Mubashir Nadeem
Pakistan, like many other nations, has recognized the need for a minimum wage as a basic mechanism to ensure that workers are not exploited and can earn enough to meet their essential needs. Historically, the Federal Finance Minister would announce the minimum wage during the Federal Budget presentation in the National Assembly. However, following the 18th Amendment, the responsibility for determining the minimum wage has largely been decentralized, with each province establishing its own tripartite Minimum Wage Boards to reach a consensus. The Finance Minister continues to announce the minimum wage for Islamabad Capital Territory, but it is typical for the provincial boards to align their wage decisions with the federal benchmark.
Despite these efforts to standardize wage rates, the implementation of the minimum wage has faced significant challenges. The minimum wage, as mandated by the government or provincial boards, does not necessarily guarantee that workers receive a fair or sustainable wage. In fact, leaders of Workers’ Federations have continually raised concerns about the non-enforcement of the minimum wage threshold, and they are right to do so. Many employers, particularly in the informal sector, are reluctant to comply with these wage laws, creating a situation where workers, especially those in lower-income categories, remain underpaid and vulnerable.
Estimates suggest that approximately 40 percent of formal sector employers and over 85 percent of employers in the informal sector fail to pay their workers the minimum wage. The International Labour Organization (ILO) has established eight key criteria for setting a minimum wage, including factors such as inflation, prevailing economic conditions, living costs, productivity, and employer capacity to pay. While these criteria are vital for ensuring that the minimum wage reflects the real needs of workers, there is often a disconnect between the theoretical framework and practical enforcement.
In today’s challenging economic environment—marked by rising commodity prices, skyrocketing utility costs, and escalating transportation expenses—the need for wages that go beyond the minimum wage is even more critical. However, employers counter this need with the argument that imposing higher wages will lead to layoffs and reduced job opportunities, particularly for unskilled or semi-skilled workers. This is, to some extent, a valid concern, as there are numerous workers willing to accept wages below the legal minimum due to a lack of employment opportunities. In such a situation, the law of supply and demand heavily influences the job market, putting workers, especially the unemployed, at a disadvantage.
Employers also argue that enforcing a minimum wage could lead to fewer unskilled positions, as businesses seek to replace these roles with more skilled workers or automation to cut costs. Women and youth, who are often disproportionately represented in unskilled roles, are particularly vulnerable to being priced out of the job market as a result of such measures. However, there is a lack of concrete empirical evidence to support these claims. In many cases, businesses, despite their initial reluctance, eventually succumb to the pressures of paying the minimum wage, particularly when the economy grows, and labor becomes scarce. As more jobs are created, the demand for labor increases, which in turn drives up wages, making compliance with minimum wage laws more feasible for employers.
There are also those who argue against the very idea of a mandated minimum wage, suggesting that wages should be determined purely by market forces, like the prices of goods and services. Proponents of this view believe that if the government is not involved in fixing the price of goods like automobiles or tomatoes, it should not dictate the lowest amount employers must pay workers. They argue that wages, like any other economic commodity, should be left to supply and demand, with no external interference.
However, such a system can leave workers in precarious conditions, particularly in economies where the labor market is skewed in favor of employers. In Pakistan, the current economic downturn, coupled with stagnating demand for many products and services, has forced several industries to reduce their production capacity or even close down altogether. Many businesses are facing challenges like reduced shifts, a lack of new investments, and delayed payments from clients. Raising the price of goods and services to compensate for higher wages has, in many cases, only resulted in lower demand, further exacerbating the problem.
This economic slowdown has also pushed many businesses toward automation and technology, which has reduced their reliance on labor, particularly unskilled labor. Small and medium-sized enterprises (SMEs) are also increasingly adopting technology in an effort to improve efficiency and reduce costs. While this shift may improve the overall productivity of industries, it has a negative impact on low-income, unskilled workers who find themselves displaced by machines and automation. As SMEs prioritize technology over human labor, the demand for unskilled workers, who often earn less than the minimum wage, continues to diminish.
One notable example of workers being paid below the minimum wage comes from the private security industry. A social activist recently shared a story through a Whatsapp group titled “Justice for the Voiceless,” exposing the plight of security guards working outside bank branches. According to the activist, these guards earn around 50 percent less than the minimum wage while working 12-hour shifts. Despite sending numerous complaints to the bank presidents, the issue remains largely unresolved. The guards are often forced to rely on food handouts from NGOs, as their wages are insufficient to cover their daily needs.
While such cases are certainly alarming, they are not unique. Workers’ Federations have consistently raised concerns about the non-enforcement of minimum wage laws, but their efforts have been limited. These federations, already burdened with numerous other responsibilities, have struggled to maintain the intensity of their protests, which are often seen as more rhetorical than practical. At present, much of their energy is directed toward negotiating the draft Sindh Labour Code, a task complicated by the involvement of foreign consultants who may not fully understand the nuances of Pakistan’s labor market and culture.
Employers, too, are facing a difficult balancing act. Many are reluctant to pay the minimum wage to unskilled workers, citing the economic difficulties their businesses face. However, they also understand that failing to comply with wage laws could result in legal consequences or reputational damage. In informal discussions, employers have suggested that the Sindh Labour Department defer inspections of wage payment records until mid-2025, allowing businesses to weather the current economic downturn before enforcing stricter regulations.
The debate over the minimum wage in Pakistan is not just an economic issue; it is also a moral and social one. Employers, whether in the formal or informal sector, have a responsibility to ensure that their workers are paid fairly and can support themselves and their families. However, in a challenging economic climate, achieving a balance between fair wages and business sustainability is no easy task. The government must step in to enforce these regulations while also providing the necessary support to businesses to avoid stifling growth and innovation. Without such a balance, Pakistan’s minimum wage system risks becoming a hollow promise, one that does little to improve the lives of the country’s most vulnerable workers.
Ultimately, as Thomas Sowell once said, “The real minimum wage is zero.” If the government and employers fail to address these issues, the minimum wage will become meaningless, and workers will continue to suffer from inadequate wages and poor working conditions. For the system to be truly effective, it must be enforced with transparency, accountability, and a commitment to the well-being of workers.
