I.M.F. urges Samoa to increase region's lowest minimum wage

The International Monetary Fund (I.M.F.) has recommended that the Samoa Government consider increasing the country's minimum wage to $3 tala per hour. 

The recommendation was part of an I.M.F. report released last week after Article IV Consultations with representatives from the Samoa Government in February and March this year. 

The I.M.F. report stated that Samoa has the lowest minimum wage among Pacific Island countries and it was time to increase due to high levels of unemployment and large number of informal workers in the country. 

“Considering the low level of the current minimum wage with comparable countries but also the high level of unemployment, particularly for youth and low-skilled worker, and the large number of informal workers, increasing the minimum wage in the private sector to a level close to 3 Samoan tala per hour could be appropriate.

“Negotiations on the level of the minimum wage will have to involve all social partners, including small entrepreneurs, to avoid reduction of competition by excluding small business," stated the report.

The high cost of living in Samoa could also be addressed through the "scheduling of regular revisions of the minimum wage", added the international financial institution in its report. According to I.M.F., the ratio of the minimum wage to the average value added per worker is a proxy of the productivity per worker. 

“This measure should be interpreted with caution as average worker, and not necessarily of the worker paid at the minimum wage.” 

The report stated that Samoa’s current official minimum wage in the private sector is below the average in comparable countries. 

“The recent increase of civil servant salaries, to match the increase in the cost of living, fostered a discussion on a potential increase of the minimum wage in the private sector. 

“Since 2012, the minimum wage in the private sector is $2.30 per hour, corresponding to less than one U.S. dollar per hour," the report stated. 

The report said for countries with similar living standards, the Samoan level appears to be on the lower side of the distribution, in particular when the measure is adjusted for differences in worker productivity. In this case, the minimum wage in Samoa is the lowest among Pacific Island Countries. 

“The appropriate level of minimum wage should provide a decent wage floor, without affecting firm productivity and employment. 

“As a general principle, the minimum wage should be set such as both the needs of workers and their families are met without affecting economic factors such as productivity or the level of employment. 

“Factors to take into consideration when setting the level minimum wage include, wage distribution. As a rule of thumb, the minimum wage should not exceed 40 per cent of the average wage. 

“In Samoa, the current minimum wage of $2.30 tala per hour accounts for 31 per cent of the average wage. In 2016, 20 per cent of the employees in the private sector, mainly in retail activities, were earning the minimum wage.” 

The I.M.F. report further stated that the impact of a hike in minimum wage on employment is expected to be positive, if the minimum wage is low with respect to the median wage, as the unemployed and people outside of the labor force have more incentive to search for a job. 

“However, the impact is expected to be negative when the minimum wage is high, as it may increase unemployment and push formal workers to the informal sector. 

“The negative effect is particularly important if a large share of the population is young or low-skilled. In Samoa, the unemployment rate was 14.5 per cent in 2017 and reached 31.9 per cent for the group of 15-24 years old. 

“Labor force participation is also relatively low compared to other countries, accounting for only 43.3 per cent of the working age population in 2017," the I.M.F. report said. 

The raising of the minimum wage is expected to reduce poverty and inequality in most developing countries, but the impact is limited to the workers in the formal sector. Consequently, the larger an informal sector is, the smaller the expected impact. 

In Samoa, the informal employment rate is estimated to be 37.3 per cent, with most of these informal workers employed in the agricultural sector. 

“Closely linked with the level of informality, the compliance rate is another important measure to assess the potential impact of an increase in the minimum wage. In the private sector, 6.5 per cent of the workers were paid below the minimum wage in 2016, setting the compliance rate to 93.5 per cent.” 

Attempts have been made to get a comment from the Ministry of Commerce, Industry and Labour (M.C.I.L)'s Chief Executive Officer, Pulotu Lyndon 

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