated, to support real wage increases, as both the industries had accumulated financial losses. The plantation sector complained of insufficient re-investment, partly due to expatriate planters and potential investors concerned about uncertainties regarding future ownership and tenure of commercial land. The uncertainty issue of landownership was largely due to new policies of the Government. It restricted some business activities to nationals at that time. All this had implications on agriculture and farming. The loss of confidence amongst the planters was genuine, as the plantation noncitizens up to the time of the Board sitting owned the sector. This was despite the increasing trend in the emergence of smallholders into cultivation of major export tree crops, including coffee, cocoa and copra since 1974-5. Only the Palm Oil Industry was economically viable although it did complain of insufficient leftover funds for reinvestment, whereas the rest of the plantation sector had declined in real terms. This also included the rubber and tea industries. The Board was told of lengthy period of depression associated with

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low world market prices for the products. However, the Board could sympathize with the plight of the industry, and could not set a special determination as substantive cost figures of the various industries were not presented to justify wage increases (MWB, 1980). Other areas of interest for the 1980 MWB were the secondary industry and the public sector’s capacity to pay. One major element, which stood out from the secondary industries was the capacity to pay. It had implications on the industry’s ability to compete with equivalent imported products. The Government had a major development policy, encouraging secondary industries to replace imports, particularly the common goods purchased by Papua New Guineans. In its submission to the Board, the Government argued that urban wage levels in PNG were already high when compared to its trading partners and there was no point in contemplating for another increase (Government submission, 1980 MWB). The issue was one of labour costs, obstructing more investment by manufacturers related to efficiency and productivity. As with the public sector’s capacity to pay, the 1980 felt that an obvious relationship should exist between the public sector and the private sector in terms of settings terms and conditions. This Board maintained that the Government should not be seen as unilaterally determining wages, particularly the minimum wages, for its employees without acknowledging the MWB’s decisions. It was acknowledged that the public sector should not be seen as a pace setter in setting wages, but as a follower, since the private sector was the engine of economic growth and development in the country. Hence, the capacity to pay in the public sector was irrelevant than for the services sector.

RELATIVE LIVING STANDARDS In an attempt to set a minimum wage, which reflected the reality of the broad community, the 1980 MWB made comparison with other sections of the Papua New Guinean society. This included the predominant subsistence majority, selfemployed, underemployed or completely underemployed groups of people. Further, the Board also compared the rural workers with their urban counterparts. The Board was guided by the previous Board’s findings, which observed that: “The relative living standards of the masses of our rural people have not changed greatly from that of a simple subsistence way of life. But the trend is now taking shape whereby the once solely subsistence dwellers are increasingly searching in large numbers for new economic opportunities. Our task now is to begin to increasingly fulfil the new hopes, needs and aspirations of these people. They are our people”: (MWB., 1977 30).

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The 1980 MWB met at a time when urban unemployment level recorded 13 per cent and its decision was to accommodate that reality. That was the submission of Papua New Guinea Trade Union Congress (PNGTUC), the peak trade union body, which advocated for an increase in the minimum wage, ignoring to give more opportunities to the unemployed people and self-starters in entreprenurial activities.

WAGES AND ECONOMIC GROWTH One major last point the 1980 MWB had to consider was the purpose of the minimum wage in relation to economic growth and management of the economy. In consideration of this point, the Board had to make sure that its decision was consistent with the Government’s established policies, guiding minimum wage fixation and the “Eight Point Plan”. Between 1976-8, the Board acknowledged that there was an increase in the private sector investment by about 30 per cent period. There was also an increase of 11 per cent in new jobs in the urban areas, employing one hundred or more workers, though limited information was provided on export earnings and productivity. Whereas economic management was seen as sound, as minimum wage adjustments seen to be a buffer in restoring real value to the wages which brought about economic and social balance. The Board felt that there had to be a balance between the economic and social considerations, not upholding one on the expense of the other. However, the economic circumstances in 1980 provided less flexibility for the Board to increase wages beyond that level which would partially maintain real wages. If the Board did increase wages, this would be in direct contract and in accordance with the objectives of the country. The 1980 MWB made a decision after assessing the then prevailing economic and social circumstances. The Board implemented a further modification of the wage indexation arrangements. A complex indexation formula was introduced, directly influenced by the government’s submissions. A half-yearly full indexation for annual CPI inflation, up to 8 per cent, was contained in the wage formula. Likewise, any CPI increase of more than 11 per cent, but less than or equal to 14 per cent, would be adjusted by 50 per cent of the difference between the two. For any period, in which the CPI is greater than 14 per cent, the wage increase would be calculated as though inflation was 11.75 per cent (1980 MWB: 3-5).

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1983 MWB The 1983 MWB and the subsequent three Boards continued to uphold the indexation status quo as the dominant form of wage fixation method established by the 1976 Board and continued thereafter. This Board met to ascertain whether or not adjustment of wages to CPI was still appropriate. The Board was also asked to re-assess the level of wages for youths under the age of nineteen in urban areas and consider new entries to the labour market by fixing a lower level of wages. If the Board was to set a wage to accommodate the young persons, then it was also to provide transitional arrangements to protect the incomes of those already employed. Similar to the previous 1980 MWB, submissions had implications on the needs of workers, capacity or ability to pay by employers and relative living standards in the country. Some of the submissions demanded the reduction of real wages. In particular, submissions of the government called for real reductions in urban wages for encouragement of much needed investment and growth in secondary industries to assist in the creation of more employment opportunities. The rationale of this submission was that welfare of the urban families would be improved through the creation of employment opportunities for the growing urban population (Government submission, 1983:97). The government advocated its case and made references to the extended PNG family as a significant medium for a reduction in the real value of the minimum wage. It did not believe that the needs of workers would be insufficiently met by a lower wage, as in the wantok network most of the PNG families had more than one bread winner. The government defended its submission and asserted that most of the “households in PNG are not restricted to the nucleus family but resemble more of an extended family. The government believed that more needs of workers would be met if there were three employed persons at K20 per week rather than one employed at K40 per week” (Carrol, 1993:109). The government further argued that the law and order problem would be reduced in a situation where the concept is “lower wages and more jobs is better a strategy than higher wages and fewer jobs” (Government submission, 1983:108). The Board was presented evidence in which minimum wages were becoming insufficient to support urban families. In urban towns, like Port Moresby, Lae and Goroka, the Board found that minimum wage was insufficient to meet the minimum total expenditure. The Board acknowledged that the urban minimum wage was becoming more and more inadequate and even the Government made submissions requesting for an increase in the Urban Level 1 centres of Port

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Moresby, Goroka and Kieta-Arawa, viewing that the minimum wage was not catering to the basic needs (1983 MWB:29). The issue of capacity to pay was dominant in the submission made by employers and government. The Board saw the capacity or ability to pay as determined by the price at which goods are sold and the costs of producing them. Considering that the two factors were to give an understanding of capacity to pay, various sectors like the forestry, fisheries, plantations, small holders, including the government, complained of deterioration of their income-earning capacity and mentioned massive job losses and future outlook of the industries was bleak. Many submissions from the plantation sector were concerned with the high proportion of labour costs, total development and production costs. However, consistent with the 1980 MWB, the overriding concern of most of the submissions made to the Board was that wages be reduced for the purpose of enabling secondary industries to compete with imports. The PNG Chamber of Commerce, Employers Federation and the Government argued that real wage costs were too high to enable the growth in further employment. The PNGTUC, however, argued that wages had nothing to do with the poor performance of the industries. The general economy blamed management problems, Government’s inaction on social problems and other reasons that contributed to the economic malaise. Further, the capacity of the public sector was considered in which the Government made the following observations: “Your determination for private sector’s minimum wages will be the basis of the Government’s negotiations on public sector’s real wages. Savings through low public sector wages must be achieved in order to maintain continued development and meet basic human needs” (Government submission, 1983:74). The Government felt that a reduction in the value of its wage bill was necessary to reduce the costs of services. The total wage bill for the Government remained the highest of any industry and comprised of 45.9 per cent of the total costs (MWB, 1980:58). Moving on the Board also took in view the matters relating to the living standards of Papua New Guineans. It acknowledged that 52.6 per cent of the economically active population comprised of subsistence dwellers in 1971 compared to 65.3 per cent in 1966. Their income was the lowest in the country. Another group whose income was taken into consideration was the self-employed persons who earned higher than the minimum wage earners. However, the underemployed and unemployed groups had an income of less than the urban minimum wage but more than rural minimum wage earners (Ibid:32). The increase in unemployment problem, thus experienced, and minimum wages, also mentioned

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as one of the many factors, which contributed towards the decline in employment (MWB, 1983:32). After viewing the submissions, the Board felt that any debate relating to the adequacy of the minimum wage should not include non-wage factors, such as wantokism. The Board did not wish to create a higher urban level, because investors, employers and international organizations perceived the wages as too high. Although the Board acknowledged that the general outlook of the urban sector and the agricultural sector was gloomy, the profitability of companies was about 12.7 per cent and there was a capacity to at least maintain real wages. As a result of these assessments on the submissions, the 1983 MWB reduced the yearly CPI inflation to which full indexation applied from 8 per cent to 5 per cent. The 5 per cent also became the ceiling. The Board attempted to reduce the real wage by partially indexing wages (Carrol, 1993:118, MWB, 1983:2f).

1986 MWB The 1986 MWB met to consider the issue of youth unemployment, which had reached at an unprecedented level. A massive 75 per cent of the employable youth, entering the labour market, could not find employment, which led to a break down in law and order. In the policy front, the government was pressurized to reduce the level of real wages by introducing a minimum wage for new youths entering the labour market, both in urban and rural sectors, which are in the age group of 16 and 21. All submissions received, in one way or another, highlighted the plight of youth unemployment. The Board, after lengthy deliberations, established 50 per cent of the general labourers’ wage in both the urban and rural sectors (MWB, 1986:7). This wage automatically replaced the 1972 MWB that established the junior wage, which applied to unmarried workers between the ages of 15-19. In addition to this, the 1986 Board considered the wages for youth group employment. The Board determined youth groups, with composition of ten members and above to be left to the market forces and the Board advised the employer to employ youths in groups. Much of the deliberations on youth policy was influenced by the Government’s submission which, in turn, was influenced by the Department of Youth and Development, which had the Youth Pioneer Scheme and which specifically identified paths for participation in the labour market (Ibid:8f). The 1986 Board introduced flexibility to the central wage fixation system. The indexation method of wage adjustment was left untouched and it recommended for a 5 per cent increase to be fully indexed. However, there was no

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provision made for any wage adjustment made between 5 per cent and 10 per cent. The “CPI percentage increases exceeded 10 per cent but were less than 15 per cent; minimum wages would be adjusted by 50 per cent of the percentage increase, in addition to any increases already made” (Carrol, 1993:119; MWB, 1986:4-5). So, in the history of minimum wage fixation only in the 1986 MWB decision partial indexation provisions were made where workers did not get their wages fully indexed. On the whole, the Board failed to make decisions to reduce real wages and it was certainly not assisted by the partial indexation.

1989 MWB The factors, which influenced minimum wage determination in 1980 and 1983, also surfaced in the 1989 MWB. Needs of workers, capacity of employers to pay and consideration of the general economic condition of the country were areas under which submissions were made to the Board. The major exception to this, however, was that the Board was asked to review and make recommendations of the then current urban and rural minimum wage rates. The possibility of introducing incentive schemes in the open market and also adhering to the concept of minimum wages were also on the agenda.

NEEDS OF WORKERS Several submissions to the 1989 MWB stressed the importance of determining wage, based on the needs of workers. Principally, the PNGTUC submission advocated for a singly unified wage structure, incorporating both the rural and urban level minimum wages into one. A full and unrestricted cost of living adjustment exceeded 1 per cent to be introduced quarterly. Further, a family needs regiment accommodating two adults and three children was proposed in favour of the then existing two adults and one child. It also stipulated the demand for the elimination of the youth wage and making collective bargaining from the purview of wages above the minimum level (PNG TUC Submission, 1989). The Public Employees Association (PEA) and the PNG Teachers Association (PNGTA) made similar presentations on the creation of a single wage structure and an unrestricted six-monthly indexation of minimum wages for cost of living increases to be introduced. (PEA & PNGTA Submission, 1989). The Police Association (PA) called for the reinstatement of the 1986 MWB formula for

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adjusting wages and other incentive schemes to be introduced on the basis of productivity (PA Submission, 1989). The Board rejected all the submissions on the basis of assumptions, unfounded evidence, and unrealistically based. It argued that “apart from the cost of living and family size, the TUC and affiliates did not appear to have the slightest idea of the economics of rural production, particularly the dominating agricultural export sector, both in terms of export prices and production levels, and the fact that wage levels, according to law, do not fluctuate (Carrol, 1993:121). This was done despite the PNGTUC’s assertion that it was representing some 70,000 workers of 23 union affiliates and blamed the Board for making decisions which seemed to side with the Government’s submissions. The peak union body further counter-argued that the concept, such as productivity, was a misnomer, and those who advocated did not know what it was all about. A host of other issues were debated between the 1989 MWB and PNGTUC, ranging from employment growth versus level of wage to rural-urban migration and costs of living in rural areas. However, the Board did not accept most of PNGTUC’s arguments as theoretical and, therefore, lacking substance and was steadfast with its decision that family size be maintained as it is. It did recommend the updating and extended coverage of the CPI, not the abandonment of its usage.

CAPACITY TO PAY Submissions made to the 1989 MWB on the capacity to pay echoed familiar sentiments expressed by employers. The Forestry Industries Council mentioned that falling prices had affected its earnings and supported the continued existence of the status quo. The Coffee Industry Association lamented the same and mentioned that it would be unable to sustain any major wage increase, even though the coffee stabilization fund was relieving the industry by meeting the differences between the cost of production and price. The same was said by the Cocoa Industry. The Planters Association supported the continued use of the then present indexation of wages, a reduction in the rural urban wage differential through further control of urban wages and piece rate system of payment for rural workers. The Palm Oil Industry argued and supported the status quo as far as wage adjustments were concerned but the Tea Industry argued that they were at a considerable disadvantage to its competitors, because of high minimum wage and constrained land access despite its production of world standard tea. Submissions from the secondary and service industries were concerned about the poor record of productivity and its impact on job creation. The Lae Camber of

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Commerce called for a single minimum wage to replace the two-tier minimum wage system and wanted incentive payments to be in use. The Government submitted to the Board and argued for the continuously restraining of wages in the light of reduced public funding and the need to invest more in infrastructure and essential services. The Board concluded that it was a fact that the agricultural industry, secondary industry and the Government’s own financial woes meant that they all did not have the capacity to pay more than what was already in existence. Table 4.1. Product per person and productivity performance of the Papua New Guinea formal economy, 1968-89 Product/person (Constant 1983 Kina) Formal economy Formal market Sector Formal non-mining Market Sector Mining Sector Productivity Change Formal economy Formal market Sector Formal non-mining Market sector Mining sector

1968-70

1971-5

1976-80

1981-5

1986-89

6,769.8

9,132.6

9,158.7

9,168.1

9,663.0

3,870.5

7,113.5

8,199.8

8,901.6

9,382.0

3,907.5 .. 1968-70/ 1971-75 7.77

4,940.3 67,732.5 1971-75/ 1976-80 0.06

5,788.1 7,1187.8 1976-80/ 1981-85 0.02

6,797.9 5,5122.4 1981-85 1986-89 1.18

6,797.9 5,3103.8 1973-77/ 1985-89 0.06

16.43

2.88

1.66

1.17

1.29

3.04 ..

3.22 1.92

3.26 -5.25

0.65 -0.83

2.37 -3.12

Source: McGavin, 1991:100; Carrol, 1993: 56.

RELATIVE LIVING STANDARDS The Government was particularly concerned about the rate of unemployment in the country. In its submission, it was revealed that some 50,000 employable aged-people were entering the labour market each year. The formal sector had contributed very little to job creation because of stagnation, and most of the people were joining the ranks of the self-employed, underemployed and unemployed. However, the Government’s submission mentioned that only 45,000 new jobs were created by the formal sector each year and because of these

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depressing state of affairs in the job creation department of the economy the Government felt that there had to be a rejuvenated emphasis on the creation of employment (Government Submission, 1989). Further, the Government acknowledged the wage earning group of the population as a “fortunate minority”, despite most of them being less affluent, and called for an equitable distribution of income and wealth. What was evident in the Government’s submission was to allow for redirection of opportunities, appropriately between urban and rural areas. It particularly singled out the nonwage earning population as poverty ridden and not wage earners but those of the rural majority (Ibid). The PNGTUC rebutted the submission and argued that the Board was to be mindful of the Government’s submission, as a reduction in real wages would adversely affect the relative living standards of those not in wage employment.

THE ECONOMY AND WAGE ADJUSTMENT The need to restrain wages was advocated by the employers, government and Chamber of Commerce and Industry. Low economic growth in the country was blamed for it, which was largely a product of the larger world economy over the period of 1985-88. Coupled with population growth and steady demand of foreign goods and services the parties pressurized the 1989 MWB to refrain from introducing any policy for radical wages. However, the PNGTUC maintained that since there was already a growth in the economy, the Board had no choice other than to grant an increase in the minimum wages to bring the inequity that was existing between the minimum wage earners and others in the economy (PNGTUC, 1989). The decision of the 1989 MWB made a significant departure from previous Boards and introduced measures, which regulated rural wage practices. It “provided for standard piece rate work or standard work mark per worker per day to be negotiated between the employers and the employees in the form of an agreement’’ (Carrol, 1993:135). This ruling also provided for incentive payments for performance in excess of set marks. It stipulated that in the event of an absence of an agreement the then current standards for piece rates were to apply. However, the 1989 MWB maintained status quo of wage fixation of indexation and raised the annual ceiling from 5 per cent in 1986 to an annual ceiling of 6 per cent. In cases where there is an increase in percentages, the CPI exceeded 10 per cent although if it is equal to or less than 15 per cent minimum wages a 50 per

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cent of the annual percentage increase was to be awarded in addition to the adjustments already made.

ANALYSIS OF POST-INDEPENDENCE WAGE FIXATION Since 1975, the MWBs maintained the wage indexation system as the medium for the continued achievement of safeguarding the living standards of wage earners. Partial indexation was favoured out of full indexation at a time when world economy was in recession which, in turn, had a tremendous impact on the PNG economy. Although small declines in real value of the incomes of workers were experienced as the MWBs safeguarded the purchasing power of the workers. However, the wage determination did little to deter the rate of rural-urban migration. The various Boards did acknowledge the need to reduce rural-urban migration through the narrowing of the gap between the rural-urban wage differentials, but they made no progress. There was little attempt in reconciling the economic realities in the rural sector with the social realities in the urban sector. What actually occurred was a shaping and consolidation of a labour elite that emerged in the pre-independence period and continued thereafter. As Carrol (1993) pointed out, this section of the economy remained insulated from the effects of economic upheavels. For instance, this was evident from the fact that an urban minimum wage earner would have received five times the amount in real terms in the late 1980s. Unlike the minimum wage determinations in the 1970s, the wage decisions of the 1980 Boards reflected economic realities of both the local and international economy and its impact on employment levels and social situations. There was only little change in the wage determination status quo until the 1986 MWB that brought flexibility to setting the minimum wages. The policy concern of the Government went through two stages in the intervening period. During 1975-84, the major objective was economic stabilization. Wage policy reflected this by the fact that the MWBs did not want to create industrial chaos through the change of the wage-fixation system. They also did not want to increase wages because this might have caused a loss of investor’s confidence, which would not help economic stability. Table 4.2 illustrates the determination of the MWBs for labourers from 1972 to 1990. It is evident that the stability in the basic framework of wage policy was steadfastly maintained. However, only modifications of wages have been done in order to stabilize the influence of the 1974 minimum wage determination (McGavin, 1991:38-9).

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Table 4.2. shows the minimum weekly wage for general laborers, Kina, 19721990. During 1984-92, the emphasis of the Government turned to the growth and employment strategies. Wage policy once again reflected this with the 1986 MWB introducing the youth wage and deregulating the wages of youth and community groups. The 1989 MWB increased this emphasis by deregulating rural piece rate system, and by introducing capacity to pay as a criteria which could be negotiated at a micro level. This allowed employers to invoke incapacity to pay provisions when they could not pay wage adjustments. It also allowed workers to bargain for wage increases where capacity to pay was readily available. That is in firms or sectors where profits are high. The 1986 and 1989 MWBs tried to introduce a degree of flexibility into the wage-fixing system in an attempt to make wages more responsive to economic circumstances. However, they were not extensive enough in these attempts, as it should be evident from the following chapter. The 1992 MWB embarked on a policy of major structural change. Table 4.2. The minimum weekly wage for general laborers, Kina, 1972-1990 Year (Dec) Rural (a) (b) 1972 5.90 1973 5.90 1974 8.00 1975 8.90 1976 9.43 1977 10.23 1978 10.98 1979 11.73 1980 13.00 1981 14.01 1982 14.65 1983 15.48 1984 16.25 1985 16.97 1986 17.70 1987 18.58 1988 19.14 1989 19.50 1990* 21.08 Sources: McGavin, 1991:39

Urban level 1 (c) 11.50 13.80 20.00 25.80 27.18 28.03 29.71 30.96 34.84 37.36 39.28 41.51 43.59 45.51 47.47 49.84 51.33 52.30 56.33

Rural (d) 21.45 19.81 21.80 21.96 21.62 22.47 22079 23.02 22.77 22.71 22.50 22.03 21.52 21.68 21.44 21.78 21.28 20.75 21.08

Urban level 1 (e) 41.81 46.34 46.34 54.49 63.66 62.30 61.55 61.67 60.76 61.01 60.54 60.32 59.08 57.73 58.14 57.50 58.44 57.07 56.53

Notes: Constant price series are derived by reflating to 1990 prices using the linked urban CPI Index (1977 = 100%) Table A41). No rural price index is available.

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CONCLUSION The MWBs that met immediately after Independence were largely dictated by external pressures than internal matter, as had been the case earlier. This period, from 1975-1989, is of particular significance in that wage decisions were made with a different ‘flavour’ of responsible application in an independent country. MWBs, in many respects, consolidated the status quo, the further endorsement of the indexation criteria for wage fixation, but later modified to suit the prevailing circumstances. Although some forms of flexibility were introduced in the later part of the period, they were not extensive and wage indexation became the dominant form of wage determination from 1975-1989.

Chapter 5

THE DEREGULATION OF MINIMUM WAGE SYSTEM The post-independence wage determination was problematic, as many developing countries could not cop with the bulging unemployment problem and surging population. This was compounded by stagnant economic growth and depressing commodity markets. In Papua New Guinea’s case it was a matter of coming to terms with a cherished long history of centralized wage fixation system and opting for deregulated wage system as demanded more by the prevailing circumstances of the labour market and advocates of the shift, including the government. This Chapter discusses the debates and events in the lead up and embracement of a deregulated wage fixation system.

THE MOVE TO DEREGULATED MINIMUM WAGE SYSTEM After independence in 1975, PNG inherited a highly centralized and regulated wage system. To one commentator, it was “simply an adoption of the Australian model” (Hess, 1990:18). Relevance and the ability of the country to sustain a high wage structure have, for many years, been the focus of debate amongst the economists (Borgan, 1980; Boas, 1982; Garnaut and Baxter, 1982; Ganguli, 1982 and McGavin, 1986). Equally important, it has been of paramount concern to the Government. Generally, there has been a consistent view of the need to adjust wage policy in PNG if the economy was to attain its full potential. The Government has commissioned independent consultants to produce reports or studies directed at wage and employment issues in the country. These studies made reference to the disadvantage of an indexed wage system (Colclough and

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Daniel, 1982, Garnaut and Baxter, 1983; the Goodman Report, 1985; IMF Report, 1988). Apart from mentioning high wages and centralized wages, as being major constraints in the economy, the studies commonly held that the minimum urban wages were much higher than productivity warranted. The 1992 wage determination suddenly shifted away from the long cherished order of centralized wage fixation. It came as a surprise to the trade unions but for the employers and the Government it was simply a delight. The extremely stiff opposition collectively provided by the various trade unions and headed by their umbrella body, PNGTUC, and unexpectedly by the Secretary for the DLE, has to date made the 1992 MWB determination one of the most controversial wage determinations in the history of wage setting in PNG. It is of some interest to analyze and discuss in this chapter the process involved in the lead up to the minimum wage determination in PNG. This chapter will also discuss the saga that followed after the determination.

THE BACKGROUND To understand the rationale of 1992 MWB decision, however, it is appropriate to understand the sentiments and forces which influenced the Board to come up with that decision, which departed from the prevailing status quo based on wage indexation at that time. It was noted in the early MWB determinations that generous increases were made while the 1974 Board introduced PNG into the Australian-style indexation system. In the subsequent years, coupled with an unprecedented population growth and exacerbated unemployment problem, PNG began to experience unprecented law and order problems, which made prospects for new foreign investment in the economy bleak. After political independence in 1975, there was a compelling view held by both the employers and the Government that a reduction should be made in the real wages. Partially, in response to that, the 1976 MWB instituted partial indexation arrangements in an effort to attend to these problems. However, the collapse of the giant Bougainville Copper Mine in 1989, resulting out of a landowner rebellion with the Australian operator, had an adverse impact on the PNG economy. The Government quickly instituted a structural adjustment program and one of the priorities was a restraint on the wages. It is in these political and economic circumstances that the 1992 MWB made its determination. After the three-year operation of the 1989 MWB’s determination, the 1992 Board not only convened at one of the most turbulent times of PNG’s history but also its determination became one of the most controversial decisions ever made.

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Imbun documents the circumstances and factors, which contributed to the establishment of the 1992 MWB. ‘The urgency to establish a more manageable and reasonable minimum wage for workers by the government was precipitated by several factors. The key issues being the prolonged closure of the Bougainville mine, low commodity prices, a generally poor economic environment, general views of the business community, and some leading politicians’ envy of Asian labour policies’ (1994:250).

The 1992 MWB, under the chairmanship of Margaret Elias, had eight members, who represented a cross-section of the community. The Board was guided by three major matters in terms of references on which it was to review and report. The first was to investigate possible ways of making wages more responsive to economic forces, particularly in the rural sector. Secondly, the Board was to justify the existing rural and urban classifications. Thirdly, it was to review and determine the appropriateness of current wages applying to youth, employed in the rural sector, particularly in the plantation sector. The aim here was to deregulate these youth wages, which would, in turn, encourage and induce many more rural sector employers to increase their youth employment at all levels. This was to be done in response to the unprecedented downturn in primary export commodity prices (MWB, 1992:8). The terms of reference took into consideration the existing economic conditions, the future prospects for economic growth and continuing unemployment problems, particularly among the youth. Some concerns the 1992 Board was directed to consider included the aftermath of the Bougainville Mine closure and associated unemployment levels since 1989, continuing law and order problems, a fair income distribution among all Papua New Guineans, the need for orderly industrial relations and the desirability of attracting investment for development and expanding the labour market. The Board’s determination and impact was to justify the Government’s ability to achieve its goals of development. A total of seventy-eight submissions and supporting documents, plus oral submissions, were received. The PNGTUC refused to participate in the hearings after some funding disagreement with the Government, which was to see the general secretary accompanying the Board throughout the centres. Despite this, several union affiliates to the PNGTUC made independent submissions to the Board.

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REASONS FOR THE DETERMINATION The Board received submissions from several parties and individuals whose main emphasis was on the particular industries or sectors in the economy. The enterprises, which were actively engaged in agriculture, mentioned fluctuating world commodity prices and the hardship they faced while paying the existing minimum wages to their workers. The combined emphasis of submissions from the agricultural sector was that they could not afford to pay at the previous wage levels and had, therefore, retrenched their workers. Thus, if the agricultural sector was to be revived as the largest employer in PNG, as it had been since the late 1970s, and the only real potential employer of significant numbers of people, then a flexible wage system was needed in order to rectify the high cost of labour in various enterprises. Submissions from the manufacturing or secondary industries in PNG mentioned that “significant declines” in manufacturing activity, over the past few years, were caused again by the high wage structure. This has led to, as pointed out by the PNG Chamber of Manufacturers, not only the “dismal performance” of the clothing and textile industries but also the manufacturing industry as a whole. It called for more basic wages to be introduced to the manufacturing sector to replace the current high wage levels that were paid for unskilled and semi-skilled workers. The aim in this endeavor was to generate more labour-intensive industries (MWB, 1992: 21). The significant contribution made by the mining and petroleum industry to the economy was acknowledged in the submission of the Government and the Employers’ Federation to the MWB. Despite the favourable prospects, it was obvious that the mining and petroleum industry was not a good provider of employment due to its capital-intensive nature. The industry contributed only two per cent of the paid labour force (Ibid: 24). The Ok Tedi Mining Ltd and Misima Mines Ltd, in their separate submissions to the Board, mentioned their industry’s separate wage settings. This was meant to prevent repercussions affecting the national minimum wage. Further, the enterprises engaged in the forestry sector raised the need for an expanded downstream processing of timber products onshore rather than their present practice of exporting logs. Again, a more flexible wage system was needed to generate employment and, at the same time, boost timber exports. A notable submission also came from the informal sector. The Government and Employers Federation agreed that the informal sector was growing. This sector referred to those minimum wage earners employed in the monetary sector, but those wage rates were also established outside the determination of MWB.

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They included domestic servants, security guards, and self-employed wage earners, such as fresh food vendors, betel nut sellers, and bottle collectors. This sector was thriving, despite the lack of MWB control over wage rates. It was acknowledged in the hearings that there was significant number of people employed in this sector and the rates paid were below the prescribed minimum. But this did not stop those willing to work from finding employment in the informal sector. Though this sector provided increasing employment opportunities, the Board held that it should remain outside its determinations of the MWB (Ibid: 25). Other sectors, like tourism and transport, were not available to submit their cases.

EMPLOYMENT SITUATION The next stage in the Board’s deliberations was the discussion of the dire problem of unemployment in the country. Over the years, various MWBs have had difficulties in identifying employment trends as well as the extent of unemployment in the country, because no reliable statistical information exists. The current MWB relied on a 1991 report on current growth of population, employment and unemployment patterns. One study mentioned that only 220,000 to 240,000 Papua New Guineans, out of a total population of 3.6 million, were in wage employment, including only 8,000 new workers. No additional employment had been created to cater to the increasing number of job seekers flooding the limited labour market. Various problematic employment situations were reported in several cities and towns, including Port Moresby, where an estimated 40 per cent of those of an employable working age, were looking for work (McGavin, 1991:14). It was the responsibility of MWB to determine a wage policy conducive to employment creation in the economy.

WAGE ISSUES Two irreconcilable issues emerged from the discussion of present wage levels in PNG during the MWB procedures. The comparatively high wages, both in the rural and urban areas, were seen as restricting employment, while the present wages were considered too low to sustain the basic living standards for wage earners. The National Government consistently maintained an objective view, based on past independent expert reports (cited earlier) on wages and employment. They

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maintained that minimum urban wages were much higher relative to productivity. It was acknowledged that wage levels in PNG were indeed higher than those of countries like Nigeria, Sri Lanka, the Philippines, Western Samoa, Malaysia, India, South Korea, and a host of others with comparable levels of development in PNG. Various employers’ submissions echoed this view. One oil palm producer made a comparison in a submission with countries growing the same crop. The Board was told that rural wages paid for oil palm products indicated that PNG had the highest wage per labourer, compared to countries like Indonesia (25 per cent), Thailand (58 per cent), the Solomon Islands (69 per cent), the Philippines (72 per cent), and Malaysia (74 per cent) (Ibid:34). Similar concerns were raised by coffee, copra, rubber and tea growers. The employers called for flexible rural minimum wages in the agricultural sector to ensure that PNG agricultural wages were comparable with competitor countries with plantation economies. Similarly, Table 5.1 also highlights the problem of centralized wage fixation system where it claimed to have contributed to poor international competitiveness, internal equity problems and no assimilation with the productivity levels which prevail in PNG (Carrol, 1993:52). The evidence presented in the Table shows that those countries that have plantations tend to have their wages much lower than wages sustained in plantations in PNG. Minimum wages in PNG were much higher even when compared to countries like Korea and Singapore, where PNG does not compete in agricultural products. This is despite the fact that wages were higher in other industrial sectors, which also reflected their high productivity. However, they do not have rural-based economy, as their commercial and industrial sectors account for most of the export earnings. Table 5.1 shows that wages in the PNG agricultural sector were quite higher than in those comparable countries that also have a plantation international comparison of weekly wage earnings between 1985 and 1986. On the other hand, the PEA, the largest union of government workers, along with several other unions, argued that general wages have not matched an increase in the cost of living. They claimed that all submissions in this case, in one way or another, echoed the fact that the wage debate in PNG has always been unbalanced and one sided. They mentioned that “experts have tended to view wage issues only from the point of view of costs, profits and production” (Ibid:35). Equally, according to the unions, wages should be seen as an income aspect that influences both the productive power and the purchasing power of the economy. The unions argued that PNG was not a high wage country because the real wages of urban and rural workers were inadequate to meet the living needs of the recipients.

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Table 7.1. Country

Percent of PNG average wages Percent of PNG minimum wages Agriculture NonAgriculture Non-agriculture agriculture Nigeria .. 8.8 .. 18.6 India 19.6 14.4 24.7 30.3 Sri Lanka 20.2 8.2 25.4 17.3 Malaysia 58.0 21.9 72.9 46.3 Philippines 28.9 15.3 36.4 32.2 Indonesia 51.9 17.9 65.3 37.8 Korea 207.5 67.4 260.8 142.2 Hong Kong .. 60.0 .. 126.6 Singapore 257.9 61.9 324.2 130.7 W. Somoa 40.2 11.6 50.5 24.5 Source: Carrol citing various sources, 1993: 53. Notes: Data derived from International Labour Office, Yearbook of Labour Statistics – relate to 1985 and 1986. Data were made comparable through the US$- local currency exchange conversion. At 1986, PNG minimum wages were K17.70 (rural) and K47.47 (urban level 1). DFP state PNG wages in US$ as follows: average US$21.55 (rural) US$97.20 (urban); minimum US$17.15 (ruraal) US$46.05 (urban).

THE YOUTH WAGE The various parties also brought to the attention of the MWB hearings the issue of youth wages. Again, there were two controversies arising from the submissions. The first argument from the unions, concerned with those already in employment, was supported by the provincial governments’ submissions. It maintained that the current wage level was insufficient to meet the rising cost of living or to meet the basic needs. It viewed the current youth minimum wage levels as discriminatory and called for a single unified minimum wage for all workers regardless of age. There were other submissions, notably from the employers, that viewed the youth wage as a cost factor that was too high and acted as a disincentive to the increased employment. The employers made the observation that a “fresh and critical examination of past wage fixation practices is required if employment creation, economic growth and prospects for real wage increases are ever going to match aspirations” (Employers Federation Exhibit A56, 1992:5). They wanted the wage rates for the youth to be deregulated. The Government, in its submission, maintained that all youth wages, both urban and rural, should be deregulated and determined by negotiation between the employers and the employees. In order to provide the best prospects for

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generating further youth employment this would set the youth wages at the market price (PNG Government Exhibit A1, 1992:14).

PRODUCTIVITY AND CAPACITY TO PAY Amongst the various submissions the Board received from the participants, it deliberated on issues of indexation, collective bargaining and the deregulation of wages. None had more bearing on the Board than calls from various employers for a productivity-based wage system, especially in the plantation sector. A productivity-based wage system, it was argued, would be beneficial to both the parties, the employers and the employees. It was further argued that past determinations, which linked wage increases to CPI movements, provided no flexibility for employer groups except through the “incapacity to pay” provision (op.cit: 48). There were several submissions, both from the unions and the employer groups. They argued that moving away from the method of linking wage increases to CPI movements and linking these increases to productivity allowed more flexibility to the employer and the employee, setting a wage which was acceptable to both the parities. They were of the view that all further wage increases should be linked to productivity gains and capacity to pay rather than on an enterprise to enterprise basis. The difficulty of measuring productivity was raised during the discussions, but it was clear from the submissions that those supporting a productivity-based wage system essentially advocated deregulation of the wage system or labour market. The major implication for the current wage system in PNG was that a productivity-based wage system was seen as deregulating the wages, thus forming a radical departure from the central wage fixing system. The new system was to take account of economic factors, such as skills, training of workers, and generally the supply and demand of labour in the economy. This contrasted with the existing regulated wage system where wages were determined with very little consideration to economic forces operating in the labour market.

THE INEVITABLE DILEMMA From the beginning, the Board recognized the hurdle in finding a compromise between these conflicting views. The uncertain economic environment worsened this, both nationally and internationally. There were also problems, such as inadequate information about the economic and social impact of past minimum

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wage decisions, which compounded the situation. The Board was confronted by the inevitable dilemma of establishing an appropriate independent minimum wage that would meet the conflicting social and economic goals. Two major views emerged from the submissions. The first view equated the wages with income and focussed it on the issue of equity and the general standard of living. Those advocating this view “expressed concerns about not raising a minimum wage already lacking a sufficient purchasing power to meet the basic needs of a minimum wage earner. They argued for a wage increase to effect increases in food items and services” (Ibid: 12). The second view saw the minimum wage as an expense. It expressed its concern about the ability of various enterprises and sectors of the economy to afford a higher minimum wage and still remain competitive. This line of argument on the minimum wage issue isolated other prevailing major elements facing PNG’s economic performance and social cohesion. There were some submissions which also called for an abandonment of certain factors, such as minimum wage fixation guidelines, the three year operation period for determination, the two-tier wage system, various “needs” criteria and CPI indexation. Somewhere along the line the Board had to create a suitable balance between these conflicting concerns.

DELAY IN PRONOUNCING THE DECISION On March 23, 1992, the Board concluded its hearings after four months of proceedings. The Board then went into deliberations and told the concerned parties and the public that it would bring down its determinations in mid-May 1992. But the nature of deliberations together with the approach of the general elections, at the same time, caused delay. Unions became anxious and impatient when the stipulated time was over without the Board making any announcement concerning the determination. The next three months saw various impatient unions, including the TUC, campaigning in the media and demanding to know the cause of the delay. Their restlessness stemmed from the fear that minimum wages might be deregulated. Therefore, they went to the extent of suggesting imminent industrial unrest if the delay continued. As one union leader mentioned, “We have the industrial muscle to dictate to the government on matters of our interest” (Post-Courier, 1992). Further, Andrew, President of the TUC, still refused to take part in the deliberations and said that all minimum wage earners should condemn moves to deregulate wages. Any decision to deregulate wages would “only bring about nationwide industrial action”, which, he said, “would cripple the country’s economy” (Ibid). Moreover, the allegation was made that the delay was a

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deliberate one, caused by the Government in power to avoid destabilization in the coming elections.

UNIONS DEMAND PAY RISE The countdown to the minimum wage determination was followed by several weeks of union outbursts, more industrial chaos, and new demands for pay increases for all the workers. The demands came after the parliamentarians became vociferous about the 15 per cent wage rise. The TUC, after having a meeting with 22 various union leaders, saw the raise in the MPs salary as a “foregone conclusion”, and said that it was only fair that all the workers also received an increase. They demanded a 30 per cent increase for workers and a 100 per cent increase for tertiary student allowances. In a background paper to the Prime Minister, the TUC made its stand clear against the wage increase for MPs and also called for a halt to the implementation of wage deregulation. As the statement mentioned, they “would insist very strongly that a temporary halt be imposed on the raise in the implementation of salary of MPs and deregulation pending discussions and consultations with the movement” (Post-Courier, 1992). Although not pursued as seriously as the TUC threatened, this ploy by the umbrella body was used to register its opposition to the deregulation of wages in the pending wage determination.

HANDING DOWN THE WAGE DETERMINATION The press continued to play a major role. In a calculated move, a day earlier, the Minister for Labour and Employment made an urgent appeal in the media to the trade union movement to remain calm while awaiting the handing down of the 1992 MWB determination. The minister clearly stated that the Government’s stand on the proposed deregulation was a matter for the Board and “the Government now does not have access to the Board’s Determination” (Ibid). The decision was to be filed by the Registrar after it was handed down. Another major point in the media was a campaign by the minister to discredit the view held by the union movement that the Government was in support of a deregulated wage system in the country. On August 27, 1992, the MWB’s Chairperson, Margaret Elias, finally handed down the determination after weeks of suspense, promises and industrial chaos due to delay in the pronouncement. As expected, the MWB made a complete

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departure from the CPI wage indexation method and opted for a more deregulated wage system, based on capacity to pay and productivity of firms. The MWB justified the radical decision based on the view that only workers in the major centres had benefited from the past wage system while the rural workers were left out. The move was designed to deregulate the pay rates and boost formal employment in rural areas. The Board recommended a two-wage classification. The NMW set at K22.96 a week, which constituted a K48 reduction from the current rate. It applied to all the workers irrespective of their location. A National Youth Wage of about 75 per cent of the new NMW applied to all new entrants to employment aged between 16 and 21. Above everything else, the main aim of the two classifications was to “encourage and induce many more rural sector employers to increase their youth employment level, particularly at this time of acute youth unemployment and unprecedented lower primary commodity prices” (Ibid). However, anything above the minimum wage was now to be subjected to negotiation between the employers and the employees, either individually or with their unions, again based on productivity and the employer’s capacity to pay.

THE DEBATE ON WAGES What followed after the pronouncement of minimum wage determination was a mixed reaction from the various parties. On the same day of the announcement, the Employers Federation and the Government welcomed the decision as a “solution to the loss of numerous jobs, both in towns and in agriculture over the few years” (Post-Courier, 1992). Several individuals and enterprises supported this. A community leader in Lae supported the deal in wages and said, “Pay must be made lower. So more people can be employed” (Post-Courier, 1992). Although the low wage was to be a problem, the wantoks (extended family members holding jobs) will help us make up for the downfall (Ibid). But, as expected, backlash from the union movement was more pressing than any other critics of the MWB determination. PNGTUC and most of its affiliates saw the determination as unrealistic and impractical when given the current high cost of living in the country. The Seamen’s Union said that the MWB had embarked upon a savage and ruthless attack on the living standards of all workers, both in the private and public sectors (Post-Courier, 1992). The Amalgamated General Workers Union (AGWU) compared the determined minimum wage with a “return to slave wages”, and a “case of discrimination against workers” (PNG Times, 1992). It was rather “totally biased, irresponsible and in favour of one party” despite the fact that the various union bodies registered their concerns

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during the process of hearings (Ibid). The PNGTUC blatantly charged the Board’s decision as being “obnoxious and inhuman” (Post-Courier, 1992). The decision of the Board, if implemented, it claimed, would “result in mass exploitation of the workforce, a dramatic increase in poverty, social unrest and industrial confrontation. The Board’s decision, in reality, will ensure massive profit increases for employers”. Most of it, they claimed, “will be repatriated in the way of dividends to their shareholders, and not re-invested in the country to create more employment” (Ibid). PNGTUC called its affiliates and workers in the country to oppose this “unjust wage decision” and called for the Industrial Registrar not to register it as an appropriate minimum wage for the workers. The sentiments from the peak union body on the deregulation of the wage system were understandable, as the workers over more than two decades were getting used to an indexed wage. This is despite the wage system’s inherent accommodation of internal equity problem between rural wage earners and rural subsistence earners and smallholders. Table 5.2 demonstrates the widening disparity in the relative living standards of the two rural sectors, as indexation only protected the income of wage earners in formal jobs, that accounted for some 15 per cent of the labour force. As a result of these and other underlying reasons, the minimum wage was drastically reduced so low in order to ignore not only the disparity but also to ignore regional differences in favour of the principle of equal pay for equal work (Carrol, 1993:55; World Bank Country Study, 1982:22). As a challenge to the positions of unions, many people from various communities made known their views in support of the decision of the MWBD with reservations. As one letter to the editor implied, the writer’s “greatest fear” appeared to be that of the possibility of employers abusing the determination to their benefit (Ibid). Otherwise, such letters spoke of the plight of minimum wage earners at the micro-household level. There were equally other views at the macro level concerning the plight of those who could not even get a chance to prove themselves in a job. One writer, who had completed his Grade 10 education a year earlier, was representative: Many correspondents held that if there was anyone causing havoc “it was the unions with their unrealistic demands” and lack of concern for the unemployed people (Post Courier, 1992).

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Table 5.2. Minimum Wages, 1978-92 Nominal (K per Week)

Urban

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

28.5 30.8 33.2 36.8 38.8 41.8 43.6 45.5 47.6 49.8 51.3 54.0 55.7 59.1 61.8

Minimum Wages Unskilled Rural 11.5 11.9 12.4 13.7 14.5 15.5 16.3 17.0 17.7 18.6 19.1 20.3 20.8 22.0 23.0

Real Minimum Wages Unskilled Urban Rural 26.9 10.8 27.5 10.7 26.5 9.9 26.6 9.9 26.2 9.8 25.8 9.6 26.0 9.7 26.0 9.7 25.8 9.6 26.2 9.8 26.0 9.7 26.2 9.8 25.2 9.4 25.0 9.3 25.0 9.3

Source: BPNG QEB, September 1989 & March 1993; World Bank, World Prospects for Sustained and Broad Based Growth, April 1988. Asian Development Bank, Economic Survey of Papua New Guinea, August 1978. “Come on, all you unions and people who already have jobs. Why are you all against the determination? It doesn’t affect you. Have you ever stopped to think that maybe we unemployed People don’t mind working for less money. All we want is a chance for a job. We don’t care too much about the pay, because a little money is much better than no money at all” (Robert E. Joseph, Rabaul, PostCourier, 1992).

The debate about the wages took a new turn when the Secretary for DLE, Joel Aphmeledy, in what many saw as a radical move, advised the Government against the implementation of the wage determination. In a research paper, he argued with detailed facts and figures, based on a minimum wage requirement, that on the budget of an average wage earner, with a wife and two children, it would not be possible to live on K22.96 per week. To him, the Board failed to discharge its primary responsibility of determining the appropriateness of minimum wage against the current level of the costs of living, as should be the Board’s first and paramount consideration (Ibid). The MWB was an independent body and the Department’s position was that it was “legally and morally obliged to take a position on anything that may adversely affect the workers”. Immediately, the

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Prime Minister’s Department (PMD) recommended the sacking of the Secretary for opposing the determination. But the union’s movement rallied behind the Secretary and said that any move to sack him was illegal and that he was entitled to make such comments. Most of the unions, including the TUC, acknowledged that his position on the MWB determination was fairer and more representative of the bulk of the workforce and also coincided with their position (Ibid). The debate intensified when the PMD directly intervened and argued for deregulated determination in a letter to the Prime Minister. It was concerned about the way registration and gazette number had been stalled. The PMD argued that it was “natural” for the union movement to oppose the determination but “the merits of the determination must be sold to them”. The letter acknowledged the support given by Sir Julius Chan, the Deputy Prime Minister (DPM), who returned from an IMF and World Bank meeting. The DPM supported the deregulated wage system and mentioned that Joel Aphmeledy’s position was his “personal view and what (was considered) to be a misunderstanding of the concept of a deregulated wage system”. There was no choice under the circumstances, the PMD claimed, though it “takes no pride in passing judgement on a professional and departmental head”. The Department further sounded a warning bell that unless there was a deregulated wage, the Government’s focus on Asia in trade and investment would be disastrous and “PNG may take another 10 year to address our worsening unemployment situation” (Ibid). The Department upheld the Government’s endorsement of a deregulated wage system, as a timely achievement for the country, and thus threw the weight of the national executive behind the reforms.

REGISTRATION OF THE MWB DETERMINATION Although the MWBD was notified in the Gazette on September 15, it was only in the public knowledge after the information appeared as a “public notice” placed in the media by the DLE on January 28 1993 (Ibid). Under the PNG Industrial Relations Act, this determination applied to all the employees and employers to whom the Employment Act applied. It superseded all the previous determinations. The classification of workers into unskilled and skilled job categories and the dual minimum wage distinction between urban and rural employees were abolished. The 1992 MWB established a single national minimum of K22.96 per week for all the employees, which applied, irrespective of their location. This ruling encompassed all the new entrants to wage employment as on September 15, 1992. Anything above K22.96 was subject to negotiation between the employer and the employees. The determination also

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catered to a minimum of K17.22 per week to be paid to all new entrants to wage employment, who were unskilled and under 21 years of age. This amounted to 75 per cent of the existing national minimum. Those workers, who had commenced employment prior to the gazettal of the 1992 MWB determination, continued to be employed under the terms and conditions of the previous MWB determination.

POST-MWB DETERMINATION The 1992 MWB determination has been in operation for some ten months. Leading unions in the country still call on the Government to veto this determination and reinstate wage indexation to protect the workers from the rising costs of living. The PEA President, Napoleon Liosi, recently stressed that the determination had effectively abolished wage indexation, and coupled with this was a wage deregulation, having an adverse effect on the ordinary workers. The Association requested that the Government should not put too much emphasis on economic development. It stated that “while this was good, it should be balanced with social development in order to keep wages in line with the cost of living, enhance industrial harmony, and help towards minimizing law and order problems” (Post-Courier, 1993). Further calls continued to put pressure on the Government to rescind its 1992 MWBD. The PNGTA expressed its fear that the Government and private sector will “cheat workers” while basing wages on workers’ productivity. A spokesman from the Association said that the MWBD “is full of fallacy and it makes a mockery of the industrial relations machinery in PNG” (Ibid). At the then ILO Conference in Geneva, Switzerland, PEA’s General Secretary, Jack Kutal, told the gathering that the PNG Government had not complied with its ILO responsibilities and was making “slaves out of PNG workers”. The Secretary mentioned that the Government had not ratified some of the fundamental ILO Conventions and Recommendations. This deliberate failure was a total disrespect of peoples’ welfare and living conditions. He further reiterated that the Government and private sector’s argument for an increase in the labour force, based on lower wages, was a “false assumption because a low wage will not increase overseas investment and create employment opportunities, but it will only benefit the employers at the expense of workers” (Ibid). Similar outbursts and continuous scepticism, especially from the bulk of the union movement and their leaders, and concerned government institutions, continued to shadow the Government’s new wage policy for minimum wage earners.

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CONCLUSION The 1992 MWB determination created a lot of controversy in PNG, which reflected two factors. The first was the plight of the existing minimum wage earners to survive economically and maintain their position in an already expensive society. The second factor emphasized the new benefits of a lower wage policy for thousands of jobless youth and others flooding small labour market and offering few job opportunities. The transformation of this MWB determination into a heated saga was based on factors closely relating to the history of wage fixation in PNG. Over the years, wages were indexed to CPI increases. The unions and their members have viewed this method of wage fixation as favourable and fair when considering increases in the cost of living. The sudden abandonment of this well-established wage system for various reasons was openly supported and acknowledged by the Government and the employers. Hence, one significant reason for the deregulation of the minimum wage system has been to generate more employment opportunities for the unemployed people, especially youth. On the surface, it was a sound wage policy. But the reality was that the country’s social and economic structure was so expensive that only top wage earners could meet the essential ingredients of modern-day living. This scenario, however, blurred the most innovative wage policy PNG had adopted after 18 years of political independence. Despite the pros and cons, what would hopefully occur would be the greater utilization of the then dormant industrial relations machinery to establish, and to do justice to cases arising out of the new wage policy.

Chapter 6

LABOUR MARKET PERFORMANCE IN POST-DEREGULATION PERIOD The deregulation of the labour market sets the basis for a new direction of economic growth and employment creation. It was an eight-year wait that began from the 1992 labour market deregulation. The performance of the economy of this period in terms of accommodation of the deregulated labour market needs to be evaluated in the context of overall management of the economy, which had been, in turn, influenced by both endogenous and exogenous factors. As this chapter illustrates the broad social, political and economic factors had a lot to do with influencing the labour market just as same as the deregulation of the wages system. The impact of the deregulation on the labour market has been less obvious. However, debates still carry on from commentators as to what actually unfolded in the post-deregulation era before 2000 MWB sitting.

THE TURBULENT 1990S However, the post-1992 labour market deregulation was marred with political and economic stability in the country. An analysis of this period involves whether there was any impact on economic growth, employment creation or lack of it and informal economy in urban and rural areas, changes in wage earnings and export of agricultural products and investment. This period was fraught with huge economic and political turmoil never seen in the country’s short political history. Despite the perpetuation of the Bougainville crisis, the period 1990-1993 was characterised by strong economic growth resulting from mineral and petroleum developments and spin-off activities

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in other sectors. However, the impact was not felt in other sectors in terms of employment creation and broad-based growth resulting from 16 per cent growth in the GDP. The growth led to macro-economic and fiscal mismanagement, which led to an unparalleled currency crisis and floating of the Kina in 1994. The economic growth only managed 3.1 and 4.8 per cent in the next two years respectively (King, 1997:40; AusAid, 1996:xv). Politically, the 1990s were a restless period and the change of government saw a Chan-Havitea coalition in 1994. They restored the balance of payment position and tightened fiscal policies as real expenditure levels fell. Continuous donor funding and proceeds from favourable commodity prices increased the level of balance of payments into surplus level but a 17 per cent reduction in real wages was enforced, which commenced the process of beefing up the budget deficit. However, growth was reduced to 3.1 per cent and 4.8 per cent in 1994 and 1995 respectively as a result of the compounding problems. In 1996, the government pursued the reform process and introduced new policies intended to overhaul the revenue system. Some of the measures adopted included imposition of user fees in tertiary education and health services, reform of excise duties, introduction of a new system of logging export taxes and royalties. The subsequent two years saw the notorious Skate regime in power and political and administrative blunders in decision making were the order of the day, which had huge strains on the economy. As one commentator correctly observed, “more generally, by 1999, PNG had become a kleptocratic state” (Garnaut, 2000:34). All these occurred in the midst of several major natural disasters, which had an adverse, impacted on the economy and people on an enormous scale than ever before. On the all, except for 1993, when the economy recorded the highest 14.3 per cent, the performance of the PNG economy had been dismal and on an average had a miserable rate of two per cent growth in GDP from 1999-2000. As it seemed, the country was right on sound economic track, the international support and subsequent resource boom created an environment for macro-economic and fiscal mismanagement. An unparalleled currency crisis engulfed the country in 1994, which changed the picture dramatically where much of what unfolded, in fact, reflected a complexity of problems underlying the economy a few years back. There were more claims to the crisis resulting from deep-rooted structural problems, a lax fiscal stance in the late 1980s and early 1990s, and an inconsistent and unstable policy environment (Hamidian-Rad, 1997:47). In particular, a lack of policy to accommodate fiscal expansion, substantial fiscal deficits emerging from domestically financed, excess demand, declining commodity prices and a draw downs of confessional loans plus a host of other reasons depleted the international reserves of the Central Bank. In fact, an

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overall deficit of K271 million over the period of 1991-94 was recorded which impacted on by excessive demand placed on imports thereby inflating the balance of payments. This substantially eroded public confidence in the government and triggered massive capital flight that brought about the crisis. However, in the second half of 1994 the government applied a series of measures aimed at restoring investors’ confidence. One of them was the devaluation and floating of the Kina and others were part of the structural adjustment program imposed by the donors. In 1995, the balance of payment position was reversed and fiscal policies were tightened substantially as real expenditure levels fell. Continuous donor funding, proceeds from favourable commodity prices increased the level of balance of payments into surplus level and effects associated with the devaluation of the Kina further boosted the balance of payments into surplus level of K244 million (King, 1997:40; Mulina, 1997). At the same time, the control on nominal wages allowed for 17 per cent, which allowed for a major reduction in real wages. A change of government effected a Chan-Havitea coalition, which commenced the process of beefing up the budget deficit. However, growth was reduced to 3.1 per cent and 4.8 per cent in 1994 and 1995 respectively as a result of the compounding problems. In 1996, the government pursued the reform process and let its intention know for a major overhaul of the revenue system. Some of the measures adopted included imposition of user fees in tertiary education and health services, reform of excise duties, introduction of a new system of logging export taxes and royalties. In fact, the economy had stabilised by 1996 following the serious macroeconomic crisis in 1994. The following year saw the Bank of PNG (BPNG) relying on the open market operations to sterilise liquidity, as there were sound signals from the banking system’s excess reserves, balance of payments and receipts from agricultural and forestry exports. Although the stability of the economy looked brief, when a series of economic shocks in 1997, including a severe drought and the Asian economic crisis undermined the economic progress. The subsequent two years saw subdued economic activity in the country as the AusAid Report (1999:xiv) saw: The economic shocks, combined with an inadequate fiscal response placed PNG’s macroeconomic environment under severe pressure – That testified in 1999. Since mid-1997, the exchange rate has depreciated considerably, external reserves have declined and interest rates have increased. The fall in the value of the Kina has also triggered a marked increase in consumer prices. The downturn in economic activity has led to a contraction in formal employment and has served to refocus attention in PNG’s very poor record of formal job creation.

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Although in such a chaotic socio-political and economic environment it was little surprising, the new 1992 wage policy were to have any impact on the economy. However, the arrival of a new government under the guidance of Morauta in 2000 and thereafter have made progress on restoring the political and economic credibility of the country to that of early post-independence period. The few years of the Mekere regime gave assurance that it would look into the issues associated with fiscal policies not only in wage fixation but also in all sectors of the economy. In fact, improvements in fiscal management since July 1999 have gone some way in reassuring investors on the question of fiscal stability.

WAGE AND EMPLOYMENT CONDITIONS Notwithstanding the general dismal macroeconomic performance of the country, there was a lot of expectation from all sectors for the deregulated labour market to create more employment opportunities. That the fall in the real wage rates was to have a significant impact on unemployment in the country. However, some of the analysis done on the deregulated wage system implied advocating of ideological bias. Of the few studies done so far, results of the 1992 labour market reforms are mixed conclusions. In the first full year of the deregulated labour market, Carrol (1993) found that larger firms in Lae, employing more than 200 workers, were more willing to pay the minimum wage, whereas there was a marked reluctance among medium-sized firms and small firms to use the new minimum wage. Similarly, the conduct of survey of wages by the PNGEF in the same year also mentioned the same. Both the studies suggested that the 1992 MWB determination allowed employers flexibility to pay somewhere between the new minimum wage and the old minimum wage, although many employers felt that the new minimum wage would not create (additional) employment in their workplaces (PNG Employers Federation, 1993; WDScott Report, 1997; Imbun, 2002). Further, Levantis (1997) in a survey of the urban labour market found that there was a gradual change occurring in the implementation of the 1992 labour market reform. In the survey, which was administratively facilitated by the PNGEF found that the nominal wage rates had fallen for many unskilled workers and rate of transition varied from occupation to occupation (see Figure 6.1). In a subsequent study on the labour market in 1998, he found that there was substantial adjustment in real wages. He also found that however some 13 per cent of all adult workers were being paid below the minimum weekly wage of K62.83 per week of the 1992 determination. For youth employment the survey found that

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Labour Market Performance in Post-Deregulation Period

400

Average weekly wage -1995

350

Average weekly wage -1998

363.58

nominal wage rates for adults was falling and youth workers in low-skilled positions tended to be better paid than those at the middle-level positions in return for career prospects and on-the-job skill development. Additionally, despite the decline in nominal wage for youth labour there was relatively low use of youth labour in low-skilled positions. For instance, the 1998 survey found that only 19.8 per cent of youth employment was found to be in low-skilled positions in contrast to 75.2 per cent in middle-level occupations (Levantis, 2000:54; 1998). The pressing question always has been that as employment actually increases with the deregulation of the labour market. The response to this is not clear-cut, as observers have diverse views as to what really happens or is happening. Predictably, Levantis (1997) found that formal employment in the urban private sector has grown since 1992, compensating for decline in employment in the rural areas (see Figure 6.2). Several different studies (Manning, 1998; Duncan and Chand, 1998; Bank of Hawaii, 1998;) also concur that urban private sector recorded strong employment growth incredibly in the turmoil period of the notorious Skate government and natural disasters between 1994 and 1997. These studies, therefore, confirm that deregulation has brought about employment opportunities, particularly to the surging urban population. Most of these employment opportunities actually occurred in the resource extraction industries with little demand for unskilled labour.

99.58

62.07

100

62.53

150

109.79

200 88.27

Kina

250

148.37

245.36

300

50 0 Low - skilled

Middle - level

High-skilled

Aggregate

Source: Levantis, 2000:54. Figure 6.1. Nominal average weekly wage rates by occupation group, urban centres (Kina).

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Number employed

110000 105000 100000 95000 90000 85000 80000 1990

1991

1992

1993

1994

1995

1996

1997

1998

Source: Ibid. p. 22. Levantis used mainly the BPNG employment index series to the employment numbers from the 1988 Census of Employment to construct this figure. Figure 6.2. Formal urban private sector employments, 1990-98.

On the contrary, several notable observations contend otherwise and seem to point out that there have been few signs that employment has increased since the 1992 deregulation of wage fixation system. The WDScott Report prepared for the Asian Development Bank stated that the impact on employment has been muted, however, is probably too early to assess the full impact of the policy. Further it observed that: Thus, despite quite rapid economic growth during the 1990s-notwithstanding the crisis in 1994-95- employment structure has not followed the path of other rapidly growing countries in the Asia-Pacific region. In general, neither manufacturing nor service sectors offered substantial new employment opportunities, either for new job seekers or for those who might be seeking to shift out of low productivity jobs. Nor have successive devaluations in 1990 and 1994 provided the expected stimulus to wage employment (1997:32).

Similarly, Paska and Howard (2000) maintained that it was difficult to say that the 1992 wage policy has been successful in stimulating employment. To them, the “theoretical effect,” predicted by market economists that employment would be stimulated by flexible wages, has not occurred or, if not, little employment opportunities has been generated.

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Others also concurred that there has been no bearing on whether changes in the minimum wage in 1992 were effective in increasing employment as was claimed. Particularly, the Government found that “it has been difficult to find reliable statistics which show the rate of job creation and the level of formal sector employment over the last seven years” (Government Submission 2000:3; Department Finance and Treasury Submission, 2000). Despite conflicting assertions in the employment growth following the 1992 labour market deregulation, what seems to be obvious is that the lack of any meaningful generation of employment opportunities could be partially attributed to the turbulent period of the 1990s. What was even more obvious in the postderegulation of the labour market period was the surging urban unemployment and informal economic activity.

URBAN UNEMPLOYMENT AND INFORMAL EARNINGS The impact of the deregulated labour market turned out to be long and gradual process to create more employment opportunities for the surging urban population. A large cross section of particularly the unemployed urban population was engaged in informal activities in order to support them. The dimension of urban unemployment and informal earnings of the labour market deregulation was the subject of Levantis’ labour market survey. However, what is of interest here is the 1995 labour market survey as the 1998 wage survey has already been discussed (above). He used the 1990 census, the only census statistics available at the time (as the subsequent one occurred not until 2001) to analyse urban unemployment and informal earnings in the labour market. His analysis of the labour market information was based on a 1995 survey of “unemployed” persons in Port Moresby and a subsequent survey in 1998, which documented information of wages and labour market structure by occupation and industry across the formal private sector. He contented that the 1990 Census data inflated urban wage unemployment in PNG. The 1995 survey was administered with a sample of 337 respondents from Port Moresby who considered themselves unemployed. The results are sumarised in Figure 6.4.

86

June 1992=100 110,0 100,0 90,0 80,0 Total employment

70,0

Rural employment 1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

60,0 1982

Employment Index (1992=100)

Benedict Y. Imbun

(Source: calculated from Bank of PNG, Quarterly Economic Bulletin, Various issues 1999 in PNGTUC Submission, 2000) Notes: Graph 1 shows the changes that have occurred in the formal labour force, in both formal and self-employment categories. Total employment grew between 1982 and 1990, but fluctuated afterwards and has never been more than six (6) per cent above the level when the minimum wage was changed in 1992. As such, employment has not kept place with growth in the population and potential labour force. Rural employment grew consistently in the years between 1982 and 1992 and the total increase over the period was 20 per cent. Rural employment was one-quarter higher in 1992 than in 1982. Figure 6.3. Changes in Employment from 1982-1999.

1990 Census measures Not seeking employment Informal employment Raskol activities Prostitution Seeking employment

Males 32.4 6.1 10.1 69.2 . 14.7

Females 43.7 16.4 24.7 3.5 38.3 17.2

Persons 35.3 9.2 14.5 49.1 11.7 15.5

Sources: McGavin, 2001:123. Figure 6.4. Percentage of “Unemployed persons” in Port Moresby in 1995 by labour market classification

Levantis applied the 1995 sample results to the 1990 Census national urban force data and came up with several points. First, in his analysis the unemployment rate was 4.6 per cent in contrast to 29.3 percent for urban areas, as previously recorded in the 1990 Census. Second, he derived an estimate of 19.1 per cent of the male urban workforce engaged in criminal activity. This means that over two thirds of males, who considered themselves to be “unemployed,”

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survived through criminal or raskol activities (Levantis, 1997c: 76; McGavin, 2001:124-125). Further, he found prostitution activity to be the exclusivity of females, which accounted for 38. 3 per cent and informal employment to be 10.1 per cent for males and 24.7 percent for females, whilst some 15.5 per cent of the respondents were in the process of looking for employment. Finally, Levantis found 24.7 per cent of the “unemployed” persons in the 1995 Port Moresby survey claimed to have found no income support from either kin or wantoks (Levantis, 1997: 79). McGavin (2001:125), however, found some of Levantis’ analysis of the labour market measures in the surveys less plausible. He highlighted several deficiencies particularly in inflation of figures in his analysis. For instance, he had difficulty in believing the estimate of those 1 in 7 or 8 females in the urban workforce in PNG professional prostitutes. Although prostitution services are present in Port Moresby and other urban centres in the country, it is not plausible to believe the estimate of Levantis. This is because of a host of reasons, ranging from cultural pride and restrictions placed on women by families and casual and irregular nature of the profession. McGavin (Ibid: 127) also found it difficult those persons identifying themselves, as “unemployed” should earn about threequarter of the persons having base-level/medium-level skills of formal sector wage employment. He observed that it could not be so, as in the formal sector there was a decline in base-level skill and wages of about a third over the three years, 1996-98. Therefore there was intense competition for job openings in the formal sector jobs. There are also other less plausible explanations of labour market events in his surveys, some of which are just hard to believe, i.e. half of this sample survey of 337. They are hard-core professional raskols making regular earnings that makes his work less popular and less interesting. It is particularly so as Papua New Guinean academics and scholars who know their urban environments too well. Notwithstanding the deficiencies in the works of Levantis, what is plausible is his attempt to explain the effects of the deregulation of labour market and the minimal impact on the surging urban unemployment problem and informal economic activities.

RURAL EMPLOYMENT AND WAGE The 1992 deregulation of the wage was largely aimed at the urban labour market. However, encouragement of rural employment and agricultural production were also to be sustained simultaneously. Rural employment grew consistently in the years between 1982 and 1992 and the total increase over the

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period was 20 percentage points. Rural employment was one-quarter higher in 1992 than in 1982. However, in the period since the change in the minimum wage, rural employment has fallen with the exception of 1994, as evidenced in Figure 6.2. In 1999, the level of rural employment was almost the same as that in 1982 (Paska and Howard, 2000:45). Rural agricultural production was given prominence in every wage fixation, as apparently, bulk of the population subsisted on in this sector. Sustainance of agricultural production covered particularly cocoa, coffee, copra, palm oil, tea and forestry products (logs, wood chip and timber products). The agricultural products were mainly exported and in the post-deregulation period some significant gains were made in the export. However, despite the trippling of the quantity exported in the 1990s, compared to the 1980s, employment in this sector was lowest than experienced in the 1980s. The level of employment started to decline in 1995, and by 1999 it was at the 1982 level. Figure 6.6 shows the index of changes in rural employment and exports. Figure 6.6 shows the index of changes in rural employment and value of rural exports. The value of agricultural and forestry products have been added together. The most important pattern is that the combined value of rural exports increased by six times between 1982 and 1999 but formal employment in agriculture and forestry was generally static. Significantly, the largest increases in exports occurred in the 1990s, after the minimum wage case. Despite that, as previously discussed, formal employment fell in this period. Further, as Figure 6.6 demonstrates, the changes in index of rural employment and value of rural exports, arguably implicates a link between the two variables. Paska and Howard (2000:30), however, speculated that there could be a more direct link between employment and the volume rather than the value of rural exports. In their analysis of the index in rural employment with the index of changes in the volume of rural exports from coffee, forestry and palm oil, employment was static despite general increase in volume. In fact, employment increased until the early 1990s and then fell to be at the same level in 1999 as in 1982. In the context of wage, some changes occurred in the rural minimum wage that increases through full and partial indexation from 1982 to 1992. The real level of the wage remained more or less constant. However with the abolition of indexation, the real value of the wage fell as shown by the line sloping downwards to the right, as Figure 6.5 demonstrates. It shows the relationship between rural employment and the real rural minimum wage. The ‘real’ wage is the actual or nominal wage discounted by changes in the consumer price index. Figure 6.5 illustrates the relationship between the changes in the value of agricultural and logging exports and in the actual minimum wage.

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Labour Market Performance in Post-Deregulation Period

C h a n g e s i n m i n im u m w a g e , a g r i c u l t u r a l & f o r e s t r y e x p o r t s 1 2 0 0 ,0

1 0 0 0 ,0

index 1980=100

8 0 0 ,0

6 0 0 ,0

4 0 0 ,0

2 0 0 ,0

0 ,0 1980

1981

1982

1983

1984

1985

1986

1987

in d e x r u r a l m in im u m w a g e

1988

1989

1990

1991

1992

1993

in d e x v a lu e a g r ic e x p o r t s

1994

1995

1996

1997

1998

1999

in d e x f o r e s t r y e x p o r t s

Figure 6.5. Changes in minimum wage, agricultural and forestry exports.

Index 1982=100

700.0

Index of rural employment and value of rural exports 1992-1999

600.0 500.0 400.0 300.0 200.0 100.0

Index rural employment

19 98

19 96

19 94

19 92

19 90

19 88

19 86

19 84

19 82

0.0

Index value rural exports

Figure 6.6. The index of changes in rural employment and value of rural exports.

The pattern of increasing exports and falling real wages was one of the assumptions of the 1992 wage decision, although reduced wages were not the cause of higher exports because there was no increase in employment. Indeed, as

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Figure 6.5 shows, real rural wages and employment have fallen, which contradicted the assumption that reductions in real wage would lead to increases in employment. Similarly, Paska and Howard (2000:32) in their statistical tests of the relationship between exports, employment and wages, found that overall period of 1982-99 there was a very weak positive relationship between reduction in real wages and increase in employment. Statistically, at least, real wages and unemployment have been, more or less, independent as demonstrated by correlationn coefficientt analysis. Hence, the relationship tended to be a negative correlation coefficient between changes in minimum wage and changes in level of employment. Actually, what had occurred was that both wages and employment have fallen rather than reduced wages leading to increased employment.

INVESTMENT One of the objectives of the 1992 MWB determinations was to attract a lot of investors as a result of the drastic cut in the minimum wage. Most of the investment in the country between the early and late 1990s, it seemed, occurred in the capital-intensive mining and petroleum sector, which operated outside the parameters of the minimum wage regulation as a result of its high wage sustainability. The level of private investment in this sector, equivalent to GDP, peaked 23 per cent in the early 1990s during construction of Kutubu and Porgera projects and varied between 10 and 15 percent in the subsequent years. However, there was little change in the real level of government investment, which did not exceed more than five per cent in the 1990s. In a comparative perspective, PNG recorded very low private fixed investment in the ratio of less than 20 per cent of GDP for comparable countries. Most importantly, there was some investment in the areas of wages involving minimum wages, which occurred after the 1992 decision. Several canning factories opened up in Lae and Madang. However, was not attributed to the decision of the MWB. It appeared that the high market demand for tinned protein additive in PNG seems to have influenced the decision to establish these factories. They may be taking advantage of the new minimum wage, but most of the workers were females, because this type of work is not considered socially acceptable for a man to undertake. In PNG, any work that is related to food gathering and preparation or child rearing is considered women’s work. It is too early yet in the development of PNG for the traditional divisions of labour to break down (Imbun, 1999:7).

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In spite of the lowered minimum wages, for the firms that were already in the country, there was no evidence to suggest that they had switched from capital intensive to labour intensive operations. In theory, factors of production are easily substituted for one another, as the price of one factor differs from another. However, in the real world, wage reductions would not induce, companies to discard new capital equipment to hire labour (Lodewikjks, 1988:392). This is because capital equipment is not malleable as it is seen to be in theory. That is once mechanised production has been introduced, a subsequent cut in wages would not quickly reverse this decision. Further, those employers already established in capital-intensive production could not move to labour-intensive production in the short to medium term future. Carrol (1993) found that many employers in Lae even questioned changes in the long-term. Most of the opinion pointed out that in the event that plant and equipment had to be replaced, they were still more likely to continue with capital-intensive production. Questions have already been raised concerning whether the reduction of the new minimum wage will be enough to increase PNG’s competitiveness in manufacturing. Although there are many non-wage factors that have impeded the growth of manufacturing in the country, even though the minimum wage could be one factor without the related support policies, these goals could not be achieved. In addition, a lot of measures and (tax) incentives are needed to encourage employment growth in the manufacturing and large-scale agricultural sector. The reduction in minimum wage alone is an isolated policy that in itself will fall short of encouraging employment. These are other factors, at least as important as the wage structure for an investor’s decision, such as law and order, education and training, land tenure system, labour productivity, infrastructure development and high transport costs etc. Imbun (1999:7) points out; generally a conducive investment climate has to be created, which includes the tax and duty system, removal of bureaucratic barriers etc, besides the minimum wage or wage structure. These policy constraints and related constraints need to be seriously addressed to make the investment viable.

CONCLUSION The post-deregulation period was viewed with a lot of optimism from all stakeholders in the wage fixation system more so from the Government. Increased employment was the major aim of deregulating the wage system. As it was acknowledged and firmly believed, in freeing up the labour market the Government was addressing the fact that wages above the clearing levels have

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been one significant factor impeding growth and employment creation. However, a politically turbulent period and a generally sluggish economy provided little avenue for the ambitious wage policy to make its impact. Research done and other information overwhelmingly showed that there have been little if any increase in total employment, wage and investment after the 1992 minimum wage determination. This assessment is made despite the modest gains recorded in the urban employment from Levantis’ (1997) findings. In fact, wage employment after the deregulation of the labour market was, in many aspects, well below in the pre-1992 period. This is particularly rural employment in spite of vast gains made in value and volume of exports. Investment in the economy was also minimal. However, as it seems, the impact of the deregulated labour market turned out to be long and gradual process to create more employment opportunities. In the meantime, large cross section of particularly the unemployed urban population continued to participate in the informal economy to sustain themselves more so in the urban areas.

Chapter 7

THE 2000 MINIMUM WAGE POLICY The 2000 MWB met some nine years after the previous one had deregulated the wage fixation system in the country. The long delay was caused by a myriad of factors ranging from change of Governments to structural adjustments package imposed on the country by the International Monetary Fund and World Bank in the last few years. However, it was only in 1997, a 7.5 per cent increase on the 1992 minimum wage was agreed to between the employers and the peak trade union organization when inflation in double digits became unbearable. Otherwise, the unusual wait caused much anxiety amongst minimum wage earners and the public, which last Skate government saw it as politically expedient to establish the next MWB. In fact, he stressed that the last determination was based on “incorrect assumptions because unorganised minimum wage earners and unskilled workforce in most rural areas in the agriculture (and in industries in urban areas) had not been catered for” (The National, 1998). The 2000 MWB attempted to restore some degree of balance and fairness in areas where the conditions of the labour force appeared to have been declining over the last nine years. Simultaneously, it recognised the importance of a balance between fairness to the labour force and the need for business survival and profitability and the need for strong stable and growing economy. It also acknowledged the difficult and testing times the country had gone through namely the Bougainville crisis, Sandline crisis, and the notable natural disasters in Rabaul, Aitape and the drought in 1997. These unforeseen shocks seriously affected the economy at a time when the 1992 MWB determination was being applied. The 2000 MWB was tasked to come up with a new minimum wage guided by the following terms of reference:

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Benedict Y. Imbun • •

• •

• •

•

review the continued appropriateness of the method and conditions of the 1992 MWB determination; determine the appropriateness of the current National Minimum Wage and National Youth Wage with the view to determine the appropriate level of adjustment and classifications; review and determine an appropriate Productivity Based Wage Scheme review and determine the appropriateness of all allowances under previous MWB determinations (i.e. heavy duty allowance, rural hardship allowance, etc); enquire into and identify best work practices and award system; review other appropriate modes and conditions of employment and conditions of work (i.e. piece rate, shift, flexible hours of work and parttime); investigate whether there is a need to establish a permanent institution to monitor implementation of minimum wage determination (MWB, 2000: 14).

Unlike previous MWBs that had access to wealth of information to base their determinations, the 2000 MWB was severed with only a handful of submissions. This may have been due to an overwhelming perception held by most people and employers that the Board would increase the minimum wage any way, as inflation was 15Per cent high and most workers were being paid above the 1992 minimum wage (PNGTUC General Secretary, Personal Communication, 2001). It was plausible as Levantis in a 1995 survey of the urban labour market found that “… no firms were found to have paid wages anywhere near the new national minimum of K22.96 per week. The average wage rate for those being paid below the old minimum of K62.83 per week was K52.76 per week – more than double the new national minimum” (Levantis, 2000: 48; McGavin, 2001). A total of 35 submissions received parties and individuals that emphasised interest pertaining to their particular industries or sectors in economy. The submissions mainly referred to international economy (comparisons), domestic economy, employment situation, investment, rural industries and social indicators.

INTERNATIONAL COMPARISONS Most of the submissions discussed wages in general terms with considerations on the effect of employment and growth in the economy. The agricultural sector and the rural industries referred to international economic conditions and its

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effects on them. Two submissions emphasised the implications of international economic conditions on wage fixation in the country. The Government’s submission acknowledged that in 2000 price recovery for mineral and petroleum exports was positive however it could not tell of agricultural commodities, where price recovery has not seen significant reductions in supply for agricultural commodities (PNG Government Submission, 2000). The PNG Growers’ Association also referred to the world economy and its significance and impact on the national economy (PNG Growers Association Submission, 2000). The Board was told that the previous MWB deregulated the wage fixation system in PNG on the premise that wage rates were too high compared to countries in the Asia/Pacific region. The prevailing belief was high minimum wage levels coupled with the regulated wage fixation system discouraged potential investors to invest in PNG. However, the government and PNGTUC submission agreed that lower wages have not made PNG more internationally competitive or has it led to increased employment and increased investment as anticipated by the last determination. In fact, the Board was told that the purchasing power of Indonesian minimum wages is double the purchasing power of PNG minimum wages. Further, what has occurred is PNG workers are now worse off than compared to workers of competitive countries in Asia/Pacific region (PNGTUC Submission, 2000: 50).

DOMESTIC ECONOMY In the domestic front the Government Submission painted a positive picture of the state of the economy and mentioned the appropriate macro-economic policies were in place for its recovery. It recognised that there was a need to increase the national minimum and youth wage to a reasonable level to match the real value of the purchasing power of minimum wage, however the government warned that it should not jeopardise the steady growth of the economy. It submitted that the national minimum wage and youth wage should not be indexed to CPI and recommended that any increase should be made as gradual increase over the next three-year period. It recommended to the Board a one off increase and that the national minimum wage be set at K32.91 per week. The Government further recommended that employees above the minimum wage were to utilise collective bargaining arrangements at their workplaces for additional increase based on productivity and capacity to pay (PNG Government Submission, 2000). Other submissions particularly from the employers presented to the Board echoed the woes of the economy and called for wage restraint. The PNG

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Employers Federation argued that the 1992 MWB decision should be re-endorsed as valid and appropriate. The Federation contented that ‘the economy itself is showing no signs of significant growth’ (PNG Employers Federation Submission, p. 6). It acknowledged one of Levantis’ works and stated that ‘there is no indication in the short term that there will be any dramatic improvement in the levels of the GDP. In other words the short-term outlook appears to be very conservative and may even be negative in terms of growth of the economy. However, it firmly stressed its claim that the current urban labour market arrangements are appropriate to PNG’s economic situation and have been enormously successful in stimulating employment and in improving equity. The Federation acknowledged one of Levantis’ findings, which stated that the private sector employment grew a very impressive 16.8 percent between 1993 and 1998 (Ibid: 10). The PNGEF argued for the re-affirming of the 1992 determination and to maintain the status quo. The PNG Chamber of Commerce acknowledged the bad shape of the domestic economy and argued that only a modest increase in the prevailing wage would be accommodated by the ‘balance of payment constraint’ (PNG Chamber of Commerce, p. 9). It argued that a K10 increase paid to the lowest one-third of employees would have a K35 million increase in imports, which the balance of payments could not afford. In other words, the Chamber further argued that workers in PNG were paid well above the 1992 national minimum wage compared to other developing countries in the Asia/Pacific region. While this was happening they have also experienced business closures due to their inability to continue to hire workers at the current minimum wage. Further, although they anticipate an increase in the minimum wage, the amount has to be reasonable in order not to increase unemployment, discourage investor confidence, further deter economic growth and most likely lead to the closing down of businesses and industries. (PNG Chamber of Commerce Submission, 2000). On the other hand, unions and the University of PNG submissions advocated for minimum wage sufficient to cater for the basic needs of the workers. They highlighted that poverty and inequality brought about by low wages and deregulation have placed PNG in the lowest ranking countries in the Asia/Pacific region. In particular, PNGTUC in a comprehensive submission to the Board called for a “living wage” to adequately sustain at least four dependants (spouse and three children). It also believed that the wage should take into account of costs associated with food, education, shelter, clothing, transportation, and health. PNGTUC therefore called for a K120 per week as the minimum wage. It with the other unions strongly argued for wage indexation to be tied to CPI to enable the value of minimum wage to be on par with cost of living increases.

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They held that wage costs were a small component of total costs, which may not drastically affect economic growth. The non-wage costs constitute a very large proportion of the total costs and may have greater negative impact on competitiveness and growth. Further, the peak union body refuted claims of a lower minimum wage as promoter of more employment opportunities, as they have not materialised since the 1992 MWB determination. However, they (unions) concurred with the view that the deregulated wage fixation systems should be maintained. That is parties should be free to resort to collective bargaining for further improvements over and above the national minimum based on productivity and capacity to pay (UPNG Submission and various Union Submissions, 2000).

RURAL INDUSTRIES The majority of the submissions otherwise made references to the seriousness of the economic hardships being faced by the country caused by various factors. Submissions made by PNG Chamber of Commerce, the Employers’ Federation and the agricultural industries have argued that the country’s economy has not improved, blaming the government’s lack of clear economy policy directions and mismanagement during the period of 1994-99. This has resulted in the depreciation of the Kina, high cost of living, poor transport infrastructure, and poor government support especially in assisting smallholder farmers and industries. Particularly, the tea, coffee and copra industries made observations on lack of support in terms of subsidy, tariff relief, tax relief and other assistance that they were struggling to operate in an already economically, politically and socially volatile environment. They argued that their operations were small and cannot meet the demands of the world export market. The New Britain Palm Oil Limited (NBPOL), the largest rural employer in the country was the only business enterprise, which disclosed to the Board that they had a successful operation in last few years in a row. However, they would like the current deregulated wage system to be in place as it had put in place a wage influenced by the demand and supply of labour (NBPOL Submission, 2000). Above all, rural employers argued that a wage increase of more than K5.00 per week would result in mass redundancies of minimum wage earners. Evidence submitted to the Board indicated those, non-labour costs such as poor road maintenance; law and order, poor infrastructure and lack of government support are real problems facing rural industries. Wages alone cannot be singled out as, the significant cost factor prohibiting investment and production.

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EMPLOYMENT SITUATION The Government submission acknowledged the intention of the previous wage determination but felt that there was very little employment creation out of it. Instead it concluded that ‘’ employers have enjoyed significant productivity gains on their labour costs to the disadvantage of workers over the past seven years, whereas there has been no apparent increase in formal sector jobs” (Government submission, 2000:3). Surprisingly, the PNG Chamber of Commerce (2000) confirmed that since the 1992 MWB determination there has been no significant increase in employment levels. These observations were quite contrary to the studies done confirming employment creation. The government and employer organisations called for a fairer minimum wage, which would encourage investor confidence and create employment. Further, the PNGTUC argued that loss of investor confidence, or closure of businesses or decline in the economy should not only be attributed to high minimum wages. It felt that “given the limited size of wage employment in PNG no amount of wage cuts will stimulate employment sufficient enough to clear the existing labour market disequilibria” (PNGTUC Submission, 2000:16). However, the peak union organistion did confirm that employment growth took place at the rate of 1 per cent per year since the 1992 determination, which it considered as insignificant.

INVESTMENT Most of the submissions made little mention of investment being created by the 1992 labour market deregulation. The government in particular was salient and in cross-examination the PNG Chamber of Commerce stated that there have been no significant increases in investment since the 1992 determination. The PNGTUC submission stated that the re-distribution to capital was higher than the re-distribution away from labour because the share of GDP taken up by depreciation. Fiscal capital also fell from 11.6 per cent in 1991 to 6.9 per cent in 1998. This suggests a reduction in domestic investment in previous years. The PNGTUC further showed that a steady decline in private investment and reinvestment and a huge increase in private consumption. From its research it observed that private consumption in the private sector increased from 54.3 per cent in 1992 to 60.8 per cent in 1998 (PNGTUC Submission 2000:27). Neither the Government nor the other major parties seriously challenged the assertions made by PNGTUC.

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SOCIAL INDICATORS The Board also heard that reduction in the real value of the current minimum wage created poverty, inequality and in some way contributed to the serious law and order problems experienced in PNG today. The Amalgamated Workers Union (AWU), covering a considerable proposition of the minimum wage earners blamed the plight and misery of the minimum wage earners on the 1992 wage cut and loss of indexation. It documented how people were leaving jobs rather than work for low wages and argued that low wages were a direct cause of social and industrial unrest and showed links with crime and violence (AWU Submission to 2000 MWB). The Government submission acknowledged the current minimum wage was insufficient and has “… little relevance to workers welfare, as a 10 kilogram bag of rice now costs on average K15” (PNG Government submission, 2000:3). The PNGTUC quoted from a speech from the Prime Minister, who observed that: Table 7.1. Measure of Economic Inequality Country Malaysia Fiji Thailand Philippines Sri Lanka Western Samoa Vietnam Indonesia Vanuatu Solomon Islands PNG

Share of income or consumption Poorest 20% Richest 20% 4.5 53.8 U/a 6.4 48.4 5.4 52.3 8.0 42.8 U/a 8.0 44.5 8.0 44.9 3.7 53.1 U/a 4.5 56.5

Ratio of shares 12.0 7.6 9.7 5.4 5.6 5.6 14.4 12.6

Source: United Nations Development Report, Human Development Report 2000, Table 4 pp 169-70. Note, U/a means this income information is not listed by UNDP. The poverty level in PNG is considerably higher than neighbouring Pacific countries, with 35Per cent of the population falling below the poverty line, while 93.5Per cent of the poor are rural based. PNG had 0.5 million people living in poverty in 1985 and by 1996 this figure have risen to 1.0 million. In terms of a head-count index, 15.7Per cent were afflicted by poverty in 1985 and this had risen to 21.7Per cent in 1996.

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The peak union body consolidated its argument with a startling piece of evidence from the United Nations Development Programme (UNDP). The 2000 UNDP Report placed PNG at 133, out of almost of the countries, which is the lowest of all the South East Asian countries except Cambodia in its Human Development Index (see Table 7. 1). What had in fact occurred over the period of the deregulation of the labour market has been emergence of social inequality as demonstrated by increasingly high level of poverty in the country. They advocated for a higher minimum wage which could alleviate poverty by increasing the level of living of minimum wage workers and their direct family and the amount of money they are able to transfer from urban to rural areas. Table 7.1 shows the share of total national income, which goes to the 20% of the population with the lowest incomes, and the share, which goes to the 20% of the population with the highest incomes. In the case of PNG, Table 7.1 shows that the 20% of the population with the lowest incomes shared receive 4.5% of the total national income. At the other extreme, the 20% of the population with the highest incomes shared in 56.5% of total national income. The fourth column shows the ratio of the two shares; the rich in PNG got 12.6 times more than the poor. Significantly, the distribution of income in PNG seems to be among the most unequal of SE Asia and the Pacific. Of the countries for which the UNDP gives data, income inequality is greater only in Vanuatu where the ratio is 14.4. The lowest ratio (and the greatest level of income equality) is in Sri Lanka, Indonesia and Vietnam. Notably, in all three countries, the poorest 20% are receiving just under twice the proportion of national income as in PNG. Several submissions called for a higher minimum wage and emphasised that minimum wage issues were intimately and intricately linked to questions of poverty and income inequality. In the context of Government, the Pangu Pati submitted that there should be a real minimum wage of K70 to K100 per week, which should be sufficient to cope for the welfare needs of an average family and one that should be applicable across the country (Pangu Pati Submission, 2000). The Madang General Workers Union, Porgera Mine Amalgamated Workers Union, PNG Forest Products Workers Union and Vudal University Staff Associated wanted the new minimum wage to be in the vicinity of K100 to K180 per week (Various Unions Submissions). However, notably the PNGTUC in its impressively researched submission believed that the Board could not completely disregard the evidence of social inequality and poverty especially since increasing the minimum wage could possibly alleviate the latter. It strongly maintained that one of the objectives of minimum wages has always been to reduce the incidence

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of poverty. It therefore proposed a weekly minimum wage of between K133K147 per week in order to return the minimum wage to the purchasing power it enjoyed in 1977 or 1992. Table 7.2. Basket of goods to be for an average minimum wage earner Estimated Food Costs for a Family Units (Five persons) Meal type Breakfast Bread Meadow Lea National Tea Sugar Lunch Rice Mackerel Besta Dinner Banana (kaukau) Greens (Aibika) Coconut Ok & Palm Total

Quantity

Cost

Basis

Weekly cost (k)

1 loaf 500 g 100gr 1 kg

1.86 4.18 .93 2.47

1.86 (x 7) .60 (x1) .93 (x2) 2.47 (x2)

13.02 4.18 1.86 5.94

1kg 1 can

1.84 5.32

1.84 (x7) 5.37 (x7)

12.88 37.59

1 hand

2.50

2.50 (x7)

17.50

1 bunch

.70

.70 (x7)

4.90

1 1 can

.50 3.41

.50 (x7) 3.41(x7)

3.50 23.87 125.24

Source: PNGTUC MWB Submission, 2000. Notes: The basket of goods was modified from an initial one earlier advocated by Joel which would provide the minimum needs for a family unit of five consuming a weekly cost of K70 in 1994 including protein intake at each of three meals per day. This set a weekly food cost of K70 in 1994 including protein intake at each of three means per day. This was updated after three years to show a weekly food cost of K139.27 (Imbun, 1999). The PNGTUC took on the Joel/Imbun food basket and did a survey of prices in Port Moresby shops and food markets in July 2000 of which the outcome is shown in Table 7.2. Compared to the Joel/Imbun ‘food basket’ this does not include protein for breakfast and substitutes Ox & Palm for chicken in the evening meal. The chicken (size 10) cost is K7.70. This is based on information from minimum wage earners that the reduction in income has meant a reduction the amount of protein they eat. If chicken were eaten instead of Ox & Palm the weekly cost would increase to K155.27.

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The PNGTUC proposed minimum wage emanated from a basket of goods, which was thought to constitute a “decent living wage”. This was a modified survey of goods from one done earlier by Joel (1994) and followed up by Imbun (1999). However it did not contain social and logistic costs (wantoks, school fees, bus fare etc.) incurred by minimum wage earners, which if included were to be doubled or tripled in the call for a decent living wage (See Table 7.2). This survey was based on ten major food outlets likely to be used by minimum wage earners and five markets. The prices used above are the average from the survey. A list of the outlets is attached. Apart from the PNGTUC well documentation of income inequality and poverty thought to be associated with result of the deregulated wage system, employers made no mention of the issues of poverty and income inequality, which it acknowledged increased dramatically since the last minimum wage determination.

DECISION The submissions received from major parties and some individuals showed that the main areas of contention were on the implications of the international economy on PNG, performance of the domestic economy, employment situation, investment, rural industries and social indicators of the country. It was evident that the PNG economy was vulnerable to the international economy and yet the Kina devaluation in 1994 has not translated into increased international competitiveness particularly in the rural industry. It was also acknowledged the premise on which deregulation of wages occurred has not made PNG more internationally competitive nor has it led to increased employment and increased investment as anticipated by the last determination. Domestically, all submissions acknowledged the economic woes and progress made by the current government in the last couple of years. The fear was evident particularly with the government and employers that a reasonable one-off increase in the minimum wage was sufficient in order not to disrupt resurrection of the economy. Conversely, unions and other presentations advocated a socially acceptable wages policy, which was sufficient to cater for the basic needs of workers. They highlighted that poverty and inequality brought about by low wages and deregulation have placed PNG in the lowest ranking countries in the Asia/Pacific region (MWB, 2000). The Board maintained the prevailing status quo, and attempted to restore some degree of balance and fairness in areas where the conditions of the labour force appeared to have been declining over the last nine years. Simultaneously, it

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recognised the importance of a balance between fairness to the labour force and the need for business survival and profitability and the need for strong stable and growing economy. It was particularly concerned with the above 15 per cent per annum inflation that became the order of the day for the last three years. Workers in the urban areas were the worst affected as their purchasing power had lost its power as most of the basic consumer items were imported. The decision was made after critiquing the submissions for being too shallow and lack of substance in showing any meaningful employment, economic growth and investment created by the previous determination. It observed that “The information received revealed no positive gains on employment and it has been quite disappointing and insufficient to justify continuation of the current minimum weekly wage of K22.96” (Ibid: 29). It made several decisions, which seemed heavily relied on the submissions made by the PNGTUC and other unions. A national minimum wage of K60.42 per week was established for all workers irrespective of age or location therefore effectively overriding the previous dual wage set between adult and youth and urban and rural centres. The figure of K60.42 was on the basis of increase in cost of living since the 1992 minimum wage determination and the unfulfilment of some of the objectives of the previous determination. So the 2000 MWB simply retained the 1992 minimum wage but restoring its real value to the Kina. That is the 1992 minimum wage of K22.96 was determined at the time when the Kina was relatively on par with the US dollar. At the time of the 2000 MWB determination the Kina was traded for US$0.38 and the Board simply divided $22.96 by $0.38 and got K60.42 as the minimum wage. The Board added that in the second year of the minimum wage in operation a further increase of K6.00 was to be awarded followed by another adjustment upwards of K6.00 setting around K72.42 per week in the third year of operation before the next wages determination. There were other increases made on tool allowance, heavy-duty allowance, camping allowance and also made recommendation on other areas of work (Ibid). In all this, most importantly, the Board stayed with the status quo of the 1992 wage deregulation and only restored value to the Kina as it saw fit after taking into consideration of various submissions and its own assessment of economy. Therefore, if any economic growth were to happen, it felt the status quo was intact and the deregulated wages were here to stay, but that arrangement was not to jeopardise the livelihood of the workers. As anticipated there were mixed reactions from the major parties after the 2000 MWB determination. The media fed on by the employers saw it as a 160Per cent increase between old and the new minimum wage, although the actual increase for both wage cost and wage income was well below. They rejected it

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outright as an anticipated 20-50, 000 workers were going to be unemployed and the Rural Industries Council predicted a ‘decimation of the rural sector and employment opportunities’ (The National, 2000). On the other hand, the trade unions and workers welcomed the increase and maintained that the 2000 MWB determination would have a positive impact on the economy and all social indicators than the Budget. The wages debate went from strength to strength as unions and employer organisations used the media to lash at each other advocating their respective positions. In an ironical twist the Government vetoed the wages decision in the in the “national interest” despite being registered by the Industrial Registrar, as warranted by the Industrial Relations Act, for implementation. In the mean time the Government summoned the key parties of wages policy fixation to the National Tripartite Consultative Council in order to set an alternative wage. Several meetings took place however the PNGTUC team was adamant that the earlier decision should prevail and therefore was reluctant to agree with the Government sponsored “interim” wage of K32.91 per week for adults and K18.51 for youths. In a new twist to the ongoing minimum wage saga, the PNGTUC announced that it intends to take the government to court over the issue. It seems the stand off is far from over and nothing practical has transpired yet from the wages determination. However, it would be anyone’s guess as to the amount the minimum wage ‘battlers’ would be getting pending the final settlement of the wage saga.

IMPLICATIONS FOR 2000 WAGE POLICY Whatever amount the government and rest of the tripartite partners agree as minimum wage for the next few years, it would be a reasonable and affordable wage for employers. And it would surely assist with the continued consolidation of the deregulated labour market embarked upon in 1992. On this there are various policy implications to be drawn from the pending minimum wages decision.

Employment Creation First, it appears that employment is going to be created by the 2000 wages policy, although it might take a while given the tough economic times the country is going through. If and when, demand picks up in the PNG economy, there would

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be employment opportunities available. However, one thing is for certain and that is the guaranteed continuation of the support of the deregulated labour market, which would bring about flexibility to many employers.

Youth Employment One of the main objectives of the 1992 wage policy was the creation of employment opportunities for the youth aged between 16 and 21, who are new entrants to the workforce. However, this objective was not largely met and might not be fulfilled in the short term after the 2000 policy basically because of some complex reasons. One of the obvious reasons is that there is a marked reluctance to employer workers in this age group because there are very little opportunities available for the level of worker (Levantis, 2000:74). Another related reason is the lack of strong social or economic pressure for young males to engage in productive employment. Hence, when they are employed, commitment and motivation is poor and as a consequence, this group’s productivity is generally lower than for the rest of the workforce (Carrol, 1993:34). This leads to the point that urban youth unemployment in PNG is not simply explained by a deficiency of wage employment, or by inadequate education, or by education raising aspirations. High youth unemployment also occurs because it is socially acceptable in PNG for youth to be economically inactive. In an urban environment this inactivity becomes a social menace (McGavin, 1986:33) The failure to accommodate youth into formal employment would continue to have implications for law and order and the economic and health of the country in general. Hence, it seems many would continue to resort to other (illegitimate) activities for survival such as engaging in raskol (criminal) activities in the country.

Impact on Investment The new minimum wage would have great impact on the establishment of new industries. Although wage levels is just one of the considerations to establish a new business, if the need to decide between labour-intensive and capital intensive models of production exists, then the lower wage will have priority over new businesses. This would of course depend on the type of industry the new firm is considering opening up in. Some industries are by nature, capital-intensive, such as mining.

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A manageable minimum wage would have greatest significance for new enterprises in the manufacturing industry. This was already evident in Lae, the second major city, with several canning factories already established. Many people have sought employment on the 1992 minimum wage. These workplaces have largely employed females, because this type of work is not considered socially acceptable for a man to undertake (Carrol, 1993:45). It is anticipated that the consolidation of the deregulated wage policy of 1992 by the 2000 MWB would provide the scene for more labour intensive economic activities to occur in the country.

Deregulation and Collective Bargaining The 2000 MWB determination not only affects the minimum wage level but also consolidates the deregulation and collective bargaining established by the 1992 wage policy. All skill classifications above the minimum wage are to continue to be determined by collective bargaining. The 2000 MWB has reaffirmed the previous decision and decided to limit its role to the determination of minimum wages only. Previously, decisions by the MWB affected the level of all wages not only the wage for unskilled work. This means that all wages above the minimum wage are now deregulated and subject to negotiation between the employers and relevant employee organizations. It is hoped that the PNG unions would make use of the deregulated industrial relations environment to effect their wage increases at their workplace. However, for the nine years of the existence of the 1992 wage policy there is no record of any union in the country, which has taken on its employer for wage increase on the basis of productivity. The passivity and inactivity in raising such issues is largely due to a multitude of factors amongst them a largely less efficient and effective union movement and existence of generally many paternalistic workplaces mainly in the private sector (Imbun, 1999:36). Therefore, if the current trend is of any indication, the possibility of unions causing disharmony in the economy or even exerting pressures for wages to flow on the other weaker industries and enterprises would not happen for a long time.

CONCLUSION The 2000 MWB determination further endorsed the deregulated wages system that was laid by the previous Board. It was of the view that economic

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growth and development were fully compatible with increased social equality for workers and participation by workers in social activities. Therefore the determined minimum wage of K60.42 per week still maintained the value of the 1992 wages policy however reflecting the inflation and other social and economic changes of the prevailing period. The decision was swayed by two important factors. First, it was already apparent that minimum wage earners were being paid above the K22.96 set previously and it was made easier for the Board to set an increase in the minimum wage. However, contention of the submissions from parties and individuals were on the magnitude of the increase, which for the employers’ looking at nothing more than less significant increase, whilst mainly union and other submissions advocated for a sizable increase in the minimum wage. That is for the employers a fairer 2000 minimum wage bearing was recommended keeping in mind of high operational costs of weaker employers in the rural sector and their capacity to pay high wages under conditions diverse economic conditions. Second, the PNGTUC submission to the 2000 MWB was the most impressive and well-researched piece of work read to the Board in a long time of the wage fixation history. It was ably advocated by two articulate and notable trade union personalities and they eloquently painted the depressing status of minimum wage workers in a struggling economy. Other submissions, mainly employers provide very little or if not any major challenges to the assertions of the PNGTUC submission. The Board was convenience largely by the two factors and its own judgements that the determined wage of K60.42 per week was the appropriate amount for all parties to accept. The subsequent developments arising of the wage determination were not expected however one fact emerges. Although decision of the 2000 MWB has been shelved or in limbo, no longer are employers paying the 1992 wage rates. Significant increases in wage have been accorded to workers resulting of both the 2000 MWB decision and the prevailing cost of living, particularly in urban areas. The policy implications of the wage determination are promising, however a conducive socio-political environment and pro-active government have to make supplementary policies to realise the desired living standards the minimum wage earners and large population look forward in the country.

Chapter 8

MISCONCEPTIONS AND POLITICS OF MINIMUM WAGE DETERMINATION Minimum wage determination in any developing country is based on its various social and economic circumstances. Its formulation, therefore, obviously poses a challenge before it, to adopt minimum wage principles. It has greater impact for such a country’s wage regulation, as it occupies a central place in its political and economic decision-making. It’s simply because of inherent concerns and dilemmas resulting from its surplus population and imperative to gain economic efficiency without compromising the social well being of its workers. Though on paper the wage policy in any country may look smooth, it is not easy to implement, as it is difficult to satisfy all the parties involved. This chapter discusses the inherent issues and politics of wage fixation policy in PNG. The misconceptions about minimum wages and politics dealing with the concept in PNG are discussed. In particular, the conventional view that minimum wages are very high and that high wage levels have had adverse impact on economic growth, employment creation, and international competitiveness are countered. The basic contention is that wages debates and determinations over the years have been lop-sided. Wage costs and therefore employer considerations may have received more attention by the government at the expense of wage incomes and the welfare of the workforce. This chapter concisely puts the concept of minimum wage fixation in perspective in PNG.

POLITICS OF MINIMUM WAGE DETERMINATION PNG is one of few countries in the developing world where deliberate official intervention in the free workings of the labour market has become the norm. The

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present minimum wage fixation and adjustment system is highly institutionalised and inherited from Australia. Triennal MWB appointed by successive governments make determinations on minimum wages in the formal sector for various categories of workers in both urban and rural areas. Such categories include semi-skilled and unskilled workers, apprenticeship, and youth. In making their determinations, successive MWBs have been guided by the minimum wages concept, the capacity of the economy to meet the costs incurred, and the productivity of the workforce. The government has argued that intervention is necessary because the imbalances in the labour market cannot determine the appropriate minimum price of labour for the various categories of workers. However, critics have argued that such intervention is both paradoxical and self-defeating (Gumoi, 2000). It is paradoxical simply because it is a direct contradiction to the basic tenets of competition. It is self-defeating in that the basis for determinations and the appropriateness of the minimum wages actually determined are unfounded.

MINIMUM WAGES LEVELS There is unanimous agreement in most reports and among critics that minimum wages have been excessively high in relation to countries with comparable income levels, productive capacities, and basic needs of workers. Examples of such studies are Colclough and Daniel (1982), Goodman et al (1985), Dahanayake (1988), AIDAB (1989), and World Bank (1989). Goodman et al (1985) estimated the urban minimum wage in PNG to be between two and ten times greater than in neighbouring South East Asian countries. But are minimum wages really high in PNG? This is an important question that needs to be answered because past MWB’s have used this as the basis to make deliberations. Cross-country comparisons of wages are based on US dollars. However, such comparisons are misleading because the minimum wage remains stagnant in PNG regardless of changes in exchange rates. In addition, exchange rates between currencies do not reflect the relative purchasing powers of those currencies. They are influenced by the balance of payments position and many other factors. It is important to take into account cost of living differences in cross-country comparisons. PNG has one of the highest costs of living in the world. To suggest that PNG should have a developing country wage rate when it has developed country cost of living conditions is absurd. During the period of ‘wage explosion’ (1972-1975), urban minimum wages rose by 120 percent, while rural minimum wages rose by 41 percent in nominal

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terms (Colclough and Daniel 1982). Most critics use this as a basis for advocating wage reductions. However, it should be noted that, in absolute terms, the minimum wage levels in 1972 were only K8.88 (urban) and K5.90 (rural). Although the percentage increase in wages seemed substantive, they started from a very low base, which was a product of the colonial economy in which indigenous labour had virtually no bargaining power. Moreover, the real increase in minimum wages during the same period is much lower. It requires a great deal of bravery for one to argue that a weekly wage of K5.90 (rural) or K8.88 (urban) is too high, even at 1972 prices. Empirical work by Mannur (1991) and Gumoi (1993) repudiates the ‘high wage theory’. Minimum wages for both urban and rural workers have been declining since 1972 in real terms. At the same time, the cost of living has been increasing. More recently, Papua New Guineans have had to contend with rising inflation rates, the devaluation of the Kina, the financial crisis, and retrenchment and unemployment concerns. Wages received by workers must cover the minimum subsistence needs of workers. Studies by McGavin (1991) and Joel (1994) suggest that urban minimum wages in PNG cover only a fraction of the minimum subsistence needs of workers. On the welfare criteria alone, the government’s present policy of downward wage adjustment has to be considered as an aberration. It is virtually impossible to argue on welfare grounds that minimum wage levels in PNG are excessively high. Any discussion or deliberation on minimum wage levels has to be about and around real levels, not nominal levels.

WAGES AND ECONOMIC GROWTH In comparison to neighbouring Asian countries, PNG’s economic performance after independence to the present has been rather disappointing. In fact, it has been relatively erratic, sluggish, and falls short of its potential. Exceptions were 1992 and 1993 where the real GDP growth rates were 11.8 and 14.4 percent, respectively. This disappointing growth performance is reflected in poor social indicators (Gumoi 2000). High wages are often cited by experts from the World Bank and the International Monetary Fund (IMF) as the major contributing factors to poor economic performance. Hence, as part of the structural adjustment programs, wage cuts together with trade liberalisation, Kina devaluations, and attractive foreign investment are often prescribed to remedy the ills of the PNG economy.

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Some of the common arguments advanced against high wages are that they have not stimulated labour supply but led to rural-urban migration, unemployment, and lawlessness. Further, they have encouraged capital-intensive production, and therefore, unemployment and reduced international competitiveness, and therefore retarded non-mining industries. It has made foreign investment unattractive. Proponents of downward wage adjustment argue that if minimum wages are reduced, the above factors will be reversed and economic performance will be improved. However, proponents of downward wage adjustment do not provide concrete empirical evidence to justify the above detrimental effects of supposed high minimum wage. Moreover, the wages debate in PNG appears to be lop-sided. Concentration seems to be on costs, profit, and production; that is, the cost aspect of wages. The income aspect of wages, which determines the welfare of the work force and its productivity capacity, has been largely ignored. While labour (human capital) is a factor of production, it is very unique in its own right. It cannot be treated as a mere factor of production like land and capital that have no welfare aspect attached to them. Unlike other factors of production, labour needs to be adequately rewarded and its basic needs (food, shelter and health etc) has to be adequately met. Present wage arrangements may have not have fulfilled these obligations. Further productivity reductions and increasing lawlessness may have resulted. The market mechanism is unable to determine a sufficient minimum wage rate that caters for the subsistence needs of workers, so government regulation, principally through the MWB’s, is necessary. Surplus labour in the PNG labour market and an almost stagnant demand is likely to dictate a low price of labour. However, it is rather paradoxical that determination of the minimum wage through intervention in the labour market is considered inadequate from the perspective of welfare and current economic realities. Interventionist minimum wages has to consider in total both the welfare of the workforce as well as the concerns of the employers, in the context of contemporary economic realities. In retrospect, it is arguable that less attention has been afforded to welfare of employees. This may have a detrimental effect on the already low labour productivity levels and hence economic growth because wages are as much the result of labour productivity as they are its cause. Economic growth is largely a function of the quality of human capital – that is, the productive capacity of labour – and not necessarily the cost of such capital. Hence, investment in human capital to increase the productive capacity of the

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work force, and not further reduction of minimum wages, is the logical approach to economic prosperity.

WAGES AND EMPLOYMENT One of the core objectives of government policy is to create employment by various ways and means. Employment refers to a situation where all resources and factors of production are fully utilized. When there is under-utilization of factors of production, this leads to the problem of unemployment (or underemployment?). Unemployment is a serious problem in most developing countries. In PNG the problem is on the increase. The unemployment problem seems to be chronic rather than cyclical, even with economic growth. At any point in time both demand and supply factors influence unemployment levels. Examples of supply side factors are population growth, productive capacities and educational levels while mode of production and relative factor prices are classic example of factors influencing demand for labour by employers. If the focus is on one factor of production, labour, the definition of an unemployed worker as one who is unable to find employment under prevailing economic conditions. A distinction is often made between voluntary and involuntary unemployment. Voluntary unemployment refers to a case where persons who are capable of finding jobs but prefer to remain unemployed perhaps to enable themselves to continue their search for a better paid or more desirable job. Involuntary unemployment occurs when persons who are willing to work at current wage levels are unable to find jobs due to an unfavourable economic climate. Total unemployment can be categorized into: frictional, structural, seasonal and cyclical. Frictional unemployment results from persons moving between jobs due to short run changes in labour market conditions. Structural unemployment is caused by long-run changes in the structure of the economy, which give rise to changes in the demand for labour in particular industries, regions and occupations. Seasonal employment results from lower levels of economic activity that occurs in certain sectors (eg, agriculture) of the economy at particular times of the year. Cyclical unemployment is associated with lack of aggregate demand for labour. Rising unemployment is PNG is a serious concern. According to the 1990 census, although some 60,000 extra people every year are looking for jobs, only about 10,000 are absorbed by the labour market. Therefore, wage cuts are

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commonly advocated to increase the absorptive capacity of the labour market to rectify this anomaly. However, it is argued that wage cuts will not stimulate sufficient employment to clear the existing labour market disequilibrium because wage employment is only a small proportion of total employment. The 1990 census statistics show that formal wage employment is only 14 percent of total employment. A downward adjustment in the hope of creating employment will therefore not affect the majority of the potential labour force that is engaged in non-wage employment. The focus of the current wages debate in relation to employment creation should be on the productive capacity of the work force, and not on wages because that is irrelevant. The role of effective demand in job creation has also been neglected in wages debates in PNG. This is very important, especially in the context of the current economic climate, because external factors have had a major impact on current economic difficulties. Therefore, it is important to create domestic demand stimulus as an added source of economic growth and employment creation. A policy of downward wage adjustment will depress domestic stimulus.

WAGES AND INTERNATIONAL COMPETITIVENESS An open, export-oriented economy such as that of PNGs has to be internationally competitive in manufacturing. This is important because of the extremely competitive nature of trade in manufactured goods. There are wellestablished and efficient countries such as those in Asia, which have a commanding position in the manufacturing trade. PNG has abundant natural resources and has the potential to be internationally competitive in manufacturing. However, this potential is hampered by the continually rising non-wage costs which constitute a large proportion of total costs. These high non-wage costs relate to infrastructure, transport, public utilities, land, insurance and consumption goods. If economic growth, employment creation and international competitiveness are to materialise, urgent attention must be given to reducing non-wage costs. Wage costs are a small component of total costs and therefore should not be the focus of attention of the government. What should be the appropriate minimum wage rate? This is very difficult question to answer. Wage rate (price of labour) is largely a function of productivity levels. However, productivity levels are unknown in PNG.

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The conventional measure of per unit output given a certain amount of labour input is a very crude measure. This is because it is an average measure, per unit output vary across industries, and it assumes that all workers are homogenous (ie, work and think the same). If this is the case, then how does one determine the minimum wage rate if one side of the equation (ie, productivity) is unknown. It is mathematically impossible to equate two sides of an equation, if one side is not known. However, it is possible to argue that if one side of an equation is a question mark, then mathematically and by default the other side is also a question mark. In this respect, the single national minimum wage of K22.96 per week determined by the 1992 MWB is questionable. How can one argue that K22.96 is equal to productivity levels, when productivity levels are not known. The 2001 MWB has also determined a single minimum wage rate of about K60.63 but this rate has not been effected. For purpose of deliberations, it is suggested that the weekly expenditure of an average family in PNG be adopted as the minimum wage rate. Since the 2001 minimum wage has not been effected, the 1992 minimum wage rate of K22.96 per week still applies. However, this is considered too low given rising inflation, devaluation of the Kina, rising cost of living, and the financial crisis. One might argue that the rate that is determined is the minimum beyond which wages are not expected to fall. That the worker, depending on the bargaining strength, actually be paid above the determined minimum rate. However, given the weak bargaining position of unskilled and semi-skilled workers and the common behaviour of a rational employer, the most likely reward for labour will be a rate either equal or very close to the minimum determined rate. Under current economic conditions, this rate is in sufficient to cater for the welfare of the workforce.

WAGE INDEXATION TO THE CPI Given the rising cost of living, rising inflation rate, and the devaluation of Kina, wage indexation to the CPI needs to be considered. This is important because the present policy of deindexation may have negative impacts on the already low levels of productivity brought about by reduced welfare. This should deter industrial unrest. Workers union in PNG are militant and, from past experience, usually get what they want from the government. The government has always had reservations about wage indexation because of the capacity of the economy to pay higher wage bills, especially when inflation follows an upward trend.

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PRODUCTIVITY LEVELS There are no detailed data on labour productivity for PNG. However, it is arguable that our productivity levels are low and that they are lower than those in the neighbouring nations such as Singapore, south Korea, Hong Kong and Taiwan. If this is the case, then there is a very strong need for urgent efforts to be made to improve the levels of labour productivity and performance in PNG. Instead of reducing wages to the level of labour productivity (which is a retrograde step), it is more progressive and fruitful to attempt to raise the level of labour productivity. Increasing labour productivity and performance is the only sure way of promoting economic growth and increasing the living standards of people. If, on the contrary, we go on reducing wages to bring them in line with labour productivity that is already low, then we will be contributing to further declines in productivity. A poorly paid worker with less food, a lower level of education, and less health care will inevitably be even less productive. This fact of life that needs to be recognised in wage determinations. Therefore, instead of arguing for wage cuts, it will be more useful to try to improve levels of labour productivity in PNG. As the 1989 World Bank Report has argued “measures to improve the productivity of labour must be emphasized” and if that is done “the need for a downward adjustment of real wages would be correspondingly less”. Investment in education, training and health are crucial for improving labour productivity. Training builds skills, as well as character, confidence and selfesteem. A labour force that “feels good” about itself produces good results. Newly industrialised countries of South-East Asia, such as Singapore and Taiwan, attest to this fact. These countries began with a poor natural resource base but invested in the health and education of their most important resource – their people. Today, they have a very impressive record of economic growth. Also, it is difficult to institute a productivity-based wages system if productivity levels in PNG are unknown. If such a system was adopted, the most likely result is an underpaid workforce. Further erosion of the already low level of productivity may be a consequence.

CAPACITY OF THE GOVERNMENT TO PAY FOR WAGE BILLS Given that wage employment is insignificant in relation to total employment and that the private sector is also a major employer, the total wage bill to the government, even in the face of the current financial woes, should also be

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insignificant. The important issue of contention here is the return on the government’s investment on human capital (i.e., through increase productivity levels). Benefits to and from the labour should, in the long term, outweigh the cost incurred by the government. In any case, the cost incurred should be considered an investment for the future.

CONCLUSION It has been argued that wage debates and deliberations is PNG have been lopsided. Wage costs may have been given more attention than wage incomes. The result may have been a depressing effect on the already low levels of labour productivity. Faster economic growth, employment creation, and international competitiveness may have been compromised. There is therefore a need for a serious stocktake and change in direction. Investment in the labour force and not further wage cuts is therefore long overdue.

Chapter 9

IMPLICATIONS OF MINIMUM WAGE POLICY INTRODUCTION Wage policy in any developing or developed country is based on its various social and economic circumstances. Its formulation, therefore, obviously poses a challenge before it, especially for a developing country to adopt minimum wage principles. It has greater impact for such a country’s wage regulation, as it occupies a central place in its political and economic decision-making. It’s simply because of inherent concerns and dilemmas resulting its surplus population and imperative to gain economic efficiency without compromising the social wellbeing of its workers. As the discussions in the previous chapters indicate, wage policy in any country may look smooth, but it is not easy to implement, as it is difficult to satisfy all the parties involved. Therefore, this chapter discusses the challenges and implications of wage fixation policy in PNG in its endeavour to come up with one, which can be sustainable to accommodate social justification for its workforce and simultaneously use it as a critical one in general economic development in the country. The twin issues of social equity and economic efficiency have not been easily compatible, as the country’s decision to demonstrate, as it has always been one or the other when coming to grips with the reality of applying wage principles. It analyses the various wages policies since political independence and explains the circumstances and goals of achieving economic development in the form of job creation and distribution of the proceeds to workers.

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THE OBJECTIVES In PNG, governments have been changing priorities during the last three decades to suit mounting internal pressures aimed at maintaining and restoring equity considerations. For the purpose of this chapter, wage policy is generally defined to include all economic, employment relations and social policies aimed at achieving goals with concern to wage outcomes. Hence, this definition also envisages the broad ‘interventionist’ policies of the wage fixation as well as the `deregulated’ labour market, both providing the framework for market forces to operate. However, often wage had been accommodated at an expense of an ever growing demand for a wages policy which would deliver economic efficiency and, therefore, accommodate the surplus labour on suppressed general level of wages. As a matter of fact, this had been the principle but not necessarily the practice, as in most developing countries there has been little parallel with the assumptions as wages have risen at a rate considerably faster than the growth in real national product per capita. Wages paid in PNG or in most developing countries do not tend to resemble productivity and also goes for wide differentials in skill which often exist in apparent defiance of labour market circumstances. The subsequent sections discuss the various wage policies, which were implemented the annually during the last 27 years. As discussed, much of the differences and inconsistencies in wage fixation had tended to be influenced by political, social and institutional set-up, which influence the general level and structure of wages. However, the wage policy concern of the PNG government went through three broad stages in the intervening period. This included social justice and economic stabilsation period followed by partial deregulation and employment, allocate efficiency and economic growth, and finally, inflation and allocative efficiency.

SOCIAL JUSTICE AND ECONOMIC STABILISATION Wage fixation in the pre-independence 1970s was much influenced by two factors: what happened in Australian wage fixation politics and non-economic factors in the country. The introduction of wage indexation in the first 1974 MWB determination coincided with the 1974-75 Australian Wage Case. That policy had an impact on PNG wage fixation when Bill Kelty of the Australian Council of Trade Unions represented the PNG trade unions in 1974 MWB and emphatically advocated for wages to be tied to Consumer Price Index (CPI) (1974 MWB:1). At the same time, as it happened in Australia and despite some opposition from

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employers, the determination cemented the concept of “indexation” into the PNG wage fixation system, which continued until 1992. Further, there was a policy concern of the colonial government on social justice and self-reliance in the country. So, little emphasis was placed on employment creation thereby paving the way for economic growth, despite some pressure from the government and employers, particularly the planters and the miners at that time. In line with the Australian wage fixation order of the day, the decisions of the various MWBs were consistent in moving closer to the concept of a ‘family wage’ and were also steadfast in the use of ‘needs’ as their principle criteria for determining wages. Further, it seemed that the wages were raised at this juncture to prove the value that political independence would make. This focus on social justice was at the expense of promoting the growth of wage employment opportunities (Mannur, 1992:21). However, the colonial government was more concerned in stabilising the status quo of wage fixation rather than disrupting what seemed to be an orderly fashion of wage fixation. One staunch critic of the economic policies of this time argued that the labour market policy of the 1970s and law and order later ‘… created the environment of both urban unemployment and rural-urban migration’ (Levantis, 2000:xi). The complacency shown by the labour market policies never left any avenue for economic development, allowing mainly enclave mining developments in isolated pockets of the country. In the post-independence period 1975-84 the objective of the major wage policy was economic stabilization. It reflected this by consolidating the prevailing status quo of indexation in order not to create industrial chaos through the change in the wage-fixation system. The MWBs also did not want to increase wages as it may cause a loss of investor’s confidence, which would not help economic stability. Again the new indigenous politicians and bureaucrats also didn’t have the courage to make change in the functioning of policy, as they couldn’t anticipate its impact. Even though political and economic management of the country was sound, little proactive insight into policy formulation was done to accommodate the ever, growing rural-urban migration and increasing youth population. It is estimated that an increasing number of people left their rural villages for urban areas. The trend continued and some 2000 to 5000 migrants are added to the urban population of the country’s main city, Port Moresby every year. Out of these only half of them decide to settle as dependents or independently in expanding the every surging squatter settlements. The impact of the wage policy in this period was reflected in the adequate protection of the living standards of minimum wage earners in the early 1970s. In reality, the protection of living standards of wage employees in urban areas

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occurred at the expense of protecting the interest of the self-employed majority (subsistence dwellers) in the villages. The establishment of a two-tier wage system, as was the practice, did not create incentives to stay in the rural areas but, in fact, encouraged rural-urban migration. What also occurred was that the annual MWBs in the 1970s created a labour elite by insulating the wage earners from the effects of inflation (Carrol, 1993:15). Since 1975, the MWBs maintained the wage indexation system as the instruments for the continued achievement of safeguarding the living standards of wage earners. Partial indexation was favoured out of full indexation at a time when world economy was in recession. That, in turn, had a tremendous impact on the PNG`S economy. Although small declines in real value of the incomes of workers were experienced as the MWBs safeguarded the purchasing power of the workers.

PARTIAL DEREGULATION AND EMPLOYMENT The changes in the economy and population of the country greatly influenced the wage policy during 1984-92 as the government emphasised on the growth and employment strategies. The MWBs of this period tried to introduce a degree of flexibility into the wage-fixing system in an attempt to make wages more responsive to economic circumstances. Although still embracing indexation as a major component of wage policy, the 1986 MWB introduced the youth wage deregulating the wages of youth and community groups. The 1986 MWB emphasis on deregulating rural piece rate system, and introduce capacity to pay as criteria, which could be negotiated at a micro level. This allowed the employers to invoke ‘incapacity to pay’ provision when they didn’t want to make wage adjustments. It also allowed the workers to bargain for increase in wages, where capacity to pay was readily available (MWB, 1986). Partial indexation was favoured against full indexation at a time when world economy was in recession. That, in turn, had a tremendous impact on the PNG economy. Small declines in real value of the incomes of workers were experienced as the MWBs safeguarded the purchasing power of the workers. However, the wage determination did little to deter the rate of rural-urban migration, which was increasing year after year. The various Boards did acknowledge the need to reduce rural-urban migration through the narrowing of the gap between rural-urban wage differentials, but they made no progress. There was a little attempt in reconciling the economic realities in the rural sector with the social realities in the urban sector. Whatever the changes, they were not

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extensive enough in these attempts, as in 1992 MWB embarked on a major structural change policy. What actually occurred was shaping and consolidations of labour elite that emerged in the pre-independence period and continued thereafter. According to McGavin (1991) the economy remained insulated from the effects of economic upheavals. For instance it was evident by the fact that an urban minimum wage earner would have received five times the amount in real terms in the late 1980s. The continued maintenance of the index based wage system, reinforced through successive MWBs, was done despite stiff opposition particularly from the agricultural employers (Carrol, 1993:34). Unlike the minimum wage determination in the 1970s, the wage decisions of the 1980 Boards reflected economic realities of both the local and international economy and its impact on employment levels and social situations. There was only little change to the wage determination status quo until the 1986 MWB that brought flexibility to setting the minimum wages.

ALLOCATIVE EFFICIENCY AND ECONOMIC GROWTH One wage policy that had an enormous impact on the PNG’s economy emerged out of the 1992 MWB determination. This notable determination suddenly and radically shifted away from the long cherished order of the centralised wage fixation. It favoured accelerated economic growth and creation of employment opportunities to ensure efficiency in the economy. It unified urban and rural minimum wages through a significant reduction in urban minimum wages for new employees and introduced a national youth rate, set at 75 per cent of the adult minimum. The 1992 determination aimed to increase employment and investment levels and discourage rural-urban migration. The concerns that had been raised by employers and industrial organisations in the agricultural sector were largely accommodated by this wage policy. The expected impact of downward pressure on the wage expectation of unskilled labourers was anticipated to reduce the price of labour in the commodity industry and encourage more people to seek employment in industries, such as coffee production and marketing. The Board recognised that the decision was deregulation of the wage system and “observed that deregulation of wages effectively means that wage rates are determined by market forces” (MWB, 1992:68). Pay increases above the minimum wage for labourers and actual rates for all other classifications were to be negotiated between employers and employees or their representatives, based on productivity and capacity to pay.

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It seemed that the Board finally succumbed to the advisors and commentators, including neo-classical economists, who have, over the years, advised the government of the disadvantage of an indexed wage system and mentioned high wages and centralised wages as being the major constraints in the economy. They all commonly held that particularly urban wages were much higher than productivity warranted (Colclough and Daniel, 1982, Garnaut and Baxter, 1983; the Goodman Report, 1985; IMF Report, 1988; World Bank Reports, 1988 and 1999). Further, these sentiments and some leading politicians’ envy of Asian labour policies, coupled with an unprecedented population growth and exacerbated unemployment problem and unprecedented law and order problems, adversely affected any likelihood of new investment. However, the collapse of the giant Bougainville Copper Mine in 1989, resulting out of a landowner rebellion with the Australian operator, had also an adverse impact on the PNG’s economy. This was evident, as in much of the 1980s the mine provided 6-8 per cent of GDP, 35 per cent of export receipts and 12 per cent of government budget revenue and, above all, the closure resulted the country’s loss of 15 per cent trade in the year (Imbun, 1999:26). These political and economic circumstances made it extremely essential for the new imposing wage policy. The new wage policy was welcomed by the government and employers. However it created a lot of controversy, mainly from the workers and the trade union fraternity in PNG, which reflected three main factors. The first concern was expressed in the context of the plight of existing minimum wage earners to survive economically and maintain their position in an already expensive society. Second, new benefits of a lower wage policy for the thousands of jobless youths and others flooding small labour market offering few job opportunities were emphasized. Finally, the long history of wages indexed to CPI increases allowed unions and their members to view method of wage fixation as the most favourable and fair when considering increases in the cost of living (Imbun, 1994). This apprehension looked reasonable, as it should be evident from Table 9, which shows the history of MWB determinations in maintaining a consistent trend in safeguarding the living standards of wage earners. For the greater part of the country’s existence, it had so far relied on the Australian-style centralised wage fixation system where CPI indexation became the determining central cornerstone for both rural and urban wage setting. It can also be seen from Table 9 that there was a gradual increase in the nominal wages from as early as 1973. This trend continued thereafter throughout, in the determination of rural and urban wages. The method of wage fixation was consistently critiqued by employers and commentators, who also saw the continuation of “an inflexible wage policy that inhibits economic growth and had been set in place” (McGavin, 1991:38;

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Levantis, 2000). It was only in the 1992 MWB determination that the wage fixation system was deregulated to accommodate for productivity-based wage, thereby achieving the established CPI wage system. In fact, there was much cause for apprehensions as despite the wellentrenched indexed wage policy over the years, only reasonable economic growth was achieved after independence till the eighties. An average of 12% in GDP was recorded in the 1970s to the early 80s, but in the subsequent years a gradual drop in private sector employment followed, which was offset by the growth in public sector employment. It was felt that the country could do more in provision of employment to its bulging youth population and minimise the rapid migration from rural to urban areas. Despite the backlash from workers and trade unions, the 1992 deregulation of wage fixation policy became operational soon after. Table 9.1. History of Minimum Wages as Determined by Boards Year of MWB Sitting

Wages Policy Option

1972

‘Needs’ Basis

(Nominal) Wages Determination Weekly – Urban & Rural $11.50 $5.90

1973 1974 1975

‘Needs” Basis Indexation (annual) Indexation (six monthly)

$13.80 $5.90 $20 $8 $25.80 $8.90

1976

Indexation (annual)

K27.18 K9.43

1977

Indexation (six monthly)

K28.03 K10.23

1980

Indexation (six monthly)

K34.84 K13

1983

K41.51 K15.48

1989

Partial Indexation (annual) Partial Indexation (annual) Indexation (annual)

1992

Deregulation

K22.96 K16.98

2000

Deregulation

K60.42 (all locations)

1986

K47.74 K17.76 K52.30 K19.50

Sources: Modified Table from McGavin, 1991:39, Colclough and Daniel, 1982:39 and others.

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ALLOCATIVE EFFICIENCY AND INFLATION CONTROL The next wage policy of PNG emerged from the 2000 MWBs decision that adhered to the previous policy of maintaining a deregulated labour market, whilst being proactive and sensitive to wages of workers in a situation of hyper inflation. The Board was of the impression that the period between 1992 and 2000 was fraught with economic decay coupled with natural disasters. A realistic and functioning wage policy in this situation was to acknowledge the prevailing social and economic situation to safeguard workers’ welfare. The Board, therefore, maintained the prevailing status quo, and attempted to restore some degree of balance and fairness in areas where the conditions of the labour force appeared to have been deteriorating over the last nine years. Simultaneously, it recognised the importance of a balance between fairness to the labour force, and the need for profitability in business through survival, profitability and to ensure a strong stable and growing economy. It was particularly concerned with the inflation of the above 15% per annum that became the order of the day for the last three years. Workers in the urban areas were the worst affected as their purchasing power had lost its power, as most of the basic consumer items were imported. The Board embraced the existing deregulated wage system that would allow for the effective allocation of labour and wages on the basis of productivity and demand for labour. However, it also acknowledged the early stages of development and therefore the need for general level of wages to be held down by the labour surplus. Further, it also saw the possibility of average real wage rising less than productivity and profit rising faster than wages. Most importantly, they were of the view that wages for skilled and unskilled labour were not be kept close to the ‘subsistence’ level. The understanding was on the basis that inflation and wage differentials for the professional skills were to be wide, affecting the standard of living in that strata of the workforce. The wage policy of allocative efficiency and inflation control is to facilitate the rapid growth of wage-earning employment. This itself requires high investment rates. But living standards are also envisaged to rise. A program of progressive and visible material advance is desirable to secure the co-operation of unions and popular organisations in development plans. That would allow for skill and responsibility to clearly and systematically dominate the structure of wage differences. The facilitation of the conditions for an efficient free labour market would be encouraged with a view to bring in investment and promotion of employment opportunities. It seems likely that this wages policy would be suitable to both the needs of economic and social growth.

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WAGE POLICY FRAMEWORK The PNG case demonstrates that governments in economically developing countries have a more demanding role to play in responding to the whims of economic development without loosing sight of social equity. Turner (1969) made several notable observations on the dilemma of wage fixing in developing countries and few of those could be stated, as they would exist as ‘guides’ for further wage determination not only in PNG but also in similar developing countries. First is to find the extend to which a government can intervene in order to ensure that wage levels and wage structure harmonise as far as possible with sustainable development policies and social objectives. This is to ensure that the prevention of exploitation of workers who are new to the industrial order in order to achieve a reasonable degree of social equality. However, one of the cruxes of wage fixation is the method of regulation, which may take a variety of forms ranging from organised arbitration tribunals or wages boards to tripartite wages councils. Whatever avenues utilised the major stakeholders in the employment relations such as workers and their organisations, employers and government each have an equal participation in the shaping of wages policy. In the PNG case, the wage fixation structure is there and it has continues to maintain a pluralistic approach in the composition of the membership which reflects the determination of wage policies. Second, whatever the form that public intervention in wage determination takes, it is essential that a regular and normally operating mechanism should take its cause, which therefore can be anticipated by workers and employers. The point is government cannot be seen to be intervening in wage settlements on an ad hoc basis, in an arbitrary response to immediate political or industrial pressures, which could result in invariably disrupting any normal system of industrial partnership. Further, whatever the determinations that are being made by a wage fixation body, the decision should be endorsed by the government rather than bowing down to blackmail and other pressures as the PNG experience demonstrates. Moreover, in determination of minimum wages the stakeholders’ information of wages in relevance to their particular worker places are appreciated, wage settlement bodies should also provide room for views of small but growing body of independent expert opinion in developing countries which is concerned with the interests and needs of the economy and people as a whole. Such opinions take a broad view of the main lines of sound and sustainable development and it is the responsibility of such developing countries to take advantage of such expert information in order to arrive at a viable wages policy.

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Fourth, although the practice of public wage fixation may continue to take a centralised character, there is still a need for a working partnership between management and workers at their respective workplaces. This should not be seen as a provision for representative participation in the mechanism of fixing ‘recommended’ wages but also the development of a respectable area of collective negotiation. The point is that every work organisation is unique in its production and capacity to pay and therefore only a mutual working relationship between management and workers can yield a sustainable wage taking into consideration of those concerns. Next, another policy implication in the area of wage fixation is the need for public labour relations service. In acknowledgement of the significance of developing normal relationships between workers and management, it seems essential that the functions of the public labour service should be considerably extended beyond those of inspection and legal enforcement. It should allow for people who are trained and had experience in wider knowledge of modern employment relationship, and also of labour problems of economic and social development. Such people should be able to conciliate in areas of wage dispute settlement apart from inspection. These people should be utilised in areas of local administration where assistance and advice can be sought to develop systematic collective relationships between workers and employers in the individual workplaces. Sixth, wages policy should endeavour to expand employment and influence rise of living standards, however such developments depend on faster investment, consumption should rise less later. That is the growth of consumption must be related to the need for a modern internal market to develop so that an equitable balance can be sustained between wage earners, informal wage earners and others. There is need for a sensible minimum wage policy for an effective wage for unskilled and first time inducted labour and importance for increase the quantity of that mode of labour in employing industries. There arises three implications for such a policy and first is that there shall be no discrimination against wage earners in material terms in order to have wider appeal and second the application of such policies should not obstruct the principle of ‘freedom of association’ of workers. Further, governments should endeavour to support an effective central guidance of wage policy, which would meet immediate urgencies of social and economic development and on the other hand, effectively promote the ultimate development of genuine workplace collective bargaining. Finally, minimum wages should be determined in the light of objective criteria with the utilisation of a body of adequate and reliable statistical material and other factual information at the disposal of the wage fixation authorities. The

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PNG case demonstrates that a lack of relevant information can lead to misinformation, which can bring about one-sided advocating of wage bargain. It is therefore highly desirable that the available material should permit those concerned with wage policy to follow (a) the levels of actual living standards, (b) the trend of retail prices for the goods commonly consumed by wage earners, (c) the evolution and structure of wages (including both wage-rates and actual earnings), (d) the trend, structure, and distribution of employment, as well as the extent and tendency of unemployment and underemployment.

CONCLUSION This chapter discussed the concerns and issues inherent in wage fixation in PNG. Apparent from the discussion is its attempt to have viable wage policies, which would deliver both equity and sustainable economic development. The experiences arguably tend to illustrate that there has been little economic development that hardly had any impact from the implementation of the new wages policies. In fact, this seems to be the sad reality as the country’s economy of scale and other parameters of economic development are limited or some of the major enterprises struggle in precarious natural, economic and political environment. Despite the inevitable circumstances in the restriction of the operation of various wages policies PNG has adopted over years, the country has acknowledged the significance of equity and economic efficiency as crucial ingredients for wage fixation. The wage policies have therefore advocated for both concepts to be included in mainstream economic development. However, the PNG experience does provide lessons for dealing with the issues of unemployment, inflation and economic sustainability in the context of wage policies for other similar developing countries. Above all, to have a popular wage policy, the administrative wage fixation framework should have a pluralistic approach in shaping wage policy determined in the light of objective criteria with the availability of body of adequate and reliable statistical material and other factual information.

Chapter 10

CONCLUSION PNG seems to have had a dynamic history of minimum wage determination for a developing country. Partly because of the Australian colonial legacy of a centralized wage fixation system, minimum wage policies had tended to be an outcome of pluralistic process of determination. However, apparent from the discussion was the country’s attempt to have viable wage policies, which would deliver both equity and sustainable economic development. The experiences arguably tend to illustrate that there has been little economic development that hardly had any impact from the implementation of the new wages policies. In fact, this seems to be the sad reality as the country’s economy of scale and other parameters of economic development are limited or some of the major enterprises struggle in precarious natural, economic and political environment. Despite the inevitable circumstances in the restriction of the operation of various wages policies PNG has had adopted over years, it has acknowledged the significance of equity and economic efficiency as crucial ingredients for wage fixation. The wage policies have therefore advocated for both concepts to be included in mainstream economic development. Generally, the PNG experience does provide lessons for dealing with the issues of unemployment, inflation and economic sustainability in the context of wage policies for other similar developing countries. The policies developed and implemented in Papua New Guinea have been typical of any developing country. The magnitude and scope of the problems that influence the country in its determination of wage policy may differ, although the dilemmas in application of economic and social principles in wage determination are relatively the same for developing countries. The PNG case demonstrates that in order to have a popular wage policy, the administrative wage fixation framework should have a pluralistic

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approach in shaping wage policy determined in the light of objective criteria with the availability of body of adequate and reliable statistical material and other factual information. Equally significant, the PNG experience also demonstrates that there are a myriad of problems inherent in wage policy. But it is the ability to balance the desire for economic growth to ensure social equity that posse a challenge. Apparently, one of the challenges faced by PNG, which also resonates for other developing countries is the pressure on the government to undertake general responsibility for social and economic planning which has become greater in the context of wage fixation. To achieve economic growth does not itself guarantee proliferation of employment opportunities for its ever-growing population. The country seems to suffer widespread underemployment of the working population and often mass urban unemployment as a result of surplus labour. It presents a test for the governments of developing countries to provide solutions to what seem to be an impossible task. The discussion also points out the fact that almost the majority of Papua New Guineans heavily rely on subsistence agriculture and informal activities for their livelihood. This sector is largely unregulated in developing countries as it is constantly fraught with natural fluctuations and uncertainties. This book on wage determination in PNG shows that the power of the government in such social and economic circumstances to guide, stimulate and stablise economic upheaval is very inadequate simply because of the lack of financial resources and human resource expertise. However, for the deregulated labour market to function effectively, PNG needs a coherent approach in shaping and implementation of appropriate supplementary policies to consolidate the current policy framework. What is imperative for the government of PNG is to implement complimentary policies of regular development and maintenance of infrastructure, law and order, amongst others. One of the obvious implications of such approach would that the private sector would utilize the money currently spent on these areas to beef up workers’ wages and create more job opportunities. It is also imperative for the government to define the concept of productivity the current wage regime is build around this concept. Above all, in minimum wage determination there is the dilemma to make the choice between social equity and economic growth in most developing countries. In the case of PNG it seems abandoning CPI indexed wage fixation to allow for a deregulated wage fixation system, based on productivity, does little to keep pace with the multiple of problems in the country. The exercise of choice between a rate of growth, which may provide some employment opportunities for its

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growing population, hardly keeps pace with what’s happening and therefore exposes the economy to the repeated risk of unemployment crises, hyper-inflation or, even in some cases, invite political crisis arising from the mismanagement of the economy. It seems that PNG has made those choices and lived within the impacts of its decision. It is now a question of facing up to such challenges.

REFERENCES Asian Development Bank, 1978. Economic Survey of PNG, Manila. AusAid, 1996. Papua New Guinea Country Report. Canberra. AusAid, 1999. Papua New Guinea Country Report. Canberra. Australian International Development Assistance Bureau, 1989. The Papua New Guinea Country Development, Canberra. AWU Submission to MWB, 2000. Port Moresby. Bank of PNG Quarterly Economic Bulletin, various issues 1989, 1993 and 1999. Bank of Hawaii. 1998. Papua New Guinea Economic Report, Honolulu. Boas, E. 1982. ‘Industrial Development in PNG: the Manufacturing Sector’, in Dahanayake, P.A.S. (ed), Post-Independence Economic Development of Papua New Guinea, IASER, Monograph 19, Boroko. Brogan, B. 1982. ‘The Role of Labour Relations in National Economic Strategy’, in Howe, N. (ed), Industrial Relations: Problems and Prospects, Seminar held at Adcol, Waigani, pp. 24-36. Card, D. and Krueger, A., 1984, ‘Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania’, American Economic Review, vol. 84, pp. 772-793. Card, D. and Krueger, A. B., 1995, Myth and Measurement: The New Economics of the Minimum Wage, Princeton University Press, Princeton. Carroll, S. 1993. The Changing Emphasis of Wage Policy in Papua New Guinea: The Reasons and Underlying Causes, Department of Industrial Relations, University of Sydney. Colclough, C and Daniel, P. 1982. Wage Incomes and Wage Cost in Papua New Guinea, Institute of Development Studies, Sussex. (The) Cochrane Report, (1970), Report of Board of Inquiry Investigating Minimum Wages …, Government Printer, Port Moresby.

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INDEX A academics, 32, 87 access, 8, 12, 56, 72, 94 accessibility, 13 accommodation, 7, 21, 24, 26, 32, 36, 37, 74, 79 achievement, 59, 76, 122 acute, 1, 4, 73 ad hoc, 14, 34, 42, 127 adjustment, 5, 46, 47, 52, 54, 55, 82, 94, 103, 110, 111, 112, 114, 116 administration, 5, 18, 24, 25, 27, 28, 29, 32, 128 administrative, 80, 129, 131 administrators, 18, 21, 22, 28, 31, 45 adults, 24, 34, 55, 83, 104 affiliates, 56, 65, 73 Africa, 4, 31 African continent, 24 age, 7, 52, 54, 67, 69, 77, 87, 92, 103, 105, 137 aggregate demand, 113 agricultural, 3, 18, 32, 35, 39, 54, 56, 57, 66, 68, 79, 81, 87, 88, 89, 91, 94, 97, 123 agricultural commodities, 95 agricultural sector, 3, 35, 39, 54, 66, 68, 91, 94, 123 agriculture, 3, 28, 49, 66, 69, 73, 88, 93, 113, 132

allocative efficiency, 120, 126 alternative, 9, 37, 104 ambivalence, 9 antagonists, 15 anxiety, 93 application, 1, 3, 4, 5, 6, 8, 40, 61, 128, 131 arbitration, 28, 127 Argentina, 2 argument, 7, 8, 9, 11, 12, 14, 15, 37, 69, 71, 77, 100 Asia, 76, 84, 95, 96, 100, 102, 114, 136, 138, 141 Asian, 5, 6, 10, 65, 75, 81, 84, 111, 124, 135 Asian countries, 5, 6, 111 assessment, 92, 103 assimilation, 68 assumptions, 1, 8, 40, 56, 90, 93, 120 attention, 48, 69, 81, 109, 112, 114, 117 Australia, 2, 5, 7, 18, 28, 35, 110, 120, 137 authority, 18, 33 autonomous, 32 availability, 12, 49, 129, 132 avoidance, 41

B backlash, 73, 125 backwardness, 12, 28 balance of payments, 80, 81, 96, 110 banking, 81

144

Index

bankruptcy, 45 bargaining, 6, 25, 26, 27, 40, 42, 106, 111, 115 barriers, 13, 91 basic needs, 2, 48, 53, 69, 71, 96, 102, 110, 112 beef, 132 Belgium, 7 bell, 76 benchmark, 43 benefits, 13, 78, 124 bias, 82 binding, 5 birth, 19, 24 blaming, 97 bonding, 18 bounds, 42 Brazil, 5, 6 breakfast, 101 Britain, 2, 9, 18, 19, 20, 23, 97, 136 British, 2, 18 budget deficit, 80, 81 buffer, 51 bureaucracy, 45 burn, 12 business, 25, 49, 65, 93, 96, 97, 103, 105, 126

C California, 139 Cambodia, 6, 100 Canberra, 135, 136, 138, 139, 140 capacity, 7, 8, 32, 35, 36, 38, 49, 50, 52, 53, 54, 55, 56, 57, 60, 70, 73, 95, 97, 107, 110, 112, 114, 115, 122, 123, 128 Capacity, 49, 56, 70, 117 capital, 8, 29, 49, 66, 81, 90, 91, 98, 105, 112 capital flight, 81 capital intensive, 49, 91, 105 capitalism, 17 Capitalism, 136, 139 case study, 135 category a, 10, 13 Census, 84, 85, 86 Central Bank, 80

centralized, 8, 31, 33, 34, 36, 40, 42, 63, 64, 68, 131 chaos, 59, 72, 73, 121 chaotic, 82 chicken, 101 child rearing, 90 children, 2, 11, 35, 40, 55, 75, 96 Chile, 5, 137 China, 5, 139 chronic, 18, 113 citizens, 2, 8 classical, 8, 10, 124 classical economics, 8, 10 classification, 4, 40, 73, 76, 86 closure, 65, 98, 124 clothing, 6, 36, 66, 96 clothing industry, 6 Cochrane, 32, 33, 34, 35, 36, 135 cocoa, 49, 88 coffee, 49, 56, 68, 88, 97, 123 collective bargaining, 3, 25, 27, 34, 55, 70, 95, 97, 106, 128 colonial, 2, 17, 18, 19, 20, 21, 22, 24, 25, 27, 28, 29, 31, 32, 42, 45, 111, 121, 131 colonial rule, 45 combat, 2 commercial, 18, 49, 68 commodities, 95 commodity, 63, 65, 66, 73, 80, 81, 123 common rule, 22, 24, 26, 31, 34 community, 32, 41, 50, 60, 65, 73, 122 competition, 87, 110 competitiveness, 4, 10, 68, 91, 97, 102, 109, 112, 114, 117 competitor, 68 complexity, 5, 80 compliance, 11 composition, 10, 13, 20, 33, 54, 127 concentrates, 17 conciliation, 27 concrete, 112 confidence, 13, 49, 59, 81, 96, 98, 116, 121 confrontation, 74 consensus, 26 consolidation, 59, 104, 106

145

Index constraints, 3, 19, 64, 91, 124 construction, 90 consultants, 63 consumer goods, 37 Consumer Price Index, 38, 88, 120 consumption, 17, 98, 99, 114, 128 continuing, 65 continuity, 15 contracts, 25 control, 56, 67, 81, 126 controlled, 21 conversion, 69 conviction, 12 correlation coefficient, 90 cost of living, 2, 3, 8, 37, 38, 39, 55, 56, 68, 69, 73, 77, 78, 96, 97, 103, 107, 110, 111, 115, 124 Costa Rica, 6 costs, 1, 12, 14, 37, 50, 53, 56, 68, 75, 77, 96, 97, 98, 99, 102, 107, 109, 110, 112, 114, 117 courts, 25 coverage, 4, 5, 6, 56 covering, 26, 99 CPI, 38, 39, 40, 46, 47, 48, 51, 52, 54, 55, 56, 58, 60, 70, 71, 73, 78, 95, 96, 115, 120, 124, 132 credibility, 34, 82 crime, 99 criminal activity, 86 critical analysis, 138 criticism, 10, 22 crops, 17, 39, 49 cross-country, 110 cultivation, 49 cultural, 27, 87 currency, 69, 80

deficit, 81 definition, 113, 120 degree, 5, 6, 60, 93, 102, 122, 126, 127 demand, 4, 6, 9, 11, 15, 55, 58, 70, 81, 83, 90, 97, 104, 112, 113, 114, 120, 126 Denmark, 6 depreciation, 97, 98 depression, 3, 49 deregulation, 4, 70, 72, 74, 77, 78, 79, 83, 84, 85, 87, 88, 91, 96, 98, 100, 102, 103, 106, 120, 123, 125, 138 desertion, 19 desire, 10, 48, 132 devaluation, 81, 102, 111, 115 developing countries, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 36, 45, 63, 96, 113, 120, 127, 129, 131, 132, 138, 140 Development Assistance, 135 development policy, 41, 50 diet, 12 disaster, 10 discrimination, 69, 74, 128 disequilibrium, 114 dislocations, 35 disputes, 27, 128 dissenting opinion, 40 distribution, 10, 14, 58, 98, 100, 119, 129 diversity, 15 dividends, 74 domestic demand, 114 domestic economy, 94, 96, 102 domestic investment, 98 donor, 80, 81 drought, 81, 93 duration, 11 duties, 20, 80, 81

E D decay, 126 decision making, 80 decisions, 33, 35, 36, 40, 41, 50, 55, 56, 59, 61, 64, 71, 103, 106, 121, 123 deficiency, 105

earnings, 13, 14, 51, 56, 68, 79, 85, 87, 129 East Asia, 100, 110, 116 economic activity, 3, 81, 85, 113 economic change, 107 economic crisis, 10, 81

146

Index

economic development, 5, 6, 24, 36, 77, 119, 121, 127, 128, 129, 131 economic efficiency, 109, 119, 120, 129, 131 economic growth, 2, 47, 50, 51, 58, 63, 65, 69, 79, 84, 96, 97, 103, 107, 109, 112, 113, 114, 116, 117, 120, 121, 123, 124, 125, 132 economic hardships, 97 economic performance, 7, 71, 111, 112 economic policy, 14 economic stability, 59, 79, 121 economic sustainability, 129, 131 economic welfare, 43 economies, 9, 10, 56, 68 education, 74, 91, 96, 105, 116 efficacy, 27 employees, 22, 24, 25, 36, 37, 42, 47, 50, 58, 69, 70, 73, 76, 95, 96, 112, 121, 123 employers, 1, 3, 5, 8, 9, 10, 11, 12, 14, 15, 22, 25, 26, 27, 29, 34, 35, 36, 37, 39, 46, 48, 49, 52, 53, 54, 55, 56, 58, 60, 64, 65, 68, 69, 70, 73, 74, 76, 77, 78, 82, 91, 93, 94, 95, 97, 98, 102, 103, 104, 105, 106, 107, 112, 113, 121, 122, 123, 124, 127, 128 employment growth, 56, 83, 85, 91, 98 employment relationship, 3, 128 encouragement, 52, 87 endogenous, 79 enterprise, 6, 8, 19, 25, 70, 97 environment, 34, 35, 42, 49, 65, 70, 80, 82, 105, 106, 107, 121, 129, 131 equality, 11, 14, 100, 107, 127 equipment, 38, 91 equity, 39, 40, 42, 68, 71, 74, 96, 119, 120, 127, 129, 131, 132 erosion, 116 European, 18, 19, 21 evening, 101 evidence, 10, 13, 15, 52, 56, 68, 91, 100, 112, 136, 138 evolution, 129 excess demand, 80 exchange rate, 10, 81, 110 exercise, 1, 132 exogenous, 79 expert, 67, 127

expertise, 34, 132 experts, 68, 111 exploitation, 2, 4, 7, 18, 21, 24, 74, 127 exports, 66, 81, 88, 89, 90, 92, 95 extraction, 83

F failure, 77, 105 fairness, 14, 93, 102, 126 false, 77 family, 24, 35, 36, 40, 52, 55, 56, 73, 100, 101, 115, 121 farm, 2 farmers, 18, 20, 97 farming, 49 fast food, 135 fear, 71, 74, 77, 102 fees, 80, 81, 102 females, 87, 90, 106 Fiji, 18, 99 financial crisis, 10, 111, 115 financial loss, 49 financial resources, 132 Finland, 6 firms, 6, 11, 40, 60, 73, 82, 91, 94 fiscal deficit, 80 fiscal policy, 139 fisheries, 53 fixation, 5, 8, 9, 15, 17, 22, 25, 29, 31, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 46, 48, 51, 52, 54, 58, 59, 61, 63, 64, 68, 69, 71, 78, 82, 84, 88, 91, 93, 95, 97, 104, 107, 109, 110, 119, 120, 121, 123, 124, 125, 127, 128, 129, 131, 132, 137 flexibility, 25, 33, 42, 51, 54, 59, 60, 61, 70, 82, 105, 122, 123, 138 floating, 80, 81 flooding, 67, 78, 124 flow, 21, 23, 35, 106 fluctuations, 132 food, 17, 18, 24, 36, 37, 67, 71, 90, 96, 101, 102, 112, 116 foreign investment, 5, 64, 111, 112 forestry, 53, 56, 66, 81, 88, 89

147

Index formal sector, 9, 57, 85, 87, 98, 110 France, 5, 7 freedom, 21, 128 fuel, 37 funding, 65, 80, 81 funds, 49

G GDP, 80, 90, 96, 98, 111, 124, 125, 140 general election, 71 generation, 85 Geneva, 77, 137, 138 Germany, 6 goals, 41, 65, 71, 91, 119, 120 goods and services, 9, 14, 58 government, 1, 2, 3, 4, 5, 6, 7, 12, 13, 14, 15, 22, 27, 29, 31, 32, 33, 39, 41, 42, 45, 46, 51, 52, 53, 54, 58, 63, 65, 68, 69, 71, 77, 80, 81, 82, 83, 90, 93, 95, 97, 98, 102, 104, 107, 109, 110, 111, 112, 113, 114, 115, 117, 120, 121, 122, 124, 127, 128, 132 government budget, 124 government policy, 113 Great Depression, 2 grouping, 7 groups, 3, 7, 11, 25, 27, 47, 48, 49, 50, 53, 54, 60, 70, 122 growth, 12, 22, 35, 52, 53, 58, 60, 67, 80, 81, 86, 91, 92, 94, 95, 96, 97, 103, 107, 111, 112, 120, 121, 122, 125, 126, 128, 132, 140 growth rate, 111 guidance, 82, 128 guidelines, 5, 32, 33, 41, 47, 71 Guinea, 19, 20, 21, 23, 25, 136, 137, 139 Guineans, 28

H harm, 77 harmony, 77 Hawaii, 83, 135 head, 76, 99 health, 20, 80, 81, 96, 105, 112, 116

health services, 80, 81, 116 height, 10 highlands, 22 hiring, 22 homogenous, 115 Hong Kong, 69, 116, 138 host, 6, 45, 56, 68, 80, 87 household, 10, 13, 52, 74 human, 14, 53, 112, 117, 132 human capital, 112, 117 Human Development Report, 99, 141 human resource development, 14

I ILO, 3, 10, 36, 48, 77, 138 imbalances, 3, 110 IMF, 64, 76, 111, 124 implementation, 3, 32, 47, 72, 75, 82, 94, 104, 129, 131, 132 imports, 9, 50, 53, 81, 96 in transition, 140 INA, 139 inactive, 105 incentives, 12, 41, 49, 55, 56, 57, 58, 91, 122 incidence, 46, 100 inclusion, 35 income, 2, 7, 11, 12, 22, 53, 65, 68, 71, 74, 87, 99, 100, 101, 102, 103, 110, 112 income distribution, 65 income inequality, 100, 102 income support, 87 incomes, 9, 11, 41, 52, 59, 100, 109, 117, 122 independence, 22, 28, 31, 34, 42, 43, 45, 59, 63, 64, 78, 82, 111, 119, 120, 121, 123, 125 indexing, 54 India, 68, 69 Indian, 137 indication, 96, 106 indicators, 6 indigenous, 2, 17, 19, 23, 28, 39, 40, 45, 111, 121, 141 Indonesia, 5, 68, 69, 99, 100

148

Index

industrial, 14, 17, 24, 25, 26, 27, 28, 29, 31, 32, 34, 41, 42, 59, 65, 68, 71, 72, 73, 74, 77, 78, 99, 106, 115, 121, 123, 127 industrial relations, 17, 24, 25, 26, 27, 28, 29, 31, 32, 34, 41, 42, 65, 77, 78, 106 industrial sectors, 68 industrialisation, 39 industry, 4, 6, 7, 10, 28, 37, 49, 50, 53, 56, 57, 66, 85, 102, 105, 106, 123, 135 inefficiency, 28 inequality, 10, 13, 15, 25, 96, 99, 100, 102 inequity, 58 inflation, 37, 41, 46, 48, 51, 54, 87, 93, 94, 103, 107, 111, 115, 120, 122, 126, 129, 131, 133 informal sector, 7, 8, 11, 13, 66 infrastructure, 18, 29, 45, 57, 91, 97, 114, 132 inherited, 18, 63, 110 inhuman, 74 injection, 46 insight, 121 institutions, 24, 25, 77, 128 instruments, 122 insulation, 48 insurance, 114 interest groups, 33 interest rates, 81 international, 31, 37, 54, 59, 68, 80, 94, 102, 109, 112, 114, 117, 123 International Labour Office, 69, 137, 138 International Labour Organisation, 3 International Monetary Fund, 93, 111, 137 intervention, 4, 109, 110, 112, 127 interview, 27 investment, 4, 5, 8, 12, 14, 37, 49, 50, 52, 65, 76, 79, 90, 91, 92, 94, 95, 97, 98, 102, 103, 112, 117, 123, 124, 126, 128 investment rate, 126 investors, 49, 54, 81, 82, 90, 95 involuntary unemployment, 113 Ireland, 18, 19, 20, 23 Islam, 138 island, 18

J January, 21, 76 Japan, 5, 6 Japanese, 21 job creation, 4, 56, 57, 81, 85, 114, 119 job loss, 39, 53 jobless, 13, 78, 124 jobs, 6, 7, 11, 13, 28, 51, 52, 57, 73, 74, 75, 84, 87, 98, 99, 113 jurisdiction, 5, 11 justice, 42, 78, 121 justification, 40, 119

K Keynesian, 9 King, 80, 81, 138 Korea, 68, 69, 116

L labor, 21 llabour force, 18, 29, 66, 74, 77, 86, 93, 102, 114, 116, 117, 126 labour market, 1, 3, 4, 5, 6, 7, 8, 11, 13, 15, 33, 39, 52, 54, 57, 63, 65, 67, 70, 78, 79, 82, 83, 85, 86, 87, 92, 94, 96, 98, 100, 104, 105, 109, 110, 112, 113, 114, 120, 121, 124, 126, 132, 138 labour market policy, 3, 121 Labour Party, 38 labour surplus, 126 land, 11, 49, 56, 91, 112, 114 large-scale, 91 Latin America, 5, 138 law, 2, 3, 25, 27, 52, 54, 56, 64, 65, 77, 91, 97, 99, 105, 121, 124, 132 lead, 9, 14, 63, 64, 90, 96, 129 leadership, 45 legality, 33 legislation, 3, 4, 9, 11, 27 legislative, 4 likelihood, 33, 124

149

Index limitations, 137 linkage, 12 links, 99 liquidity, 81 literacy, 27 literature, livestock, 39 living conditions, 12, 77, 110 living standard, 2, 32, 41, 42, 47, 50, 52, 53, 58, 59, 67, 73, 74, 107, 116, 121, 122, 124, 126, 128, 129 living standards, 2, 32, 41, 42, 47, 50, 52, 53, 58, 59, 67, 73, 74, 107, 116, 121, 122, 124, 126, 128, 129 loans, 80 location, 73, 76, 103 logging, 80, 81, 89 London, 136 long-term, 91 Los Angeles, 139

M machinery, 3, 32, 77, 78 macroeconomic, 10, 81, 82 macroeconomic environment, 81 main line, 127 mainstream, 129, 131 maintenance, 10, 97, 123, 132 malaise, 53 Malaysia, 4, 18, 68, 69, 99 males, 86, 105 management, 14, 27, 47, 51, 53, 79, 82, 121, 128 manufactured goods, 114 manufacturing, 3, 10, 66, 84, 91, 106, 114 market, 1, 5, 8, 9, 13, 17, 21, 50, 54, 55, 57, 70, 79, 82, 84, 85, 87, 90, 92, 97, 112, 114, 120, 121, 123, 128, 138 market economy, 17 market period, 85 market prices, 50 market structure, 85 marketing, 123 Massachusetts, 2

meals, 101 measures, 18, 58, 80, 81, 86, 87, 91, 116 media, 71, 72, 76, 103 membership, 127 men, 34 messengers, 40 Mexico, 6, 11 migrants, 121 migration, 33, 35, 41, 49, 56, 59, 112, 121, 122, 123, 125 militant, 115 mines, 17, 18, 20, 21, 29 minimum price, 110 mining, 18, 46, 49, 57, 66, 90, 105, 112, 121 minority, 39, 58 misconceptions, 109 misleading, 110 misunderstanding, 76 models, 105 momentum, 34 money, 17, 18, 21, 29, 75, 100, 132 motivation, 12, 21, 105 movement, 72, 73, 76, 77, 106 muscle, 71

N national, 5, 6, 8, 12, 28, 32, 33, 34, 41, 42, 45, 46, 66, 76, 86, 94, 95, 96, 97, 100, 103, 104, 115, 120, 123, 136 national income, 100 national product, 120 nationalism, 42 natural, 76, 80, 83, 93, 114, 116, 126, 129, 131, 132 natural disasters, 80, 83, 93, 126 natural resources, 114 negotiation, 26, 28, 69, 73, 76, 106, 128 Netherlands, 7, 10 network, 52 New Jersey, 135 New York, 137, 141 New Zealand, 2, 7 Niger, 11 Nigeria, 68, 69

150

Index

non-citizen, 49 non-citizens, 49 normal, 7, 127, 128 Norway, 7 nucleus, 52

O objective criteria, 128, 129, 132 obligation, 13, 25 obligations, 27, 112 observations, 53, 84, 97, 98, 127 oil, 45, 68 open market operations, 81 openness, 45 operator, 64, 124 opposition, 7, 25, 39, 64, 72, 120, 123 optimism, 91 oral, 65 organization, 12, 93 organizations, 12, 54, 106 orthodox, 9 overseas investment, 77 ownership, 49

P PA, 55, 140 Pacific, 84, 95, 96, 99, 100, 102, 136, 137, 138 palm oil, 88 paper, 72, 75, 109 Paper, 137, 138, 139, 140 Papua New Guinea, 17, 23, 31, 32, 35, 42, 50, 51, 53, 57, 63, 65, 67, 75, 87, 111, 131, 132, 135, 136, 137, 138, 139, 140, 141 paradoxical, 110, 112 partnership, 127, 128 paternalism, 20 penalties, 22 penalty, 24 Pennsylvania, 135 per capita, 120 perception, 49, 94

performance, 6, 57, 58, 66, 79, 80, 82, 102, 111, 116 permit, 27, 129 personal, 76 petroleum, 66, 79, 90, 95 Philippines, 6, 68, 69, 99 physiological, 36 planning, 132 play, 21, 29, 72, 127 pluralistic, 5, 33, 127, 129, 131 pluralistic approach, 127, 129, 132 policy makers, 8, 42 policymaking, 1 political, 5, 8, 24, 31, 34, 36, 42, 45, 64, 78, 79, 80, 82, 107, 109, 119, 120, 121, 124, 127, 129, 131, 133 political crisis, 133 politicians, 8, 39, 65, 121, 124 politics, 43, 109, 120 poor, 2, 3, 7, 9, 10, 13, 14, 28, 53, 56, 65, 68, 81, 97, 99, 100, 105, 111, 116 poor performance, 53 population, 1, 6, 11, 15, 33, 41, 53, 58, 63, 64, 67, 85, 86, 88, 99, 100, 107, 109, 113, 119, 121, 122, 124, 125, 132, 133 population growth, 58, 64, 113, 124 Portugal, 7 positive relationship, 90 poverty, 2, 7, 8, 9, 10, 11, 13, 15, 58, 74, 96, 99, 100, 101, 102, 138 power, 9, 25, 33, 40, 42, 68, 72, 80, 95, 103, 111, 126, 132 preference, 4 preparation, 90 preparedness, 42 pressure, 3, 22, 24, 77, 81, 105, 121, 123, 132 prevention, 127 price index, 39, 60 prices, 21, 26, 37, 56, 60, 65, 66, 73, 80, 81, 101, 102, 111, 113, 129 priorities, 64, 120 private, 25, 27, 37, 46, 50, 51, 53, 74, 77, 83, 84, 85, 90, 96, 98, 106, 117, 125, 132 private investment, 90, 98 private property, 25, 27

Index private sector, 27, 46, 50, 51, 53, 77, 83, 84, 85, 96, 98, 106, 117, 125, 132 private sector investment, 51 proactive, 121, 126 procedures, 27, 46, 67 production, 8, 9, 17, 28, 32, 53, 56, 68, 87, 88, 91, 97, 105, 112, 113, 123, 128 production costs, 9, 53 productive capacity, 112, 114 productivity, 7, 8, 10, 11, 12, 14, 24, 39, 40, 42, 50, 51, 56, 57, 64, 68, 70, 73, 77, 84, 91, 95, 97, 98, 105, 106, 110, 112, 114, 115, 116, 117, 120, 123, 124, 125, 126, 132 profession ,6, 7, 87 profit, 28, 33, 37, 74, 112, 126 profitability, 54, 93, 103, 126 profits, 14, 25, 37, 41, 60, 68 program, 64, 81, 126 progressive, 116, 126 proliferation, 132 promote, 11, 14, 15, 24, 25, 27, 97, 128 property, 25 proposition, 99 prosperity, 113 prostitution, 87 protection, 41, 48, 121, 138 protein, 90, 101 PSA, 29, 37 public, 28, 42, 50, 53, 57, 71, 74, 76, 81, 93, 114, 125, 127, 128 public funding, 57 public notice, 76 public sector, 42, 50, 53, 74, 125 public service, 28 punitive, 13 purchasing power, 4, 9, 37, 59, 68, 71, 95, 101, 103, 110, 122, 126 question mark, 115

R radical, 58, 70, 73, 75 range, 41 real terms, 49, 59, 111, 123

151

real wage, 8, 37, 46, 49, 51, 52, 53, 54, 55, 58, 64, 68, 69, 80, 81, 82, 90, 116, 126 reality, 45, 50, 51, 74, 78, 119, 121, 129, 131 recession, 45, 59, 122 reconcile, 48 recovery, 95 reduction, 10, 52, 53, 56, 58, 64, 73, 80, 81, 90, 91, 98, 99, 101, 113, 123, 140 reforms, 76, 82 regional, 3, 5, 74 regular, 87, 127, 132 regulation, 7, 11, 14, 26, 28, 90, 109, 112, 119, 127 regulations, 25 regulators, 7 relationship, 10, 11, 13, 20, 50, 88, 89, 90, 128 relatives, 25 relativity, 47, 49 relevance, 8, 15, 99, 127 repatriation, 36, 37 reproduction, 29 research, 75, 98 reserves, 80, 81 resources, 14, 27, 113 responsibilities, 77 retail, 129 retention, 21 retrenchment, 111 revenue, 80, 81, 124 rice, 99 risk, 133 royalties, 80, 81 rubber, 49, 68 rural, 11, 24, 28, 32, 33, 35, 36, 37, 39, 40, 41, 42, 46, 47, 48, 50, 53, 54, 55, 56, 58, 59, 60, 65, 67, 68, 69, 73, 74, 76, 79, 83, 87, 88, 89, 90, 92, 93, 94, 97, 99, 100, 102, 103, 104, 107, 110, 111, 112, 121, 122, 123, 124, 125 rural areas, 11, 24, 35, 40, 41, 42, 46, 48, 49, 56, 58, 73, 79, 83, 93, 100, 110, 122

152

Index S

safeguard, 2, 3, 126 safety, 20 salary, 33, 72 sales, 14 salt, 21 Samoa, 68, 99 sample, 85, 86, 87 savings, 40 scepticism, 77 school, 102 SE, 100 search, 113 searching, 50, 136 Second World War, 3 security, 67 self-employed, 11, 50, 53, 57, 67, 122 self-employment, 86 self-esteem, 116 self-government, 42 series, 60, 81, 84 services, 3, 14, 38, 50, 53, 57, 71, 87 settlements, 121, 127 shape, 10, 14, 18, 41, 50, 96 shaping, 3, 33, 59, 123, 127, 129, 132 shareholders, 74 shares, 99, 100 shelter, 17, 18, 96, 112 shocks, 45, 81, 93 short run, 113 shortage, 18, 22 short-term, 96 signals, 81 signs, 84, 96 Singapore, 68, 69, 116 skeleton, 48 skills, 27, 70, 87, 116, 126 slavery, 21 slaves, 77 small firms, 82 social, 2, 3, 4, 8, 10, 13, 14, 18, 19, 35, 39, 42, 48, 51, 53, 59, 71, 74, 77, 78, 79, 94, 99, 100, 102, 104, 105, 107, 109, 111, 119,

120, 121, 122, 123, 126, 127, 128, 131, 132, 138 social activities, 107 social development, 77, 128 social indicator, 94, 102, 104, 111 social justice, 4, 10, 39, 42, 120, 121 social problems, 53 social security, 13 social situations, 59, 123 socially, 4, 90, 97, 102, 105, 106 society, 10, 11, 12, 27, 50, 78, 124 sociological, 36 Solomon Islands, 68, 99 solutions, 132 South Africa, 18 South America, 4 South Korea, 3, 5, 6, 68 Spain, 7 speech, 99 spin, 79 spouse, 96 squatter, 121 Sri Lanka, 68, 69, 99, 100 stability, 11, 13, 59, 81, 82, 139 stabilization, 56, 59, 121 stabilize, 59 stages, 45, 59, 120, 126 stagflation, 4, 32, 45, 46 stakeholders, 91, 127 standard of living, 1, 2, 48, 71, 126 standards, 32, 50, 57, 58, 121 statistics, 20, 85, 114 statutes, 29 steel, 21 stimulus, 84, 114 strains, 80 strategies, 60, 122 strength, 40, 104, 115 stress, 33 strikes, 27 structural adjustment, 64, 81, 93, 111 subsidy, 97 subsistence, 17, 18, 19, 21, 48, 50, 53, 74, 111, 112, 122, 126, 132 supervision, 13

153

Index supply, 17, 21, 22, 32, 70, 95, 97, 112, 113 surging, 15, 63, 83, 85, 87, 121 surplus, 80, 81, 109, 119, 120, 132 surprise, 15, 64 survival, 93, 103, 105, 126 suspense, 73 sustainability, 90 sustainable development, 127 Sweden, 6 Switzerland, 77 sympathetic, 25 symptoms, 12 systematic, 128 systems, 24, 29, 36, 97

T Taiwan, 116 tangible, 39 tariff, 97 taxation, 33 taxes, 21, 80, 81 tea, 49, 56, 68, 88, 97 Tea, 56, 101 technology, 28 teenagers, 10 tenure, 22, 49 territory, 42 tertiary education, 80, 81 testimony, x textile, 66 Thai, 10 Thailand, 10, 68, 99 theoretical, 1, 56, 84 theory, 8, 10, 91, 111 threatened, 72 threatening, 45 threshold, 14, 36 timber, 66, 88 time, 1, 3, 5, 6, 11, 14, 18, 20, 21, 24, 25, 28, 33, 38, 45, 47, 48, 49, 51, 59, 64, 66, 71, 73, 81, 85, 93, 94, 103, 104, 106, 107, 111, 113, 120, 121, 122, 128 total costs, 53, 97, 114 total employment, 23, 92, 114, 117

tourism, 67 trade, 2, 5, 21, 24, 25, 26, 27, 28, 29, 40, 51, 64, 72, 76, 93, 104, 107, 111, 114, 120, 124, 125 trade liberalisation, 111 trade union, 2, 5, 24, 25, 26, 27, 28, 29, 40, 51, 64, 72, 93, 104, 107, 120, 124, 125 trading, 50 trading partners, 50 tradition, 13, 26, 28, 33, 34, 48 training, 12, 70, 91, 116 transfer, 100 transformation, 78 transition, 25, 35, 82 transition period, 25 transport, 67, 91, 97, 114 transportation, 96 Treasury, 85, 139 trend, 5, 49, 50, 106, 115, 121, 124, 129 tribunals, 127 turbulent, 64, 85, 92 turnover, 12, 13

U uncertainty, 49 underemployment, 4, 113, 129, 132 UNDP, 99, 100 unemployment, 4, 6, 7, 9, 10, 13, 15, 51, 53, 54, 57, 63, 64, 65, 67, 76, 82, 85, 86, 87, 90, 96, 105, 111, 112, 113, 121, 124, 129, 131, 132, 133 unemployment rate, 86 unfolded, 79, 80 unions, 3, 5, 27, 28, 35, 37, 38, 41, 47, 48, 64, 68, 69, 70, 71, 73, 74, 75, 76, 77, 78, 96, 97, 102, 103, 104, 106, 124, 126 United Nations, 99, 100, 141 United Nations Development Program, 100 United Nations Development Programme, 100 United States, 2, 9 University of Sydney, 135 updating, 56 urban areas, 24, 26, 35, 37, 39, 41, 46, 51, 52, 67, 86, 92, 93, 103, 107, 121, 125, 126

154

Index

urban population, 52, 83, 85, 92, 121 urbanization, 40 Uruguay, 5, 7 US dollar, 103, 110

V Vanuatu, 99, 100 variables, 88 vetoed, 104 Vietnam, 5, 99, 100 village, 21, 25, 28 violence, 99 visible, 126 volatile environment, 97

W wage differentials, 39, 59, 122, 126 wage level, 11, 28, 34, 42, 50, 56, 66, 67, 68, 69, 105, 109, 111, 113, 127 wage rate, 8, 55, 66, 69, 82, 83, 94, 95, 107, 110, 115, 123 Washington, 138 water, 13

weakness, 28 wealth, 58, 94 welfare, 2, 8, 11, 19, 20, 28, 39, 52, 77, 99, 100, 109, 111, 112, 115, 126 well-being, 119 withdrawal, 13, 20 women, 2, 87, 90 wood, 88 workforce, 4, 5, 6, 12, 18, 19, 20, 23, 24, 28, 39, 41, 45, 74, 76, 86, 87, 93, 105, 109, 110, 112, 115, 116, 119, 126 working conditions, 3, 13, 25 working population, 14, 132 workplace, 12, 14, 25, 28, 106, 128 World Bank, 9, 42, 74, 75, 76, 93, 110, 111, 116, 124, 140, 141 World Development Report, 141 World War, 22

Y yield, 128 youth unemployment, 54, 73, 105