Monday, May 3, 2010

Setting the minimum wage in Pakistan

The Prime Minister of Pakistan has increased the minimum wage to Rs. 7,000 (US$83.5). While this is a welcome increase of 1,000 rupees, however, given the inflation in Pakistan, this amount is unlikely to have a meaningful impact in the lives of the very poor in Pakistan.

Many employers will not be bothered by the increase in minimum wage. Those who may witness an increase in their wage, they are going to realize that this increase is too little too late.

A recent survey of household expenditures revealed that the average Pakistani family had to spend 8,583 Rupees per month for the purchase of basic items in April 2010. The Prime Minister’s bold initiative falls at least 1,500 rupees short of meeting the basic needs of an average household.

The Daily Mirror in Sri Lanka offers the following details:

The average Pakistani family had to spend Rs 8,583 on the purchase of daily-use items in the month of April 2010, according to the first Household Expenditure Pattern Study published by the Free and Fair Election Network (FAFEN). The highest cost of living was recorded in Khyber Pakhtunkhwa, where the average household expenditure was Rs 9,515, nearly Rs 1,000 more than the national average.

The FAFEN’s study documents the impact of price variations of 70 consumer commodities – including food, monthly house rent, medicines, POL (fuel) products, and toiletries – on average household budgets around the country. This monthly study is based on data gathered from 150 locations in four provinces, including FATA.

The task of recording variations in prices of daily-use items cannot be left alone to the government because fluctuation of prices of daily-use food items is based in part on the lack of good governance, nationally as well as locally. The credibility of the government-sponsored Pakistan Household Integrated Economic Survey has been challenged for this reason. FAFEN’s study provides an independent source for similar data about average household expenditures.

According to the FAFEN Study, an average Balochistan family spent Rs 9,287 on the purchase of daily-use items during April. The average cost of living was lower in Sindh (Rs 8,028) and Punjab (Rs 7,951). Out of a national average household expenditure of Rs 8,583, a typical Pakistani family (with an average of 6.5 persons) spent Rs 3,926 (46 percent) on the purchase of nine basic commodities, namely flour, potato, rice, sugar, vegetable ghee, onions, fresh milk, tea and kerosene oil.

The fact that almost half of an average family’s budget must be spent on basic commodities undermines the ability of a household to spend on other items that would enhance quality of living.

The highest share of basic commodities in average household expenditure was reported in Khyber Pakhtunkhwa, where a family had to spend Rs 4,685 (49 percent) on basic items, followed by Balochistan at Rs 4,489 (48 percent), Punjab at Rs 3,763 (47 percent), and Sindh at Rs 3,717 (46 percent).

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