There was a time when Papua New Guinea’s minimum wage was regarded as high but how does its compare today with the minimum wages of comparable countries? Economists Stephen Howes, Kingtau Mambon and Kelly Samof provide the answer.

Three construction workers in Kokopo. They get paid minimum wage. Credit: Devpolicy

The urban minimum wage has been an important part of Papua New Guinea’s economic history. In the last few years before independence (in 1975), it was greatly increased. In the decade or so after independence, it was widely regarded as too high. In 1992, it was slashed, merged with the rural minimum, and hardly increased again for more than a decade.

We can compare the minimum wage in PNG today with other Asia and Pacific developing countries using International Labour Organisation (ILO) data.

‘With regards to unskilled labour, [PNG] is no longer a high-wage economy.’

As Figure 1 shows, PNG’s is 18 per cent below the average of the 19 countries shown if the market exchange rate is used to compare minimum wages. It is 37 per cent below the average if differences in cost of living are also taken into account (with conversions made on the basis not of market exchange rates but so-called purchasing power parities or PPPs). The greater difference in terms of PPPs reflects PNG’s relatively high cost of living.

Of the countries shown, only Samoa and Kiribati have a lower minimum wage than PNG when a PPP comparison is made.

Credit: Devpolicy

This is very different to the past. Raymond Goodman, Charles Lepani and David Morawetz in their 1985 report The economy of Papua New Guinea compared minimum wages in PNG with a subset of the countries above back in 1978. Then, the PNG minimum wage was about twice as big or more than the other comparators. Today (using market exchange rates, and the earlier authors do), PNG comes in the middle of the pack, as Figure 2 shows.

Credit: Devpolicy

The solution to low wages in PNG is not necessarily to increase the minimum. In some sectors, where there is a lot of international competition, a higher minimum wage might lead to job losses.

For example, in tuna processing, one of PNG’s main competitors is the Philippines. From Figure 1, we can see that PNG’s minimum is lower than the Philippines’ on the basis of PPPs, but actually higher on the basis of market exchange rates. While the former is what matters for the welfare of workers, the latter is what matters for international competitiveness. Whether PNG’s minimum wage should be increased will require a lot more analysis.

The point of this blog is simply that PNG’s minimum wage does not look high any more by international comparisons, as it has fallen a lot since independence. PNG is often described as a high-cost economy, and this is a fair description. However, with regards to unskilled labour, it is no longer a high-wage economy.

This is an edited version of a longer article which first appeared on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University.

Stephen Howes is Director of the Development Policy Centre and Professor of Economics at the Crawford School of Public Policy, at The Australian National University. Kingtau Mambon is currently undertaking a Master of International and Development Economics at the ANU Crawford School of Public Policy, for which he was awarded a scholarship through the ANU-UPNG Partnership. Kelly Samof is a lecturer in economics at the School of Business and Public Policy, University of Papua New Guinea.

Disclosure: This research was undertaken with the support of the ANU-UPNG Partnership, an initiative of the PNG-Australia Partnership, funded by the Australian Department of Foreign Affairs and Trade. The views are those of the authors only.