December 11, 2007
Releasing Built-Up Labor Tension
The floodgates have opened. It is the beginning of the end for serious labor repression in the UAE, and the rest of the Gulf is likely to follow. Dubai's employers have been forced to negotiate with (illegally) organized labor and come out second-best.
Organized labor has never had it good in the Gulf. The armies of foreign construction workers - there are 700,000 in the UAE alone - live in overcrowded and unhygienic quarters, work in unsafe conditions, have no political rights, and are banned from collective bargaining. They can't even switch jobs when their employers fail to pay them, as happens all too often. Over the past couple of years, a depreciation in the value of local currencies pegged to the dollar has meant they have been able to send less money home than ever before, rendering many unable to support families they were forced to leave behind, even as high inflation has eaten into their purchasing power in the Gulf. Meanwhile, demand for workers has surged with a building boom brought about by high oil prices.
These foreign workers have had just one thing going for them over the past few years- they have gotten a lot more organized. Earlier this year, for instance, a riot by dissatisfied workers at the construction site for the world's tallest building, Burj Dubai, led to a sympathy strike by workers expanding Dubai airport, which lies on the other side of the city. Such coordination is not easy to arrange given that unions do not exist, and labor organizers are liable to be deported.
But it wasn't until October that the big one hit. Depending on who you believe, somewhere between 30,000 and 40,000 people put down their tools for 10 days after the government threatened to deport workers who had rioted over unpaid wages. The strikers asked for higher wages, better housing, and improved transportation to construction sites. The industrial action crippled one major contractor, but also spread to other firms. Initial attempts to settle the dispute were unsuccessful, and workers refused to cave in despite a police crackdown that saw no fewer than 4,500 arrested and led to the deportation of 159 of their peers. Eventually, they won out. 4,100 of the detained workers were released, and the strikers won a 20% pay hike. Other companies now look set to raise their own pay scales.
Things are still far from rosy for the workers. Their increased wages will barely make up for the exchange rate depreciation over the past 18 months, leave alone the effects of inflation. Many of them will therefore find their real income levels to be well short of what they were when they first arrived. What has changed, however, is that the state has proven unwilling to break the strike because of the widespread negative press coverage generated by worker unrest. And this was despite stone-throwing and other mild violence, which crossed a major government red line.
Furthermore, Dubai still desperately needs the services of these workers to build the vast array of projects that remain on the drawing board, with one labor analyst claiming it could use 40% more of them than are already there. Amazingly, the country deported some 286,000 workers for visa violations during a labor amnesty this fall, a full 7% of the country's population, thereby exacerbating a labor shortage. The result? There is now serious talk of the country implementing a minimum wage for the first time in its history.
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Implementing minimum wages is stupid.
Giving those workers some decent civil and market rights is what's needed. Things as basic as having a migrant status that isn't that of a slave, have the right to switch jobs, etc.
Indeed, indentured servitude plus minimum wage = indentured servitude.
But at least the wall is cracking.
Posted by: matthew hogan at December 11, 2007 09:35 PM
Market rights are a joke when it comes to migrant workers - the supply is substantially larger than the demand. An enforced minimum wage is essential, but will of course not cure all their problems. They would need trade union & striking rights, u.s.w...
Posted by: Ibn Kafka at December 12, 2007 04:16 AM
Because nothing requires flight from market mechanisms like the intrusion of supply and demand.
Posted by: matthew hogan at December 12, 2007 01:49 PM
My reply is almost as long as the length of the original entry, so forgive me.
I like the idea of a minimum wage. It's more likely to be enforced than existing laws on worker protections and minimum living standards. Plus it'll be a big step up in terms of the rise in pay (~40% from current average pay levels). If that means fewer projects get off the ground, that's fine because growth is too high right now. And if it means fewer people get jobs at all, that's fine too.
There's a major information shortfall in countries supplying labor, and I suspect a large proportion of the people who are in the Gulf on low wages didn't fully realize how little they'd make. Things cost more in the Gulf than they do in workers' home countries, and many companies make mandatory deductions from wages for items like food.
The minimum monthly wage figure being bandied about would still be fairly low by Western standards (
A new job also requires a new and expensive work visa, which employers often illegally pass on to workers. Any worker who attempts to switch jobs may be subject to a six-month employment ban at the employer's discretion. The threat of such a ban (coupled with orders to leave the country for that period) often dissuaded workers from collecting any unpaid wages, which were often the reason they wished to leave their jobs in the first place. Workers also may not change jobs during their first year of employment.
These same disaffected workers would have been the ones who became demoralized and started protesting. So the deadweight cost of a minimum wage in terms of fewer jobs is actually a win-win scenario for the UAE as a whole (no riots) as well as for most workers (no one arriving in the country and finding out they'd been screwed). The only losers are businessmen who depended on ultra-cheap labor, and obtained it by exploiting workers' inability to freely change jobs or return home.
The authorities certainly do need to take more steps on worker rights, and this might seem like a more appealing solution to some of you. But they will proceed slowly in this regard, if they move at all, as this would threaten a large number of entrenched interests. So a non-market solution is at present the best way to tackle the absence of other factors needed for a free market- the enforcement of existing laws and contracts by a fair judicial system, easy access to information, and the ability to do business with anyone you choose.
Posted by: TSAG at December 12, 2007 06:49 PM
Missing paragraph there:
The minimum monthly wage figure being bandied about would still be fairly low by Western standards (under $300) and as a percentage of total costs, but some jobs would definitely be lost. I think a minimum wage is a worthwhile idea regardless because the people who'd no longer make it into the Gulf are ones who would have been living in terrible conditions. They would thus have been very likely to want out, but not been able to afford it. This owes to the high price of an air ticket home relative to wages, as well as the large debt many workers incur in order to get to the Gulf in the first place.
Posted by: TSAG at December 12, 2007 06:51 PM
After reading that government-imposed restrictions like visas and one-year job bars impede fair and honest work-seeking, that people cannot enforce redress for inducement fraud in wage-advertising (the one market-friendly government action is punishment and redress for fraud in contracts), that minimum wages will lead to fewer projects and fewer jobs (and "that's fine"), I guess the only logical solution is to conclude that more interventionist supervisory fine tuning and management (minimum wage) by the same wise and benevolent government system (you know, the one known to worry should it "threaten a large number of entrenched interests") is the most effective answer.
The supply of premises does not match the demand for effective conclusions.
(I do realize that second-guessing the particular circumstances of a far off place may be beyond the ken of those of us without direct regular experience (just passing in my case), but it might be better to start with the presumption that market forces, tempered by government protection of basic rights to contract without fear or fraud, are the better solutions, and then cite the necessary local ingredients or incremental means to show how it doesn't work.
For now I just am seeing that the hidden foot of government crops up in every place cited to make life worse. Statutory fiat compassion from the same villains may indeed help, but the same villains are merely tinkering with a situation they should step away from greatly, and reform a focus on protecting basic rights.
Posted by: matthew hogan at December 12, 2007 07:34 PM
Simply put, opposing a minimum wage here would be to make the perfect the enemy of the good. Sure it would be ideal if the government protected workers' rights. But for better or for worse (and in this case, certainly the latter) that is simply not on the table. Now, given the choice between a minimum wage and the status quo, it is far better to have a minimum wage.
As for the government system, it was not designed to be benevolent, merely to be friendly to growth and Gulf citizens. It has done remarkably well on both those counts. It's just that regime interests (and by extension, goals) have changed somewhat. The system will probably be modified somewhat to take this into account, but in the meanwhile, governments will try to balance their long-term desire for change against their short-term need to maintain a support base among powerful entrepreneurs who benefit from exploitation.
Posted by: TSAG at December 13, 2007 12:22 AM
A minimum wage, set at the right rate, probably wouldn't even decrease employment. Because of the complete concentration of market power in the hands of employers, the low skilled employment market in Dubai is in practice a monopsony(especially if you lawfully can't change jobs). Lower wages and lower employment are the result. Now of course it would be ideal to have a nice, competitive market with contracting rights, labor mobility, and all that, but I wouldn't hold my breath on that happening in Dubai anytime soon. A minimum wage is much more feasible, improves living standards for workers(an indentured servant + 40% raise in wage = a much richer indentured servant), and doesn't cause a loss in jobs because of the already perverted labor market structure(not all the gov's fault either) and because low-skilled labor costs are such a tiny share of total costs that the builder will happily pass that little bump onto the buyers who have more money than they know what to do with already.
In the absence of full-spectrum reform, a minimum wage isn't a bad thing. And if there ever were a place where labor unions are needed, the Gulf is it.
Posted by: Djuha at December 13, 2007 12:50 AM
". . . in the meanwhile, governments will try to balance their long-term desire for change against their short-term need to maintain a support base among powerful entrepreneurs who benefit from exploitation."
They have a long-term desire for [positive] change?
Short-term needs to benefit from exploitation tend to become long-term, as was the case in 1600s Virginia colony's indentured servitude..
Competing systems (like a successful India) combined with internal agitation, or both, will probably bring all the mess down eventually.
The minimum wage will probably have a minor effect, I hope it's a positive one. The downside is it will diminish employment and create a false sense of success on the part of the agitators and a false sense of having done their part on the part of the exploiters.
Posted by: matthew hogan at December 13, 2007 01:15 PM
Ooops, I shouldnt say "will" but "will probably".
Posted by: matthew hogan at December 13, 2007 01:17 PM
Indeed, as the reduction of employment following a raise in the minimum wage is a beast often described but seldom seen in the wild (at least in the US).
Posted by: Tom Scudder at December 13, 2007 01:34 PM
Actually I edited out a part where I pointed out that minimum wages in US tend to be below the market so they are more symbolic than real, and have little effect on unemployment.
Effectively like putting a one-cent minimum wage, or setting interest rates near the Chicago Exchange rate. (In the converse example, even progressives could see that a $100/hour minimum wage would induce massive unemployment, or evasion.)
In US, minimum wages are favored by the bleeding hearts (as is public health) for the same reason it is opposed by us wacko libertarian ideologues: "a moral compassionate society must have it!" (progressive- center-left) or "a morally free society should never permit it!"(libertarians and economic-rigthists)
That it tends to hover around the market and have little effect one way or the other is secondary.
Posted by: matthew hogan at December 13, 2007 05:50 PM
"They have a long-term desire for [positive] change?"
Yes, although not out of any sudden discovery of the importance of human dignity. They don't like the growing bad press associated with poor conditions for workers. Optics explain why so many of the changes made thus far have been cosmetic.
Waiting for India to become prosperous is a bad idea for two reasons. First, it's a huge and largely poor country, and people there are going to be seeking employment abroad for decades no matter how fast it grows owing to the large wage differential. Second, even if were to become wealthy enough that its poor seek opportunities inside the country, there will always be new parts of the world eager to take its place, and the only real cost to Gulf countries would be the slightly higher price of an air ticket to North Korea or Nigeria.
Also, the number of jobs is not an end in and of itself. Forbidding child labor diminishes employment as well.
Posted by: TSAG at December 13, 2007 09:56 PM
Forbidding child labor diminishes employment as well.
Without jumping in the classical debate of supporter vs. opponent minimum wage (needless to say I'm with Matthew), it strikes me how illogical from those here who support the measure to think it's going to change anything (for better or worse) if civil rights are not implemented and enforced first - as well as market rights at least where contractual freedom and enforcement are concerned.
What is basically proposed: give a minimum wage and it'll solve the case of those for example whose contracts are not respected, who can't quit for not being paid what was agreed upon (not to mention a minimum wage)...
Shaheen, your link goes nowhere special. An economy can have an equilibrium employment level with and without child labor, and the latter involves fewer people working for higher wages. Take a look at this if you're interested in the details.
I don't think I used the word 'solve' anywhere. My only argument is that a minimum wage will be an improvement over the status quo. And even if some employers try to skirt the rules, many (a large majority, I daresay) are likely to comply.
Posted by: TSAG at December 13, 2007 11:54 PM
This is a tough one.
I understand TSAG's point, and hope that a minimum wage will address the issues.
I suspect it will not, having had exposure to the Gulf as investor.
Changing the visa regime and associated practices (not making employees effective indentured servants of the visa sponsor, instituting some basic labour rights) strikes me as more genuinely effective in the medium term, also given my experience in emerging markets.
I do not have great faith in TSAG's assertion supra that many employers (employing wage labour) will adhere to the law - the opportunities in speculation and the upside exploitation strike me as large enough to outweigh the rather weak local concept of enforcement in labour rights areas. Sure, maybe their headline wages will be in line with minimum, but there will be charge backs on "costs", etc. that will push received wages down towards the exploitation wage.
Sadly the Khaliji elites and franchisees, who enjoyed slavery until the middle of the 20th c. (or later in reality) have no gone beyond a certain rentier-exploitationist mentality regarding outside labour. Indeed, the pattern between brutal exploitation of physical mass labour and oddly privileged 'servitude' (if nicely packaged and compensated)for expert labour echoes the past.
At the same time, also knowing the system, I do not think a market solution alone works. A minimum wage for say physical labour, plus enacting real labour mobility at those levels (especially) once a work visa is obtained combined may be the right steps to move the extent system to something less abusive.
All in all, Djuha supra has a balanced view, but again, I believe that given the corruption opportunities, ability to improve margins, etc., purely a minimum wage will not work.
Certainly of course it will "calm the spirits" a bit, for a period, but I doubt reality will be changed without the added leverage of labour mobility.
Posted by: The Lounsbury at December 14, 2007 03:01 PM
In regard to Son of Kafka (Qafqa; Khafhka, Gafga? -- let's bring this discussion down into the gutteral there), assuming your premise -- a minimum wage is neutral to dangerous.
If supply outstrips demand to such a great extent, and that is the problem, then a genuine meaningful enforced minimum wage means that labor demand will NOT increase but is more likely to GO DOWN still further as wage rates now go higher. And labor supply will increase as potential workers learn that wages are higher and more guaranteed.
Again, the common sense appicability of marketplace economics is not eclipsed by the presence of supply and demand, the one area marketplace activity is uniquely qualified to fix.
Also, marketplace solutions do not mean anarchism (I may be a fundamentalist but not an anarchist), they mean loosening restrictions on freedom of contract (mobility and quitting) while tightening up enforcement of the contract terms (against fraud and abuse, including disclosure of real risks of safety and health).
Minimum wage might not be awful or possibly even paradoxically helpful depending on the local political-economic vagaries, but there is not enough data to suggest that marketplace dynamics wouldnt work, just enough data to say that marketplace rules aren't being applied.
(Despite my fundemantalism on such things, I do agree that intermediate feasible political steps towards reform may not be "Liberal", but still minimum wage seems unimportant andperhaps counterproductive.)
Finally as a general rule, when demand and supply are way out of whack it usually implies:
a) the presence of a great marketing opportunity that marketplace economics is primed to cure.
b) the presence of great government intrusion which is screwing up (a)
c) technological infeasiblity which marketplaces and sometimes governments will fix over time
Posted by: matthew hogan at December 15, 2007 01:44 PM