Salaries of state employees between nominal income and real income
Salaries of state employees between nominal income and real income
Mr. Dr. Saeed Ali Al-Obaidi
One of the important topics in economics is the so-called nominal and real, there is the nominal interest rate, the real interest rate, nominal wages and real wages. The wage is the income that the worker or employee receives during a specific period and periodically, such that it is a month or less. And the salary of an employee in the state is his monthly income. This income is in two forms: the nominal income, which means the cash amount received by the employee each month. It is measured by the number of Iraqi dinars received. As for the second picture of the employee's income, it is the real income, which means the purchasing power of the nominal income, or in a clearer sense it is the amount of goods and services that the employee can buy from the market in return for spending all his nominal income.
The real income in terms of value depends on two things: the first is the amount of monetary income and the second is the general level of prices, especially the prices of consumer goods and services that are usually required by the consumer. The relationship between real income and monetary income is a direct relationship, meaning that the higher the nominal income, the higher the real income, assuming that the general level of prices is constant. As for the relationship with the general level of prices, it is inverse, meaning that the higher the general level of prices, the lower the real income. The lower the general price level, the higher the real income, assuming constant nominal income.
Back to the salaries of Iraqi state employees these days. Its real value has decreased, which means a decrease in the standard of living of the employee. This is due to several reasons, the most important of which are the following:
1- The government decided to reduce the exchange rate of the Iraqi dinar against the dollar by 20%, and this directly means reducing the employee’s real income by 20%. This is because this matter led to an increase in the prices of goods in the market, most of which are foreign goods denominated in US dollars, and this matter applies to consumer goods, capital goods and durable goods alike, and this means that the amount of goods and services that the employee purchased in return for spending his salary has decreased With the same rate of depreciation of the Iraqi dinar exchange rate against the US dollar.
2- The outbreak of the Russian-Ukrainian war led to a rise in the prices of food and non-food commodities, of which these two countries contribute a large percentage of their global production. It is on the rise and globally as well. This rise in prices is called inflation resulting from the lack of supply of goods and means a decrease in the value of money or the real salary at the same rate of inflation, as well as a decrease in the standard of living by the same percentage. One of the repercussions of the Russian-Ukrainian war is a sharp rise in energy prices. As everyone knows that the cost of energy is included in the whole production process. The operation of machinery, equipment, means of transportation, communications, agriculture, industry and services all require energy to operate, and the rise in crude oil prices leads to higher production costs in general, which leads to an inflation called cost-push inflation. This inflation exacerbates the rise in prices and then the decrease in the real value of the employee's real income and the consequent decrease in the standard of living.
3- A few years ago, the Ministry of Commerce withheld the ration card for every employee whose salary was one and a half million or more on the basis that this amount was sufficient for him to be in a comfortable life. But what happened after that in terms of inflationary waves or the decline in the exchange rate of the Iraqi dinar and the global rise in food prices made one and a half million people lose more than a third of their value or their purchasing power. The ministry did not address this issue by raising the minimum salary for the employee who is withheld from the ration card items. If we go back to the price level on the day the withholding decision was taken and compare them with the prices at the present time, we will find that the number of people deprived of the ration card has doubled. This increases the widening of the circle of deprivation and suffering at the level of state employees.
Developed countries and developed economically and socially usually link wages to the general level of prices or the rate of inflation. The purpose of this is to maintain the standard of living of its citizens. In Iraq, the government did not take any such measure to compensate the employee for what he lost from his real income and the standard of living for his family. With the worsening of the situation after the Russian-Ukrainian war, the situation remained the same. Oh God, except from emergency aid for those whose income is (500) thousand dinars or less, when they were given an amount of (100) thousand dinars for one time. Although this amount is small, but it is better than nothing, and it must be repeated. The government should consider the losses that affected other income groups.
Maintaining the employee’s real income level and then his standard of living is extremely important, as it contributes to enriching the employee and his family from need and deprivation and enabling him to continue educating his children and providing them with medical services and good nutrition. It also contributes to making him loyal to his department and immunizing him from deviation in the labyrinths of corruption, bribery and dereliction of work.
For all of this, we call on the government to have a salary paragraph called cost-of-living allowances that will be the weight of the egg in balancing the high cost of living and the salary received. These allocations are variable, increase or decrease, according to the change in the rate of inflation in the Iraqi economy.