The end price of goods and services is influenced by several factors, but wage as a percentage of price is not the same number to workers and employers.
IRNA asked representatives of workers and employers as well as a labor market expert in this regard.
Nasser Chamani, representative of workers in the Supreme Labor Council, rejects as scientifically baseless any significant effect of rising wages on the end prices of goods and services.
“Studies shows the share of wage in price is between 5-6%. In fact, this is one of the subterfuges used when it comes to setting wages at the end of each year to prevent wage raises,” he said.
Last year, a 36.5% increase in wages was approved and at the same time rumors were rife that it would lead to a decline in employment since workshops could not afford it.
“Reports show a rising trend in employment in the current year. Layoff lawsuits have decreased and the Social Security Organization of Iran has posted fewer unemployment insurance claims and more compulsory insurance,” Chamani said.
The representative of workers noted that it is several years now that employers are putting forward the same argument to bluff their way out of unlocking workers’ wages and this has reduced workers’ purchasing power.
“Workers account for 50% of the population; any decline in their buying power leads to economic recession,” he said.
The wage-price spiral is a macroeconomic theory used to explain the cause-and-effect relationship between rising wages and rising prices or inflation. This indicates that the rising wage increases disposable income, raises the demand for goods and causes prices to rise.
Rising prices increase demand for higher wages, which leads to higher production costs and upward pressure on prices, creating a conceptual spiral.
Asghar Ahaniha, the representative of employers in the Supreme Labor Council, argues that wage in price as a percentage is not the same in different sectors of the economy.
“In large industries, the share stands at between one and 10% whereas in small- and medium-sized industries, the contribution of wage in the end price of goods is between 30-50%. The share exceeds 50% when it comes to services sector. The wage hike effectively increases general business expenses that are passed on to the consumer in the form of higher prices,” he said.
Noting that small- and medium-sized enterprises account for 90% of industries’ employment, Ahaniha said, “Job cuts have been more severe and widespread among SMEs. Next year would be a tough year for the economy, as the government needs to control the market and reduce costs. An unreasonable rise in workers’ compensation would ultimately hurt workers and the economy similarly.”
Hamid Haj-Esmaeili, a labor market expert, said a number of factors must be weighed in when it comes to the impact of wage rise on the prices of goods and services.
“Our economy is run by the government. In economies like Iran’s, wage has little effect on price. As economic conditions deteriorate, the supply of raw materials gets more difficult and costs of exports and imports increase, the share of wage in the price becomes more significant,” he said.
“On the other hand, the economy includes different sectors like industries, agriculture and services. The role of wage in price in the industrial sector is by far less than in the services sector. Our economy is a services-oriented one, therefore the role of wage in price is more considerable in Iran compared with industrial countries.”
Noting that wages are determined by supply and demand, Haj-Esmaeili said, “If workers are in abundance and unemployment is high, wages will fall until the surplus labor decides to go elsewhere in search of jobs. And consequently, wage would play a lesser role in price. Researches by unofficial organizations and experts put the share of wage in the end price of goods and services at between zero and 13%.”
