SALARY CUTS WILL CRIPPLE THE ECONOMY - Dr. Priscilla Twumasi-Baffour

SALARY CUTS WILL CRIPPLE THE ECONOMY - Dr. Priscilla Twumasi-Baffour

While health workers across the world have enjoyed some attractive bonus packages since the outbreak of the coronavirus, their counterparts in some other sectors face job losses or pay-cuts.

In Ghana, for instance, front line health workers were given a 50% increment in their salaries due to the crucial role they play in combatting the novel coronavirus. France, Canada, Iraq have all announced bonus packages for doctors and nurses. In the UK, families of medical workers who die of COVID-19 are being paid 60,000 euros.

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Since the outbreak of the COVID-19, several businesses around the world had to resort to paying cuts for their employees as a survival strategy. Whilst some employees have lost their jobs totally, others will have to make a choice between accepting a pay cut or face a lay-off.  

A popular sports broadcasting network, ESPN, announced that its highest-paid employees must take a pay-cut of 15% due to the outbreak of the disease.

Nigeria’s Access Bank has also announced salary cuts for over 30,000 employees to curb job losses with the salary of the CEO slashed by 40%.

In an attempt to raise enough resources to tackle the COVID-19, some countries just like some businesses have resorted to salary cuts of workers in the civil service.

For instance, the Egyptian government has announced that effective July 1, salaries of government and private workers will be slashed by 1% for 12 months in an attempt to reduce the economic impacts of the coronavirus.

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In Ghana, there are calls from some individuals that government workers’ salaries should be slashed so that the government can save some money to help contain the virus. Public school teachers have been cited as one of the groups whose salaries should be cut because of the closure of schools for about two months now.

However, a Labour Economist and Senior Lecturer at the Department of Economics, University of Ghana, Dr. Priscilla Twumasi-Baffour believes the call for a slash in the salaries of civil servants is not in the right direction, particularly looking at the trajectory of the economy currently.

According to her, if the call is based on the fact that civil servants are becoming less productive, then this should rather be a wakeup call for us to look for ways of making people more productive.

People can become productive although they do not necessarily have to be in their offices because this pandemic is also telling us the need to embrace technology so that people do not necessarily have to get up and go to offices to be seen to be working. Indeed the world of work will change after the pandemic

You can work remotely via technology, so I do not find where this call is coming from as an economist to be in the right direction, particularly looking at the trajectory that the economy is now. So, if you are saying that salaries of civil servants should be slashed, what is informing that decision, is it because you feel that civil servants are becoming less productive? Is that the reason for that call?

Consequences of Salary Cuts in The Economy  

She explained that a cut in salaries would also stifle consumption.

 

As one of the levers of the economy, we need expenditure to keep flowing because it is expenditure that drives the economy. Output is demand determined; so, If the demand is receding, then we will be crippling the economy.

For the levers of the economy, you are looking at government expenditure which is the key, you are looking at consumption and investment. But clearly, investment; both domestic and foreign have been negatively affected by the pandemic. Foreign investment has been the hardest hit by the pandemic because of several uncertainties surrounding the capital market,” she noted.

Order for private schools to pay salaries of workers during lockdown periods

With the closure of schools for about two months now, governments in some countries, for instance, the Ministry of Education in Uganda have ordered private schools to pay their teachers since school fees they have received covers the whole academic year. This call according to the Ministry is in accordance with the Employment Act and as per agreed employment contracts.

Dr. Priscilla, however, indicated that the government cannot force private school owners to pay salaries if they do not have the funds.

According to her, if the government authorizes them to pay, and they don’t have the resources, how then will they pay. So, it is not a matter of compelling them to pay but rather government support can particularly keep an eye on them to make sure that they benefit from stimulus packages that are available to businesses. This support can be given in the form of payroll support to pay teachers, particularly for schools that are not operating on virtual platforms.

“So, if they don’t have the resources to pay, you cannot force them”, she added.

She explained further that it is not a fair call by the government because private investors always respond to incentives, so entrepreneurship and investment in any business will flow to where incentives are. Once the market is liberal, it will be difficult to particularly envisage how this will be possible if private actors do not have resources to pay teachers.

Such calls from governments may stem from the fact that they do not want to stifle consumption. They want to make sure resources are moving in the economy so people have money to spend but in doing so you cannot compel investors to do what they cannot afford.

Dr. Priscilla remarked;

“If private proprietors cannot afford to pay salaries because their schools are closed, clearly, they cannot. So, in that sense, government stimulus package can come in to help them pay teachers who have been made redundant because children are at home. But forcing people to pay their workers, I don’t see how that could be feasible in a free market system.”