An increase in the minimum wage is expected to lead to higher consumer prices as local businesses transfer the increased labor costs to final goods and services. This viewpoint was presented by Westpac Fiji senior economist Shamal Chand in the bank’s quarterly economic update released this week.
Chand stated that export-oriented businesses in competitive markets might experience shrinking profit margins and may adopt cost-saving strategies such as enhancing productivity, acquiring new technology, or, in extreme cases, laying off workers. However, historical trends suggest that significant layoffs are unlikely, as companies generally prefer other cost-saving measures.
“Given Fiji’s high living costs, the increase in national minimum wage rates could further drive up prices due to cost-push inflation, and enhancing productivity will be crucial to mitigate long-term risks,” Chand said.
Chand also highlighted the $85 million budgetary allocation for civil servants’ wage and salary increments. Government wage earners will see a disproportionate increase in pay within the 10-20 percent range, while salary earners will receive an increase in the 7-10 percent range through restructuring the current civil service salary bands, effective August 1, 2024.
Government employees last received a pay increase in 2017 with reforms to the civil service salary bands, while overall consumer prices have since risen by 16.8 percent. There are plans to improve productivity in the civil service with around $24 million allocated towards modernizing IT infrastructure, improving the ease of doing business, and reducing waiting times.