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Greedflation, employment and poverty

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The Sri Lankan cabinet has approved a significant 40% increase in the minimum wage, aimed at assisting workers struggling with the high cost of living amidst an ongoing economic recovery from a severe financial crisis that began in early 2022. This crisis, triggered by a sharp decline in foreign exchange reserves, resulted in notable inflation, currency devaluation, and a default on foreign debt. The minimum wage will escalate from 12,500 rupees ($42) to 17,500 rupees, with the added objective of supporting those in poverty.

According to the National Minimum Wage of Workers Act (No. 03 of 2016), the current minimum national salary stands at Rs. 12,500/-. A subcommittee, composed of representatives from trade unions and small to medium-sized businesses, recommended raising this minimum salary to Rs. 17,500/-. The Cabinet of Ministers has sanctioned the proposal to elevate the national minimum salary by Rs. 5,000/-, from Rs. 12,500/- to Rs. 17,500/- (Figure 1). Amendments to the Act are anticipated to implement this change, with the aim of increasing the daily minimum wage from Rs. 500/- to Rs. 700/-. (See Figure 1)


Labour Department statistics show that the monthly average minimum wage in the public sector was at Rs. 34,550 at the end of 2021.

Vajira Ellepola, the Director General of the Employers’ Federation of Ceylon, noted that the increase in the minimum wage didn’t necessarily translate to a rise in the basic salary for many private sector employees. This was because most private sector basic salaries already exceeded the minimum wage threshold.

For instance, if the current minimum wage is Rs. 12,500 and an employee’s basic salary is Rs. 20,000, a rise in the minimum wage to Rs. 17,500 may not automatically lead to a proportional increase in that employee’s basic salary.

According to the Central Bank, the Non-Performing Loan (NPL) ratio in the Household sector has been steadily rising due to the constrained ability of households to repay debts. By June 2023, the NPL ratio for households had increased to 17.7%, a significant jump from the previous year’s 14.1%. The Central Bank’s Financial Stability Review for 2023 highlighted that the proportion of non-arrears loans in the Household sector has been decreasing since early 2022, while arrears loans have been increasing, indicating a continuous decline in credit quality, likely to persist if adverse economic conditions persist.

State Minister of Finance Shehan Semasinghe had mentioned that 22% of the estimated 6.2 million household units had fallen into debt due to the economic crisis. Among these units, 24.3% were urban, 20.9% rural, and 42.8% estate households. He further noted that 60.5% of household units experienced a decrease in income, while 90% saw an increase in expenses due to the economic downturn.

Greedflation

Inflation may not be the only factor increasing the price of consumer goods. There is a noticeable trend where competing manufacturers are raising their prices at varying rates, not just in comparison to each other but also in contrast to the inflation rate.

Greedflation is the concept suggesting that the pursuit of higher corporate profits is adding to the problem of high inflation. This notion has shifted from being a less common viewpoint to becoming widely discussed in Europe and the US over the past year. Similarly, there is ongoing debate about this issue in Australia.

As households struggle with the increasing cost of living, certain large companies are generating record profits. Inflation is cooling in Sri Lanka. The most recent data showed the Headline inflation of March 2024 is 0.9 percent, down significantly from last March 50.3 (Table 1)

Not only are manufacturers adjusting their prices, but various entities throughout the supply chain—including shipping/transporting companies, wholesalers, and retailers—are also updating their pricing strategies accordingly.

While the yearly change in prices has decreased, the overall prices remain elevated due to previous increases. For instance, a carton of 10 large eggs still costs Rs650.00. This demonstrates that low-income households will continue to struggle with the already heightened cost of living. Hence, it is imperative that any increase in the minimum wage is supplemented with additional support measures, rather than being seen as a sole solution.

The true indicator for reducing inflation, according to some economists, is unfortunately tied to increasing unemployment. Now we’re facing the challenging reality that to curb inflation, we need to raise the unemployment rate.

Employment and minimum wages

Some people do not perceive a minimum wage as beneficial. One economic perspective suggests that minimum wages can hinder job creation by causing employers to avoid hiring more expensive labor while enticing more individuals to enter the job market.

Nobel laureate economist George Stigler expressed this viewpoint in 1976, stating that good economists typically do not support protectionist programs or minimum wage laws. However, other economists, such as David Card and Alan Krueger, have contested this notion. Their empirical studies in the 1990s found that increasing the minimum wage does not necessarily result in fewer jobs. Despite this, not all economists agree with Card and Krueger. David Neumark and William Wascher examined the evidence and argued that minimum wages do diminish employment opportunities for less skilled workers, particularly those directly impacted by the minimum wage. Consequently, there is no definitive academic consensus on minimum wages, and there is limited agreement on the conclusions drawn from the research literature.

Poverty and minimum wages

In Sri Lanka, the question arises whether minimum wage policies effectively alleviate poverty. However, research findings on this matter have been conflicting. A 2012 study conducted in New Zealand concluded that minimum wages do not necessarily lift people out of poverty. Similarly, an analysis using Irish data suggested that minimum wages might not be an effective tool for addressing poverty, describing them as “a blunt instrument.” Conversely, a 2021 study in the United States discovered significant positive employment outcomes for single mothers with young children, indicating that minimum wages could serve as a means to reduce child poverty. This issue holds particular significance in Sri Lanka due to the high prevalence of poverty among certain demographic groups.

Conclusions

In conclusion, the approval of a substantial 40% increase in the minimum wage by the Sri Lankan cabinet reflects efforts to alleviate the strain on workers facing the challenges of a recovering economy from a severe financial crisis. Triggered by a sharp decline in foreign exchange reserves, this crisis led to significant inflation, currency devaluation, and a default on foreign debt. The minimum wage rise from 12,500 rupees ($42) to 17,500 rupees aims to support those in poverty, but it may not proportionally affect all sectors due to existing salary structures.

However, the increase in minimum wage alone may not be sufficient to address the overarching issue of inflation. A broader approach, encompassing additional support measures, is necessary to mitigate the impact of the rising cost of living on low-income households. This is particularly crucial considering the steady increase in non-performing loans in the household sector, indicating ongoing financial strain. Furthermore, discussions around “greedflation” highlight the role of corporate profit expansion in exacerbating inflation, further underscoring the need for comprehensive policy responses.

In navigating these economic challenges, it is imperative to consider the interconnected nature of various factors, such as employment, poverty alleviation, and interest rates. While minimum wage policies may have differing effects on employment and poverty reduction, there is no definitive consensus, highlighting the complexity of the issue. Additionally, the management of interest rates and their impact on investors further underscores the need for careful consideration and coordination of monetary policies.

Ultimately, addressing these economic challenges requires a holistic approach that considers the diverse needs of different sectors of society and balances economic growth with social welfare objectives. It is essential for policymakers to remain vigilant and responsive to evolving economic conditions to ensure sustainable and inclusive development.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and www.researcher.com)



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US’ drastic aid cut to UN poses moral challenge to world

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An UN humanitarian mission in the Gaza. [File: Ashraf Amra/Anadolu Agency]

‘Adapt, shrink or die’ – thus runs the warning issued by the Trump administration to UN humanitarian agencies with brute insensitivity in the wake of its recent decision to drastically reduce to $2bn its humanitarian aid to the UN system. This is a substantial climb down from the $17bn the US usually provided to the UN for its humanitarian operations.

Considering that the US has hitherto been the UN’s biggest aid provider, it need hardly be said that the US decision would pose a daunting challenge to the UN’s humanitarian operations around the world. This would indeed mean that, among other things, people living in poverty and stifling material hardships, in particularly the Southern hemisphere, could dramatically increase. Coming on top of the US decision to bring to an end USAID operations, the poor of the world could be said to have been left to their devices as a consequence of these morally insensitive policy rethinks of the Trump administration.

Earlier, the UN had warned that it would be compelled to reduce its aid programs in the face of ‘the deepest funding cuts ever.’ In fact the UN is on record as requesting the world for $23bn for its 2026 aid operations.

If this UN appeal happens to go unheeded, the possibilities are that the UN would not be in a position to uphold the status it has hitherto held as the world’s foremost humanitarian aid provider. It would not be incorrect to state that a substantial part of the rationale for the UN’s existence could come in for questioning if its humanitarian identity is thus eroded.

Inherent in these developments is a challenge for those sections of the international community that wish to stand up and be counted as humanists and the ‘Conscience of the World.’ A responsibility is cast on them to not only keep the UN system going but to also ensure its increased efficiency as a humanitarian aid provider to particularly the poorest of the poor.

It is unfortunate that the US is increasingly opting for a position of international isolation. Such a policy position was adopted by it in the decades leading to World War Two and the consequences for the world as a result for this policy posture were most disquieting. For instance, it opened the door to the flourishing of dictatorial regimes in the West, such as that led by Adolph Hitler in Germany, which nearly paved the way for the subjugation of a good part of Europe by the Nazis.

If the US had not intervened militarily in the war on the side of the Allies, the West would have faced the distressing prospect of coming under the sway of the Nazis and as a result earned indefinite political and military repression. By entering World War Two the US helped to ward off these bleak outcomes and indeed helped the major democracies of Western Europe to hold their own and thrive against fascism and dictatorial rule.

Republican administrations in the US in particular have not proved the greatest defenders of democratic rule the world over, but by helping to keep the international power balance in favour of democracy and fundamental human rights they could keep under a tight leash fascism and linked anti-democratic forces even in contemporary times. Russia’s invasion and continued occupation of parts of Ukraine reminds us starkly that the democracy versus fascism battle is far from over.

Right now, the US needs to remain on the side of the rest of the West very firmly, lest fascism enjoys another unfettered lease of life through the absence of countervailing and substantial military and political power.

However, by reducing its financial support for the UN and backing away from sustaining its humanitarian programs the world over the US could be laying the ground work for an aggravation of poverty in the South in particular and its accompaniments, such as, political repression, runaway social discontent and anarchy.

What should not go unnoticed by the US is the fact that peace and social stability in the South and the flourishing of the same conditions in the global North are symbiotically linked, although not so apparent at first blush. For instance, if illegal migration from the South to the US is a major problem for the US today, it is because poor countries are not receiving development assistance from the UN system to the required degree. Such deprivation on the part of the South leads to aggravating social discontent in the latter and consequences such as illegal migratory movements from South to North.

Accordingly, it will be in the North’s best interests to ensure that the South is not deprived of sustained development assistance since the latter is an essential condition for social contentment and stable governance, which factors in turn would guard against the emergence of phenomena such as illegal migration.

Meanwhile, democratic sections of the rest of the world in particular need to consider it a matter of conscience to ensure the sustenance and flourishing of the UN system. To be sure, the UN system is considerably flawed but at present it could be called the most equitable and fair among international development organizations and the most far-flung one. Without it world poverty would have proved unmanageable along with the ills that come along with it.

Dehumanizing poverty is an indictment on humanity. It stands to reason that the world community should rally round the UN and ensure its survival lest the abomination which is poverty flourishes. In this undertaking the world needs to stand united. Ambiguities on this score could be self-defeating for the world community.

For example, all groupings of countries that could demonstrate economic muscle need to figure prominently in this initiative. One such grouping is BRICS. Inasmuch as the US and the West should shrug aside Realpolitik considerations in this enterprise, the same goes for organizations such as BRICS.

The arrival at the above international consensus would be greatly facilitated by stepped up dialogue among states on the continued importance of the UN system. Fresh efforts to speed-up UN reform would prove major catalysts in bringing about these positive changes as well. Also requiring to be shunned is the blind pursuit of narrow national interests.

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Egg white scene …

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Hi! Great to be back after my Christmas break.

Thought of starting this week with egg white.

Yes, eggs are brimming with nutrients beneficial for your overall health and wellness, but did you know that eggs, especially the whites, are excellent for your complexion?

OK, if you have no idea about how to use egg whites for your face, read on.

Egg White, Lemon, Honey:

Separate the yolk from the egg white and add about a teaspoon of freshly squeezed lemon juice and about one and a half teaspoons of organic honey. Whisk all the ingredients together until they are mixed well.

Apply this mixture to your face and allow it to rest for about 15 minutes before cleansing your face with a gentle face wash.

Don’t forget to apply your favourite moisturiser, after using this face mask, to help seal in all the goodness.

Egg White, Avocado:

In a clean mixing bowl, start by mashing the avocado, until it turns into a soft, lump-free paste, and then add the whites of one egg, a teaspoon of yoghurt and mix everything together until it looks like a creamy paste.

Apply this mixture all over your face and neck area, and leave it on for about 20 to 30 minutes before washing it off with cold water and a gentle face wash.

Egg White, Cucumber, Yoghurt:

In a bowl, add one egg white, one teaspoon each of yoghurt, fresh cucumber juice and organic honey. Mix all the ingredients together until it forms a thick paste.

Apply this paste all over your face and neck area and leave it on for at least 20 minutes and then gently rinse off this face mask with lukewarm water and immediately follow it up with a gentle and nourishing moisturiser.

Egg White, Aloe Vera, Castor Oil:

To the egg white, add about a teaspoon each of aloe vera gel and castor oil and then mix all the ingredients together and apply it all over your face and neck area in a thin, even layer.

Leave it on for about 20 minutes and wash it off with a gentle face wash and some cold water. Follow it up with your favourite moisturiser.

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Confusion cropping up with Ne-Yo in the spotlight

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Ne-Yo: His management should clarify the last-minute cancellation

Superlatives galore were used, especially on social media, to highlight R&B singer Ne-Yo’s trip to Sri Lanka: Global superstar Ne-Yo to perform live in Colombo this December; Ne-Yo concert puts Sri Lanka back on the global entertainment map; A global music sensation is coming to Sri Lanka … and there were lots more!

At an official press conference, held at a five-star venue, in Colombo, it was indicated that the gathering marked a defining moment for Sri Lanka’s entertainment industry as international R&B powerhouse and three-time Grammy Award winner Ne-Yo prepares to take the stage in Colombo this December.

What’s more, the occasion was graced by the presence of Sunil Kumara Gamage, Minister of Sports & Youth Affairs of Sri Lanka, and Professor Ruwan Ranasinghe, Deputy Minister of Tourism, alongside distinguished dignitaries, sponsors, and members of the media.

Shah Rukh Khan: Disappointed his fans in Sri Lanka

According to reports, the concert had received the official endorsement of the Sri Lanka Tourism Promotion Bureau, recognising it as a flagship initiative in developing the country’s concert economy by attracting fans, and media, from all over South Asia.

Nick Carter: His concert, too, was cancelled due to “Unforeseen circumstances

However, I had that strange feeling that this concert would not become a reality, keeping in mind what happened to Nick Carter’s Colombo concert – cancelled at the very last moment.

Carter issued a video message announcing he had to return to the USA due to “unforeseen circumstances” and a “family emergency”.

Though “unforeseen circumstances” was the official reason provided by Carter and the local organisers, there was speculation that low ticket sales may also have been a factor in the cancellation.

Well, “Unforeseen Circumstances” has cropped up again!

In a brief statement, via social media, the organisers of the Ne-Yo concert said the decision was taken due to “unforeseen circumstances and factors beyond their control.”

Ne-Yo, too, subsequently made an announcement, citing “Unforeseen circumstances.”

The public has a right to know what these “unforeseen circumstances” are, and who is to be blamed – the organisers or Ne-Yo!

Ne-Yo’s management certainly need to come out with the truth.

However, those who are aware of some of the happenings in the setup here put it down to poor ticket sales, mentioning that the tickets for the concert, and a meet-and-greet event, were exorbitantly high, considering that Ne-Yo is not a current mega star.

We also had a cancellation coming our way from Shah Rukh Khan, who was scheduled to visit Sri Lanka for the City of Dreams resort launch, and then this was received: “Unfortunately due to unforeseen personal reasons beyond his control, Mr. Khan is no longer able to attend.”

Referring to this kind of mess up, a leading showbiz personality said that it will only make people reluctant to buy their tickets, online.

“Tickets will go mostly at the gate and it will be very bad for the industry,” he added.

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