Top-up economics

Dec 10, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – Every year, except for 1999 and 2000, the governments of Guyana have imposed salary increases on public servants. They continue to do so because the workers continue to accept their helplessness.

The government may wish to continue to delude itself into believing that over time, it has narrowed the wage deficit which in inherited in 1992. But the reality may be different: the wage deficit – that is the gap between what is paid to workers and what is required for a living wage – may have actually increased.

The PPP/C government’s idea of a wages policy for public servants has been to offer a few percentage points, usually, one or two points, above the inflation rate. Thus, in 2022, for example, the government’s own numbers suggested that inflation was 7.2%. It offered workers an 8% increase, less than one percentage above the recorded inflation rate.

Food inflation last year was 6.4%, according to the government. The reality experienced by housewives would suggest however that local food inflation was in double digits.

Since then and for this year, food and rent inflation has skyrocketed. This has led to prices increases across a vast range of goods and services in the economy. Fuel prices have not fallen in any significant way but have remained stable at their high levels despite the removal of all taxes by the government. Food prices recently surged even higher against the backdrop of shortages in vegetable and chicken production.

Given all of these developments, it is difficult to imagine that this year’s inflation rate can be lower than last year’s. As such, it is indefensible, even by the government’s own standards, for it to have offered a mere 6.5% increase to workers.

But the government will defend its decision on the basis that this offer is higher than the annual inflation rate for this year. One government official even had the temerity to suggest that inflation for this year is 3%. One has to ask which country he lives in.

The country’s inflation rate has been the subject of much controversy. Not many economists believe that it accords with reality. There have been concerns expressed about the quality of the data used in compiling official statistics including for inflation. Guyana has a poor ranking when it comes to data quality.

In 2007, the official-recorded end-of-year inflation was 14%; the average annual inflation rate for that year was said to be 11%. In 2006, annual inflation was 4.2%. Price increases have been far higher now than they were back then. How then can Guyana have recorded an inflation rate of less than 6.5% for 2023?

Guyana’s inflation rate has been a long-standing grouse. Not many economists have confidence that the published inflation rate actually and accurately measures the movement of prices in the economy. Also, as has been pointed out before, there was a time when the Georgetown inflation rate was extrapolated to the entire economy. Up to now, there is no published data on rural inflation as compared with urban inflation.

This deficiency colours the government’s wages policy. The government continues its deliberate policy of “topping-up” wages by a percentage sufficient to compensate for inflation, without factoring in that workers are not enjoying a living wage and that the wage gap may actually be widening rather than narrowing.

If the annual wage increases by the government does not accord with the realities that are experienced by consumers, how then can the government’s annual wage increase be said to be improving real wages?

The solution to this problem was mentioned in my column of yesterday. The government should undertake an independent assessment of the country’s inflation rate. And it should in so doing distinguish between rural and urban inflation.

At the same time, the government should determine a living wage and how the country’s minimum wage stands in relation to this minimum wage. It determining its wages policy, the government should cater to only to cover inflation but also to narrow, incrementally, each year, the wages gap defined in this instance as the difference between a living wage and the actual minimum wage.

Guyana is now the fastest growing economy in the world and it is time that the wages gap becomes extinct. But to do so requires an approach that comes beyond the Jagdeo formula which provides public servants with annual wage increases that amount to a top-up of the dubious official inflation rate.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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