The increase in minimum wage is expected to lead to higher consumer prices as local businesses pass on the increased labor costs to final goods and services.
Westpac Fiji senior economist Shamal Chand made this argument in the bank’s quarterly economic update released this week.
He said export-oriented businesses operating in competitive markets may see shrinking profit margins and might adopt cost-saving strategies such as boosting productivity, acquiring new technology, or in extreme cases, laying off workers.
“However, past trends indicate that significant layoffs are unlikely, as companies tend to prefer other cost-saving measures,” Mr. Chand said.
“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.”
Mr. Chand also noted the $85 million budgetary allocation for civil servants’ wage and salary increments.
“Government wage earners will have a disproportionate increase in pay in the 10-20 percent range, while salary earners will receive a pay increase in the 7-10 percent range by restructuring the current civil service salary bands, effective from August 1, 2024.”
He mentioned that Government employees last received a pay increase in 2017 with reforms to the civil service salary bands, while overall consumer prices had since risen by 16.8 percent.
“There are plans to improve productivity in the civil service as around $24 million is allocated towards modernizing the IT infrastructure, improving the ease of doing business, and reducing waiting times.”