The issue of wage increase preoccupies the mind of workers and employers at the end of each Iranian year [late March]; it has particularly become a pressing concern in recent years, thanks to the ever-increasing inflation rate. Except for last year when the salaries of some workers increased by more than the inflation rate, the rise in wages has always been less than the inflation rate, meaning that the purchasing power of workers has decreased gradually over the years. These were stated by Davoud Souri,an economist, in a write-up for the Persian daily Donya-e-Eqtesad. A translation of the text follows:
Although employees have worked as hard as in the past, their financial ability to buy goods and services has declined in recent years. This reduction does not affect the workers of private sector alone, but they are more vulnerable to high inflation than public servants. On the other side are employers and investors who may slightly benefit from the price increase, but the inflation has made their market small and fragile in the face of numerous and sometimes contradictory policies of the government. Paying wages may account for a small fraction of their costs, but in practice it is one of the few variables that employers can bargain over.
The value of the worker’s final product is the criterion based on which wages are set in a free economy. In such a system, paying the same salary to two people, even if they work in the same job, is meaningless. Wages cannot be determined by fiat; rather they should be set based on the conditions of the labor market and the market of manufactured products, after the worker and the employer reach a compromise. Therefore, in such a system, the policymaker’s focus is on providing an environment in which investment can be made and the demand for labor force increases.
Although employees have worked as hard as in the past, their financial ability to buy goods and services has declined in recent years. This reduction does not affect the workers of private sector alone, but they are more vulnerable to high inflation than public servants
The focus of workers is on improving productivity to maintain their job (not to find a job) and, of course, such an environment requires policies that promote economic growth and reduce inflation. In this system, the policy of minimum wage is often followed to enforce social policies that help workers rise above the poverty line, the minimum necessary for spreading social welfare.
In a command economy, the government decides to classify the labor force in a handful of categories and determines the pay raise of each category. Here, the main concern of the government would be how to pay the wages and the concern of the workers would be how to find or maintain a job or move up to higher pay categories.
Given that the government only supervises the remuneration of the public sector and is present in the process of setting the wages of private sector workers, the minimum wage is only important for workers who have failed to find a job in the public sector.
In the labor market of private sector, the supply and demand law still rules but thanks to the low rate of economic growth, mandated pricing and restrictive labor and social security laws, demand for labor is limited. As such, a larger share of private sector workers receive the minimum wage. This explains why households with their breadwinners working in the private sector [not for the government] account for a significant part of the poor.
At first, it may seem that increasing the minimum wage can alleviate poverty for this group but this assumption is true only when employers are able to finance the costs without downsizing, reducing activity or changing technology. There is no doubt that within the command economy, determining wages would be detrimental to long-established workers.
