Working Papers

The Employment and Wage Effect of Minimum Wage in the Egyptian Public Sector

Publication Number: ECESWP166- E

December, 2011

Author : Noha S. Omar and Heba Abdel Latif

Type : Working Papers

Introducing a minimum wage (MW) policy has become a hot issue in Egypt post the January 25 revolution. This paper explores quantitatively the employment and wage effects of raising MW in Egypt. It addresses the MW policy in the Egyptian public sector using panel data over the period 1985-2008, across nine economic activities, namely, agriculture, hunting, breeding and fishing; mining and quarrying; manufacturing; electricity, gas and water; construction; wholesale and retail trade, restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services; and community, social and personal services. To assess the wage and employment effects of MW, the paper estimates two equations for the real wage and employment. The estimation results suggest a positive impact of raising the MW on the average wage (AW), but insignificant effect on employment, in general. Interestingly, the study finds wage levels in the mining and construction sectors to be the most responsive to MW variations. Also, employment tends to increase, suggesting a positive elasticity to the change in the real MW in the community services sector. Finally, the results point out the need to implement different MW levels across economic activities to ensure compatibility with wage and productivity levels within each sector.