The application of the new 20 per cent social allowance for government employees and public sector wages begins in July. Wael Gamal explores its motives and consequences for the economy Six million government public sector employees will see their wages rise by 20 per cent this month as a result of President Mubarak's decision to increase what is called the social allowance just before the budget project entered the People's Assembly for discussion and approval in the first week of June. Initially the allowance was only 15 per cent but after direct instructions from the president it was later increased to 20 per cent. "This is a reaction to sharp price increases over the last few years given the low wages in the public sector. It will be added to the basic salary in 2010 and it is tax free." says Abdel-Fattah El-Gibali, counsellor to the minister of finance. The raise falls under the category of social allowance, which was first applied in 1987 to deal with the deterioration in public sector wages. This time the 20 per cent increase has no maximum limit yet does stipulate a minimum of LE30. The criteria for receiving the allowance includes how inflation has affected one's salary, the rate at which one's wage has increased and one's average spending levels. As a result of this policy, the government will be forced to deal with a macroeconomic impact not befitting its current economic programme. First, the allowance will further decrease taxes in congruence with the new tax law, thus adding an additional LE3 billion to the budget. This of course runs contrary to the government's plans to deal with the swelling public local debt, often considered the most acute problem of the economy. Wages constitute approximately LE45.6 billion a year or about 21 per cent of public spending. The new rise could also have inflationary consequences. Nevertheless, El-Gibali maintains this will not be a serious problem since "three billion is not that much money and it comes in a period of economic depression". The absence of solid ideological and economic foundations for the decision explains why last May, an Economist intelligence unit evaluation of this year's budget, gave a political explanation to the then only 15 per cent wages increases. "The government has little leeway for reducing public spending, which is dominated by public sector wages, subsidies and domestic debt servicing costs. Any move to cut subsidies or reduce the state pay-roll would risk provoking public unrest, something Mr Mubarak is anxious to avoid, given the recent stirrings of political protest." The wage policies of the state over the last two decades confirm this political explanation of the decision. While major parts of the population are wage earners, and wages represent their sole source of income, the state has been pushing down wages. The new liberal agenda of various foreign governments collided with the non- market driven wage setting system. Since 1951, the Law of the Price List of Educational Certificates stipulated a fixed initial salary for each educational certificate and a system of periodic raises according to seniority and level of education, regardless of the position occupied. Basic wages in the government are still being set in this manner. Compensation levels are tied to the hierarchy of job grades, with lower and upper bounds for each grade set according to a unified schedule. Each year the worker is entitled to a periodic increase so long as the resulting wage does not exceed the maximum for the grade. In addition to basic wages, workers can receive allowances for hazardous work, accommodation, and various other aspects of the job. The employing agency can also pay incentives for good performance. This system is still in practice but it is on the verge of change. Also, the state has not been standing still for the last 20 years. While real government wages rose during the boom period of the 1970s and early 1980s, they dropped precipitously thereafter, as the government attempted to bring its finances under control. According to researches, real government wages rose to a peak of 19 per cent above their 1974 level in 1981 but by 1995 they had fallen to nearly 60 per cent of their 1981 level. Since then, real wages have continued to decline because cost-of-living adjustments have been kept well below the inflation rate by agreement with the International Monetary Fund. On the other hand, while public enterprise employment grew 8.7 per cent a year from 1960 to 1966 and 2.9 per cent from 1966 to 1976, data from the Public Enterprise Information Centre suggests that employment grew about five per cent a year from 1974 to 1979. In 1979, the policy allowing public enterprises to opt out of the centralised labor force allocation scheme went into effect. Employment in public enterprises subsequently slowed to 1.4 per cent a year from 1979 to 1986--87. The current monthly minimum wage, set in January of 1999, does not exceed L.E 116 or approximately $34 based on a six-day, 42 hour workweek. Increases in the minimum wage are set by the government on an annual basis and have declined by 10 to seven per cent since the approval of the new labour law. In addition to the decline in real wages, other factors conspire to create a grim outlook for the poor and underpaid considering the large wage differentials between skilled and unskilled and the huge gap between the higher and lower paid. especially since wage differentials do not essentially reflect corresponding differentials in productivity or in performance efficiency. Moreover, the gap between male and female wages is exceptionally wide. A recent report by the World Economic Forum entitled "Women's Empowerment: Measuring the Global Gender Gap" assessing the current size of the gender gap in 58 countries ranked Egypt dead last. The study measured the extent to which women have achieved equality with men in five critical areas: economic participation, economic opportunity, political empowerment, educational attainment, and health and well-being.
