Soaring prices continue to weigh on Moroccan households, eroding their real income and causing growing discontent among unions. Over the past two years, consumer prices have risen by 6.6% and 6.1%, respectively. Faced with social pressure, the government had to reassess its strategy and commit to increasing the minimum wage despite having already raised it by 15% over the past three years. This pattern of periodic wage increases has become a habit for successive Moroccan governments over the past two decades, typically occurring every two to four years to secure voter and public approval, even in the absence of significant consumer price increases. In April 2024, during social dialogue meetings between the Moroccan government and trade unions (UMT and UGTM), an agreement was reached to raise the minimum wage again by 10% across the industrial, commercial, and agricultural sectors.
Since the early 2000s, around ten increases have been implemented in the minimum wage. At first glance, this appears to be a welcome move towards improving workers’ living standards and reducing income inequality. However, several economic factors come into play when examining the long-term effects of such a policy. Some businesses and economists have raised concerns about the potential impact on employment levels and overall business competitiveness. There are fears that higher labor costs could lead to job losses, particularly in sectors with small profit margins and open to intense international competition.
Raising Minimum Wages: Boon or Bane for the Economy?
The quality of the labor market is a major challenge for Morocco. Despite improvements in its global ranking over the past decade, it remains below the MENA average and trails most comparable countries except Ghana and Tunisia. Persistent issues include high unemployment and low labor force participation, especially among youth and women. Youth unemployment can reach 40%, and female labor force participation is only 23%. Additionally, about 40% of employment is informal.
Various factors are causing these challenges, including strict labor market rules, high taxation, complex recruitment procedures, bureaucratic obstacles to dismissals, and one of the highest minimum wage levels in the region. Even before the recent 10% rise, the minimum wage in Morocco stood as one of the highest in North Africa and among EU garment providers across the world. At $307 monthly, it surpasses the minimum wages in Bangladesh, Pakistan, and Myanmar and is notably 50% higher than in Tunisia, causing obstacles for Moroccan manufacturers.
Not surprisingly, high labor costs reduce the competitiveness of Moroccan industries, especially in the global market. Labour costs play a crucial role in overall competitiveness. Businesses struggle to survive, foreign investment are deterred, economic growth stalls (Evalliance). Furthermore, a high minimum wage significantly impacts small businesses, particularly those with low profit margins. The outcome is reduced hiring, fewer working hours, lack of opportunities for young and unskilled workers. A recent study by the IMF has argued that lower hiring costs and other barriers to entry, particularly for SMEs, could lead to a 2.5% increase in output and a 2.2% reduction in unemployment over the medium term.
Finally, a uniform minimum wage across the country ignores the regional differences in the cost of living and economic development. What might be a reasonable minimum wage in urban centers like Casablanca or Rabat could be burdensome for businesses operating in poorer regions. This disparity can further exacerbate inequalities within the country.
Rethinking Minimum Wage: Top-Down vs. Bottom-Up Approach
Many mistakenly believe that minimum wage increases drive wages up, overlooking the role of market dynamics. In fact, the real debate is whether wages should rise through top-down mandates or by investing in skills and education. Market dynamics primarily influence wages, a view supported by theory and empirical data, but many political leaders prefer the top-down approach.
Historically, economists have widely acknowledged the harmful effects of minimum wage increases on jobs and productivity. A recent paper from the National Bureau of Economic Research reviews studies on minimum wage hikes and challenges the notion that they do not affect employment. The authors present strong evidence indicating job losses, especially among teenagers, young adults, and those with lower education levels. This study emphasizes that raising the minimum wage leads to higher unemployment, an essential economic fact.
Morocco can build a robust economy that benefits everyone by prioritizing economic growth policies and skill development (education and training). At the same time, less bureaucracy, tax cuts, freedom to hire and fire, and deregulation will encourage investment, economic growth, and employment.
Abolishing minimum wage laws is essential as they harm both workers and businesses and violate their rights to self-ownership and free association. While this may seem radical, many developed countries like Switzerland, Finland, Sweden, Denmark, and Norway, where workers enjoy high wages, do not have such laws. The government should protect rights, and abstain from interfering in consensual agreements between employers and employees.
Photo by Ehimetalor Akhere Unuabona
