The 57.4% increase in minimum wages set for the new Iranian year (started March 21), which unlike previous years was finalized and communicated before last year was out, has drawn a lot of flak from business owners.
However, even such an unprecedented rise in wages won’t be enough for households to make ends meet in inflationary times, stated Alireza Kolahi, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture, in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
Employees of an economic enterprise won’t be able to put up a great performance at workplace when they are preoccupied with welfare problems. This would directly affect the efficiency of their enterprise, company and organization.
Many medium- and large-sized enterprises try to reduce the burden of life by offering supplemental insurance, supply of basic goods in the form of a discount card, or bonuses to their employees. However, this procedure is not common in all companies and creates numerous welfare problems for the employees of economic enterprises, especially those of the private sector.
On the other hand, the increase in salaries imposes unpredictable pressure on private sector entrepreneurs, who have already been hit by poor business environment over the past decade.
In truth, the decision made regarding pay rise is a double whammy for enterprises. On the one hand, if they fail to increase the salaries according to the law they will face not only legal and regulatory issues but also the risk of losing their skilled human capital.
On the other, once the pay increases are applied, the end costs of products and services will surge and consequently reduce the competitiveness of the company’s products, particularly in international markets, and increase the vulnerability of the enterprise in the face of business challenges, such as inflation, sanctions, lack of capital and recession.
Root of Challenges
Iran’s economy has made a habit of employing short-term, temporary fixes instead of opting for tried-and-tested solutions. Structural problems and decline in productivity and competitiveness are at the root of challenges regarding people’s livelihoods.
The widespread consequences of these factors are so serious they won’t go away by merely multiplying the salaries. We need to acknowledge that unresolved productivity issues have undeniable impacts on the economy and industry’s added value, particularly now that, according to the country’s Labor Law, the employer cannot take action against employee without paying legal expenses even in the event of accidents caused by the employee’s negligence. That’s why the work ethic in our country suffers from many shortcomings that ultimately decline productivity and reduce competitiveness of enterprises.
In short, one of the most key duties of governments the world over is to solve the problem of workers’ livelihood. It is not possible to fix this problem simply by multiplying the salaries.
Working out a solution for the structural shortcomings of the country’s economy and removing obstacles in the way of businesses are necessary to overcome the current difficult situation.
We need to change the paradigms of the country’s economy by improving productivity and the welfare and standards in the macro-economy instead of focusing on wage regulation.
Under the current circumstances, the rise in wages within an economy where the law does not allow the employer to tackle low efficiency and poor performance of employees would lead to a sharp drop in productivity. In the medium term, these approaches will weaken the country’s industrial capacity to a great extent; Iran is currently not even capable of competing with regional countries.
Putting the heft of economic turmoil on the shoulders of private sector players by increasing wages in the short term can force them to reduce their workforce. The whole thing will increase unemployment and trigger social chaos. Therefore, it is necessary for the government to think of a solution to reform the country’s economic structure, besides increasing wages.
