Labour consultant Austin Gamey has raised concerns about the government’s recent approval of a 10% wage increase for public sector workers, warning that the move could have unintended economic consequences.

According to him, while salary increments are often welcomed by employees, they should be carefully assessed based on economic fundamentals to prevent negative repercussions such as inflation.

His remarks follow the government’s announcement of the wage adjustment, which was secured after successful negotiations between the Labour Union and President John Dramani Mahama. This marks the second salary increment within a year, following a 23% raise in 2024 aimed at mitigating the effects of the rising cost of living.

Although public sector employees have embraced the latest adjustment, Mr. Gamey argues that such wage increases, if not linked to productivity, could do more harm than good to the economy.

Mr. Gamey expressed concern that even a small percentage increase in wages has the potential to push the country into a higher inflationary bracket, eroding purchasing power and ultimately affecting the same workers the policy intends to benefit. “I would have preferred it lower. Because even a 1% adjustment on the public sector wage takes us to another inflationary bracket, and that comes back to bite all of us, including them,” he stated.

Inflation Concerns Loom

Mr. Gamey warned that a 10% public sector wage increase is excessive, considering the economic climate. Ghana, like many developing economies, has been grappling with inflationary pressures, partly driven by global economic instability, exchange rate depreciation, and supply chain disruptions.

The labour consultant stressed that unless wages are tied to productivity, such increments risk further driving up inflation. “The issue is base pay. Normally, it should be based on productivity, but we are yet to get there as a nation. We are so far not practicing the performance management system here in Ghana fully,” he explained.

He noted that while the private sector often aligns wages with performance and output, the public sector does not operate on the same principles. This disparity, he believes, creates a system where salary increments are not necessarily linked to efficiency or productivity gains, making them unsustainable in the long run. “The private sector responds well, but the public sector doesn’t respond well. So, for fairness, the 10% is about the best for now. I would have preferred something else,” he stated.

Balancing Wage Growth and Economic Stability

While salary adjustments are often justified on the basis of addressing the cost of living, economic analysts argue that they must be implemented cautiously. A rapid increase in wages, especially in the public sector, tends to raise overall government expenditure, which may contribute to fiscal deficits. This, in turn, leads to an increase in money supply, fueling inflation.

Inflation reduces the purchasing power of citizens, making goods and services more expensive. Ironically, this could mean that public sector workers, despite receiving higher salaries, might not experience an improvement in their standard of living due to rising prices.

Some economic analysts share Mr. Gamey’s concerns, pointing out that Ghana has yet to fully integrate performance-based salary structures in its public sector. This means wage increments are often politically motivated rather than driven by economic efficiency. If not properly managed, such wage hikes could lead to a cycle where inflation erodes the benefits of salary increases, prompting further demands for adjustments.

As Ghana continues to navigate economic challenges, Mr. Gamey suggests that future wage adjustments should be tied to productivity improvements rather than arbitrary increases. He advocates for the full adoption of a performance management system within the public sector to ensure that salary increments correspond with efficiency and economic growth.