Would minimum wage help UAE's lowest-paid workers – or just stoke inflation?

The UAE and other Gulf nations attract workers from around the world by often offering better opportunities than those available in expatriates’ home countries.

The vast expat workforce includes lower-skilled staff, whose contribution in sectors such as construction, hospitality and retail have been central to the region’s economic growth.

In Qatar, these employees received extra protection in 2021 when the country became the first Gulf Co-operation Council member to introduce a minimum wage that applies to all nationalities. Could the UAE follow suit?

Frederic Schneider, an economist and senior fellow at the Middle East Council on Global Affairs, suggested the move could help the Emirates remain attractive to foreign workers.

“There seems to be a massive oversupply of labour in the UAE,” said Dr Schneider, who is also a former lecturer at the University of Birmingham Dubai.

“I see a lot of informal talk about difficulties to find a job. A growing population means a growing workforce and growing competition, which drives the price of labour down.”

In this context, he said that the UAE authorities would want the country to remain an attractive destination for foreign labour, so “we could see a minimum wage for everybody”.

Remittance v quality of life

A fundamental argument for a minimum wage is that it would increase the quality of life of the lowest-paid workers.

However, this outcome is not guaranteed, suggested Brett Preston, chief human resources officer at Ghobash Group, which has interests in sectors including health care, education and property.

“Remittance statistics from money exchanges may suggest that most low-paid employees send most or all their payments back to their home country to family,” he said.

As a result, the employee’s quality of life may remain “unchanged” by an increase in salary. However, a rise could mean they can send more money to their families – a major reason why many foreign workers are in the UAE.

Racha Makarem, a Lebanese UAE resident and business founder, said that a minimum wage would be an important development.

“Securing a minimum wage that is fair would help with reducing staff turnover and it creates a greater sense of belonging to the team,” she said.

Ms Makarem and her business partner, Liliane Nakad, founded a translation and events company, Four Pillar Communications, and Abu Dhabi confectionery and chocolate manufacturer Sense Seven Delicacies.

“I feel [a minimum wage] would be fair. People who work in a factory, usually they work for 10 to 12 hours a day.

“They’re standing on their feet. It’s gruelling manual work. They need to feel that they are being treated fairly.”

Ms Makarem said she and her business partner typically pay their employees well above the “market minimum”, and this motivates staff “to do a better job”.

Mr Preston said paying more generously could benefit firms, rather than being a competitive disadvantage.

“If companies meet salary package benchmarks for their industry and implement quality recruitment practices, then greater capability can be identified,” he said.

Improved productivity

If increasing the wages of lower-paid staff is associated with productivity improvements, this might mitigate concerns that minimum wages make life more difficult for businesses and stoke inflation.

There may be a trade-off between workers' interests and the government's desire to ensure the UAE remains “an attractive place to do business”, Dr Schneider said.

“If you were to have a very generous minimum wage, that would hurt employers’ purse strings. That will increase labour costs and make the Gulf as a place for foreign investment and foreign companies less attractive,” he said.

“If things get more expensive, it will not only have an impact on business, but on private households – with prices, with inflation. All of this will have repercussions if it were to happen.”

While minimum wages are sometimes viewed as inflationary, one Dubai company executive, who asked not to be named, said such concerns “are typically overblown”.

“Worker protections, including higher minimum wages, are a driver of higher labour productivity, and any short-term impact will be flattened out by the changes in the workforce over time,” he said.

To lessen the immediate impact on businesses, a phased minimum wage introduction could be considered, suggested Ms Makarem. Otherwise there is a risk that costs could “rise very quickly”.

“That would make it much harder for me to hire staff if I need more staff. In the worst-case scenario it would make my business unsustainable,” she said. “As a business I need a chance to adapt.”

Events in Qatar offer some indication of what impact a minimum wage might have in the UAE.

The Qatari measure was groundbreaking as it applies to workers of all nationalities, unlike the minimum wage in Oman. The latter was introduced in 2013 and applies only to the country’s citizens employed in the private sector.

Under Qatar’s rules, workers must be paid at least 1,000 riyals ($274.66) per month, plus 300 riyals ($82.40) for food and 500 riyals ($137.33) for accommodation if these are not provided by the employer.

In the seven months after the minimum wage was introduced, around 280,000 employees, or 13 per cent of the workforce, enjoyed an increase in their basic pay, according to the International Labour Organisation, a United Nations agency. Many of them, an ILO spokesperson told The National, were “migrant workers in low-wage occupations”.

A crucial issue for any minimum wage legislation is implementation, said Prof Martin Beck, of the University of Kurdistan Hewlêr, who has analysed Qatar’s labour reforms.

“You have to make sure that the employers actually apply this,” he said. “Here, Qatar has this big advantage in that you have the International Labour Organisation office. They can remind the regime of faults in the system.”

There have been reports of non-compliance, and the ILO said “continued efforts” are needed to ensure that those entitled to the minimum wage receive it.

Qatar labour reforms

In Qatar the minimum wage was part of wider labour reforms brought in since 2018, including measures that have made it easier for workers to move between employers. Notably, in 2020 Qatar scrapped the requirement for a no-objection certificate, so workers no longer need their employer’s permission to change jobs.

The ILO has not analysed the macroeconomic impacts of these reforms in terms of, for example, whether overseas companies have become less willing to invest in Qatar or whether it has become easier for employees to retain staff.

“But early evidence and qualitative observations suggest that the measure, combined with reforms to job mobility, has enhanced competition in the labour market and may have contributed to better matching between employers and workers,” the ILO spokesperson said.

The effects in different labour markets offer broader context on the impact of minimum wages, although their lessons may not be applicable to the Gulf region.

In the United Kingdom, research indicates that minimum wage increases cause some part-time roles to be lost. In the US, where there is a national minimum wage that individual states may choose to increase, the measures have resulted in the closure of less-productive small businesses.

Dr Schneider suggested a minimum wage in the UAE might encourage “workarounds”, such as companies taking on people on a more informal basis or having nominal working hours that are not adhered to.

Other potential pitfalls have been highlighted. The Dubai company executive said that if a minimum wage was set higher than the real market price for a job, the system would become vulnerable to exploitation by “home-country recruiters”.

“That is to say that the workers end up paying for the right to take the job, which is illegal but very common in practice among the lowest-skilled workers,” he said.

While describing the introduction of a minimum wage as “absolutely a move in the right direction”, he said protecting workers involves addressing not just wages, but also living standards, labour rights and co-ordination with authorities in countries that provide workers.

The ILO said it is working with other Gulf countries “to review their wage policies”.

“ILO is providing policy options and supports dialogue between governments, the private sector and employees to discuss wage issues, including the possible establishment of a minimum or living wage,” the ILO spokesperson said.