The expected increase in the National Minimum Wage Rate (NMWR) is likely to lead to higher consumer prices as domestic businesses pass on the increased labor costs to final goods and services, according to Westpac’s quarterly economic update.
Senior Economist Shamal Chand noted that export-oriented businesses, which operate in competitive markets, may experience shrinking profit margins. These businesses might adopt cost-saving strategies such as enhancing productivity, acquiring new technology, or, in extreme cases, laying off workers. However, Chand stated that past trends suggest significant layoffs are unlikely, as companies generally prefer other cost-saving measures.
“Given Fiji’s high living costs, the increase in NMWR could further drive up prices due to cost-push inflation. Enhancing productivity will be crucial to mitigate long-term risks,” Chand added.
The national minimum wage rate will rise from $4 per hour to $5 per hour in two phases. Effective from 1 August, the NMWR will increase to $4.50 per hour and then to $5.00 per hour from 1 April 2025. Additionally, sectoral minimum wages will also increase by $0.50 from 1 August and by another $0.50 from 1 April 2025.
Chand explained that the wage reform aims to address brain drain and out-migration of skilled and experienced workers. However, it will take several months of data to evaluate the policy’s impact on emigration numbers.
The NMWR was last increased to $4 per hour in January 2023, and since then, consumer prices have risen by an average of 7.5 percent.
The government has allocated $85.0 million in the budget for wage and salary increases for all civil service workers. Government wage earners will see pay increases in the range of 10-20 percent, while salary earners will receive increases in the range of 7-10 percent by restructuring the current civil service salary bands, effective from 1 August 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 also plans to improve productivity in the civil service. Approximately $24 million is allocated towards modernizing IT infrastructure, improving ease of doing business, and reducing waiting times.