The minimum wage in Lebanon has been the center of dispute between the General Labor Confederation (GLC), the private sector and the Lebanese government for the last couple of years. This dispute was agitated by increased inflation of consumer goods caused by the depreciation of the US dollar against the euro, as well as other internal and external factors. Each side has pulled in its own direction throughout the negotiations and refused to take no for an answer. The GLC wanted to increase the minimum wage to LL960,000 ($640) and to increase all other salaries by LL200,000 ($133.33). The private sector disagreed and the government was trapped between the two, trying to make social and economic reforms without causing further chaos in the economy.
The law
Before the new wage law was passed, Lebanon’s minimum wage had been LL300,000 ($200) since 1996, despite continuous pressure from the GLC. Ghassan Ghosn, the president of the GLC, stated that “the last raise in 1996 was insufficient, it did not represent a real match between the minimum wage and inflation, it was lower than the optimal number by 15-20 percent, as I remember, and we carried on with our demands since then.”
In early September this year, the cabinet finally decided to raise the minimum wage to LL500,000 ($333.33). It was further mandated that all salaries — with no exception — should also be increased by LL200,000 in both the private and public sector. The raise was to be retroactive on all salaries paid since May. The cabinet also decided to increase transportation subsidies from LL6,000 to LL8,000 as well as to add LL150,000 to the retiree’s pensions. The public sector raised their wages in October. On September 10 the law was finalized — signed by the prime minister and the president — and implementation should begin in the private sector as of November.
Economist Elie Yachoui considered the additional LL200,000 “a bonus for workers in both private and public sectors.” The salary increase should be a percentage and not in fixed amount. He added that there is no study as to why the government chose LL500,000 as a practicable minimum wage and to why it added LL200,000 to all salaries. “We can not randomly fix or present figures. Any figure should be justified and should have an acceptable rationale behind it. Our country is very far from being scientific in steps and decisions taken,” said Yachoui.
General Labor Confederation
The GLC’s Ghassan Ghosn is not happy with the new minimum wage. He wanted to raise it to LL960,000. “The raise is not enough, but we do not refuse to receive a part of our right, we take it and we continue with our movement,” he said. Many criticized his suggestion and said that it is rather unrealistic and prices would skyrocket. Ghosn pointed out, however, that LL960,000 is not a random figure. He explained that studies were done by economic experts based on a recent UNDP report on poverty in Lebanon. The report was published in conjunction with the collaboration of the National Labor Organization to determine the basic needs of the family. These studies showed that a Lebanese should earn LL960,000 in order to support a wife and two children. If a family is receiving less than LL960,000 then it is below the poverty line.
What is more important is that the GLC emphasizes LL960,000 as a value and not an absolute number. “If the government improves medical care, education, transportation … and exercises control over prices and monopolies then maybe $100 would be enough,” said Ghosn. “When teachers start putting their children in public schools, then we will do the same … it is not enough to build public schools and paint them, or construct public hospitals with good architecture, there should be a high level of medical care and education.” He added that we talk about a laissez-faire economy, while we have exclusive agencies and monopolies that cannot be removed because of political pressure. This forbids any kind of competition, freezes the market and decreases the purchasing power of the consumers because of rising inflation. If the government does its job right, then the real value of people’s wages would increase and there would be no need for any significant adjustments that might hurt the economy and cause more inflation and unemployment.
Yachoui commented on the GLC’s demands saying, “perhaps they are right when they talk about one million Lebanese Lira because of the very high cost of living, but we should look at the capacity of the private sector.” He added that it is true that there are monopolies, exclusive agencies and not enough competition in the market, but Lebanon is an importing country, therefore with the increase in prices of wheat and oil in the last couple of months, it is also importing inflation. So even if there was competition in the market, there would still need to be an increase the wages because of the external inflation.
The private sector
The private sector did not reject the new minimum wage but refused to increase the salaries of employees earning more than LL500,000, saying that the government has no right to set the salary scales for the private sector. Fadi Abboud, president of the Lebanese Industrialists Association, was quoted saying that it will take their case to the Shura Council if the government forces them to abide by the increase. He added that it is against the nature of the World Trade Organization (WTO). Ghosn commented on Abboud’s statement saying that this point of view was too right-wing and that the government should interfere with or without the private sector’s approval.
Even though the private sector rejects the new law, it has no choice but to abide by it. Any worker that does not receive the new raise has the right to go to the Ministry of Labor, the GLC or his own union and file a complaint against his employer. The question is how successful will the government or unions be in forcing all the private companies to follow the new law, and will employees have the courage to file complaints or will they be too scared of losing their jobs? The lack of enforcement in Lebanon means the outcome can hardly be forecasted.
SMEs
The private sector as a whole has rejected the new legislation. Large companies operate on a large scale and should be strong enough to handle the wage increases. But how will this affect revenue, prices and employment in small and medium enterprises (SMEs)?
Ghassan Beyrouthy, an economist and the owner of Bel Azur Resort in Jouniyeh, said that SMEs will be the ones most affected by the increase in minimum wage and salaries. After having a rough couple of years due to the 2006 war and political instability, the tourism sector was able to catch its breath this summer and make some income, he pointed out. However, it is still too vulnerable to bare such increases in wages with unrelenting high prices and the unstable environment. “I cannot give LL500,000 to the man who cleans the rooms or the dishes, not to mention the National Social Security Fund (NSSF) expenses that would also increase. If the government forces the private sector to abide, I will have to either fire some of my employees or keep them if they settle for their previous salaries,” said Beyrouthy. It will be challenging for SMEs to raise the salaries of all their employees and fight rising inflation at the same time.
Additionally, SMEs cannot increase their prices infinitely. They have already raised them recently and any further amplification will lower demand for their goods and services. With prices unchanged and no additional sales or revenue, a further increase in salary costs may in fact result in higher unemployment.
Yashoui said that exporting firms are probably the only ones who will be able to bare this increase. “Exporting firms are in general profitable firms. Those who are relying on domestic markets like hotels and restaurants are too vulnerable and will have to fight to survive”.
Ghosn presented an upbeat view when he was asked about how the sector will handle the pressure. He said it is true that every law or reform has an adverse effect, but we should all bear the burden and contribute in the revival of our economy. He added that it is not only the private sector that has to bear the consequences, but the government should also boost the economy by creating new job opportunities, decreasing taxes on imports and implementing growth strategies. The GLC is in an open battle with the government to ensure more reforms will be implemented and that it will fulfill its role in enhancing the growth of the overall economy.
The government
Will the government be able to handle its part of the financial burden? Lebanon’s budget deficit reached 26.18% ($1.45 billion) of spending in the first seven months of 2008 and may exceed 37 percent in 2009 due to the increase in wages for government employees and the expected rise in Electricite du Liban’s (EDL) deficit, as reported by the ministry of finance. The higher wages alone will cost the treasury LL500 to LL800 billion ($333 to $533 million).
