IRPO: IRAN'S MINIMUM WAGE INCREASE DISASTROUS

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 005512

SIPDIS

NOFORN
SIPDIS

E.O. 12958: DECL: 8/30/2016
TAGS: IR ECON EFIN ELAB
SUBJECT: IRPO: IRAN'S MINIMUM WAGE INCREASE DISASTROUS

REF: DUBAI 5421

DUBAI 00005512 001.2 OF 002


CLASSIFIED BY: Timothy M. Brys, Acting IRPO Chief, Dubai, UAE.
REASON: 1.4 (c),(d)



1.(U) This cable has been coordinated with ConGen Dubai.

2.(C//NF) Summary: Iran's government recently put into affect a
mandated increase in the minimum wage, aimed specifically at
Iran's many contract workers. The increase has reportedly had a
disastrous affect on those it was actually meant to help, and
has exacerbated Iran's already dire unemployment problems. End
summary.

3.(SBU) In March, workers' representatives, employers, and
government officials set the minimum wage for the new Iranian
year after intense negotiations. According to Siyasat-e Ruz (a
conservative FARSI language daily),the minimum wage for the
current Iranian year was determined in two ways. First, the
government announced that the minimum wage for permanent
employees or those with unlimited daily contracts was to be
increased by 10 percent over the previous year plus an
additional 5,000 rials (aprox. 55 cents) per day. After the
first announcement, the government issued what amounted to a
correction, setting the daily minimum wage for permanent
employees at 50,000 rials (5.46 USD),while the daily wage for
workers with short-term contracts became 60,000 rials (6.55
USD). Article 41 of Iran's Labor Law stipulates that the minimum
wage of workers should be increased in line with the annual
inflation rate announced by Iran's Central Bank -- 12.1 percent
in 2005 (Ref). To date, wage hikes have fallen far short of the
inflation rate.

4.(SBU) The Iranian government did not increase the minimum wage
for workers in Iran for the first decade after the Islamic
revolution in 1979. The poverty line rose with inflation,
surpassed the minimum wage, and opened an ever-widening gap.
According to official figures for the previous Iranian year, the
minimum wage per month was set at 1.22 million rials (approx.
130 dollars),while the official poverty line is approximately
three million rials (approx. 330 dollars) per month.

5.(SBU) The decision to raise the minimum wage has been widely
criticized. In an open letter to President Ahmadinejad in June,
50 Iranian economists condemned his administration's
"unmethodological interference" in the labor market. They
specifically blasted the government's decision to raise the
minimum wage for setting employees against employers, stating
that "confrontation is not in anyone's interest." The
economists suggested: 1) reducing inflation to 10 percent; 2)
increasing wages in proportion to inflation; and 3) improving
workers' benefits. A member of the Majles Economic Commission
admitted in June that 12 percent of those currently employed
were expected to lose their jobs following the wage increase,
according to Iran Daily (conservative English-language news
website).

6.(C//NF) The mandated wage increase is already adversely
affecting workers, employers, and overall unemployment numbers,
according to anecdotal information and Iranian press. In
addition, a number of Iranian press reports indicate that
employees with short-term contracts have been hit the hardest by
the wage hike as their pay increase outpaced workers with
permanent contracts. The head of a cement factory in Iran told
Conoff in late July that the wage increase has had dire
consequences for businesses in Iran. He explained that 35
factories and industries in Karaj, a city west of Tehran, have
closed because they cannot meet the new mandated wages for their
employees.

7.(C//NF) According to a businesswoman from Tehran, Iranians are
being laid off "wholesale" as a result of the mandated increase
in salary, especially contract employees. She said that a
hospital in Tehran has laid off 500 employees due to the burden
of increased salaries. According to Iranian press reports, mass
layoffs across the country followed the mandated wage increase.
Although the Labor Minister claimed the number of layoffs was
insignificant, Siyasat-e Ruz reported on 10 June that during the
period of 20 March to 20 May, 50,737 workers lost their jobs,
approximately a 21 percent increase over the same period from
the previous year. According to a recent Iran Daily (an
English-language news website) article, the rapporteur of the
Majles Social Commission asserted that some lawmakers believe
that the increase forced employers to dismiss almost 200,000
workers.

8.(C//NF) Iranian employers claim that wages have risen 60

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percent, which they can ill afford, according to Iranian press.
Many employers are faced with the dual dilemma of having to pay
their employees higher wages while not being able to raise the
prices of their products under the fixed-price law passed by the
conservative-controlled Majles. Continued pressure from
increased salaries and fixed-prices for their products could
force more Iranian employers out of business.
BRYS