‘Balance is key’ in determining minimum wage increases, says economist

AMMAN — Increasing the minimum wage can boost consumer spending, leading to increased economic growth, according to economists. 

Director of the Phenix Centre for Economics and Informatics Studies (PCEIS) Ahmad Awad noted that an increase in aggregate demand, which refers to the total level of spending in the economy, is directly linked to economic growth. 

Aggregate demand includes household spending, investments and government spending, according to Awad. 

“Increasing the minimum wage can boost economic growth, because putting money into the wallets of those who are most likely to spend will inevitably lead to higher demand,” he told The Jordan Times.

Awad pointed out that the commodity prices and living costs in Jordan have outpaced the JD260 per month minimum wage, deepening poverty levels, eroding consumers’ purchasing power and leading to slower economic growth. 

Awad added that 75 per cent of retirement salaries in Jordan are below JD500, which is near the poverty line per household equal to JD480, according to pre-pandemic statistics. 

Moreover, Awad noted that “unfair customs and taxation policies”, including the income tax, the sales tax and the fixed tax on oil derivatives, are eroding purchasing power and increasing production costs in all economic sectors. 

Economist Mohammad Al Basheer, noted that although increasing income levels is usually propelled by  positive economic growth, this relationship isn’t always “as straightforward as it seems”.

When the burden of tough economic conditions falls on those at the bottom of the income spectrum, increasing the minimum wage becomes necessary. 

“It can help reduce the reliance of a large category of society on government aid and increase their consumption and spending on basic necessities, which stimulates the market, leading to economic growth,” he told The Jordan Times. 

Basheer pointed out that this process should be done gradually, as rapidly pushing wages too high might overburden employers, reduce employment and lead to higher inflation. 

“But when wages are too low, domestic household consumption is constrained. Finding the right balance is key,” he added.