Book Review:
Dynamics of Wage Fixation in a Developing Economy: the Case of Papua New Guinea
Author: Imbun, B. Y.

Imbun, B. Y. (2010). Dynamics of Wage Fixation in a Developing Economy: the Case of Papua New Guinea Nova Science Publishers Inc, New York

Reviewed by: Michael Thorpe

This is a relatively lean book, 10 chapters spread over 154 pages in total, but it seeks to cover a lot of ground. The objectives of the book are severalfold. As well as providing a comprehensive review of the Paua New Guinea (PNG) experience with wages policy determination (particularly as regards minimum wages) from colonial times through to the present, the book also aims to fill a gap in the minimum wage literature relating to developing countries more generally. It is intended for scholars and policy makers working in this area. This is a big challenge, but the author does succeed in providing a clear introduction to the theoretical underpinning s and debates which exist regarding the efficacy of minimum wage legislation and in outlining the policy evolution in this area in PNG. As such the book is an excellent starting point for those new to this area of minimum wages policy and those seeking a detailed understanding of how this policy question has played out over time in a particular developing country moving from colonial phase with regulated labour markets to a postindependence era which embraced more deregulated approach. The problems identified in the latter case have been myriad, including macroeconomic challenges, changes of government and IMF and World Bank interventions.

The author is unabashedly a supporter of minimum wage fixation in a developing economy context. Recognising that the tension that exists between the objectives of employers and unskilled workers, it is considered that policy makers have a responsibility to balance the economic imperatives with wider social and equity concerns. For workers, a minimum wage is essential to sustain their livelihood and this can help boost productivity and reduce social and industrial unrest. While imposing a direct cost burden on employers, such a policy can help achieve a demand driven economy. In the book it is argued that there is evidence that minimum wage legislation, if done correctly, can result in reduced wage inequality and help alleviate poverty while having little impact on unemployment. The challenges facing developing countries with growing populations entering labour markets and with often struggling economies compound the issue and makes for difficult policy decisions.

A feature of the book is the topics covered. The first chapter in the book introduces the concept of the minimum wage and reviews the policy and theoretical debates which surround this topic. The colonial period in PNG, prior to its emergence of an independent state in 1975, is then canvassed in two chapters, highlighting the role that the then government played in supporting the rights of employers and in setting up an institutional framework and industrial relations system which would underpin centralised wage fixation postindependence. Chapters 4 introduces the postcolonial period and the eventual controversial shift in 1992 from a regulated to a deregulated wages system in a policy response to what was considered a high wage economy acting as a constraint on expansion and development. This action created considerable political debate in PNG and began a new era in wages policy. The author provides evidence to suggest that the decade following the deregulation had little if any impact on employment and investment in PNG, leading, in fact, to greater participation by unemployed urban residents in the informal labour market. The chapter attempts to clarify what is viewed as a continuing debate among commentators as to what exactly was the impact on the economy over the 1990s. Major changes introduced in 2000 which sought to redress some of the earlier problems and come up with a new minimum wage guide are dealt with in chapter 7. Policy was directed at balancing fairness in the labour market with the needs of business competitiveness. The 2000 decisions, however, appear to now be in limbo. The book leaves the reader a little uncertain as to what the state of play is currently and this is a gap that needs addressing in subsequent work in this area. The final chapters call for an overhaul of the way government deals with wages policy in PNG, moving away from a focus on the cost aspect of wages, and towards a more pluralist approach with emphasis on equity as well as efficiency issues. There is suggestion of the applicability of the PNG story to other developing countries. These last chapters just brush the surface, raising serious points, but ones which need further study and analysis. They do provide, nevertheless, a very useful starting point for those interested in this area of wages policy for developing countries, particularly in the PNG context.

A clear understanding of the historical experiences of countries, married with an appreciation of the policy debates that do exist, is an important element in governments ‘getting it right’ and fostering development across different economies. This book provides an accessible account of one country’s evolution to date in terms of wages policy; it is an ongoing story.

Michael Thorpe
Curtin University