07 April, 2006

Next up: cancellation of the law of gravity, cause of so much friction

Nationals hail decision on minimum wages : "Abdullah Matar, a national student at the American University of Sharjah hailed the decision, which he believed will encourage nationals to join the private sector."

Okay, maybe* it moves quantity supplied up along the supply curve, but what quantity demanded? Isn't it going the opposite direction? Have not firms already demonstrated they are profit seekers? If your plans to sell don't match my plans to buy I believe you will find that the smaller number determines the volume of trade.

Oh, right, there's a solution to that: quotas for nationals. In some places this constellation of policies might be called a duck. Where I come from we call it a tax. And who is it taxing? At the end of the day (given massive labor supply elasticities (sorry to get a tiny bit technical)) the burden of that tax falls on the employer. But come to think of it most firms must be 51 per cent local owned. This gives a whole new meaning to the phrase "circular flow"; a stealth welfare program from national to national.

Not that taxes are bad per se, but why not subsidize national employment? If it were you, would you rather your employer see you as a tax burden as a national treasure?

*The Emirates Economist has another spin.


1 comment:

Anonymous said...

The imposition of minimum wage for national employees i believe is an action taken to rebuilt the trust national employees had once destroyed due to their underproductivity and lack of responsibility(as percieved from expatriates who own a large share companies in the UAE).I believe the action taken by the ministry is a "smart" one, as such private companies do,after all,seek to maximise their profits,and one very good way to do that is to cut costs.By indirectly "subsidising" those companies (hence type A),nationals will find more arms to take them,companies will generate more profits AND will see how productive nationals have become due to better education and other life conditions.Globally,it will be clear that by basically hiring more nationals,profits will increase and so will its relation with society (better brand image for example).In all,excluding any technical factors,I believe an overall benifit on average can be achieved for both sides.

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