Situational irony: understanding wage in a tourism economy
As we sit astonished by what COVID-19 has done abroad, it highlights several problems with our economy we must begin to consider.
A global shutdown has initiated mass layoffs at the hands of hotels and other businesses and has thrusted many in the direction of National Insurance and the government for social assistance in the weeks to follow.
Some businesses and hotels have granted about a half percentage of workers’ salary; others have not.
This, then, has led many to lament that the current minimum wage of $210 does not allow for money to be put aside for a pandemic such as this one, as the expenses of life such as housing and food do not allow for it.
I’d like to make a simple theory of economics clear to many: we live in a free-market economy, one that rests greatly on foreign direct investment.
This means that minimum wage has to remain the same for the system to uphold itself.
It also means that the large score of the population expected to work in the hospitality industry are hired to perform unskilled, service-oriented tasks which do not require any real skill or qualification.
Unskilled work receives minimum wage.
Ironically, if minimum wage is raised, it can open a can of worms we are not prepared to handle.
It will backfire, resulting in an even less skilled labor force or an even wider skills gap, among other problems associated with the latter.
More layoffs would occur as a result of a minimum wage increase because employers will struggle to sustain profits, which in turn would lead to a hike in prices to fulfill what can be seen as another overhead fee.
Even more, the issue of minimum wage extends further with incentive motivation which has to do with external rewards for labor and this means that people simply pursue skilled work to make more money.
If people make more money performing unskilled tasks, they won’t pursue necessary professions in health and education to name a few.
I do not seek to present alternative socioeconomic systems as the solution to the minimum wage issue as they cannot survive in a global economy dominated by the free enterprise of goods and services and economic interdependence, but to shed light on our current situation.
We look elsewhere for the essentials we cannot produce for ourselves and as a small-island developing state, our dependence is even greater because production for us depends on a myriad of variables such as our susceptibility to natural disasters right down to widespread degradation of land and sea ecosystems and a lack of resources to cater to growing populations.
The question then is, can we have our cake and eat it too?
Can we have higher wages for all and still have an economy that is able to hold itself together?
In our small-island developing state, the underlying issue largely has to do with our excessive dependence on overseas trade and over reliance on tourism as the foundation of the Bahamian economy.
Tourism for one is greatly encouraged by the government with the Hotel Encouragement Act, which means concessions and exemptions that favor hoteliers are allowed, as the foreseeable end goal is to provide employment for large numbers of Bahamians fresh out of high school.
The stranglehold here, however, lies in knowing banking is directly linked to hotel tourism as the second largest industry.
Hotel tourism and banking are largely intersectional because they both have to do with tax concessions.
Although hotels and casinos pay business licensing fees and gaming taxes, and offshore banks are compelled to pay Central Bank licensing fees and other business licensing fees, foreign investors and bankers have the luck of being exempt from capital gains earned within the country.
In order to be a leading hub for offshore banking and to be able to attract hoteliers to begin with, there needs to be a tax system which proves profitable for the investor; anything less can be a deterrent.
However, while the investors benefit, so do we.
Hotels and other foreign businesses provide employment for a large margin of the Bahamian population.
If corporate taxes, for our benefit, are levied on these investors, will they not draw out to protect their investments? Then, where does that place us as a non-producing people?
In an editorial dated March 11, and published on the Eyewitness News website, and in The Nassau Guardian, Sebas Bastian illustrates what has been termed a “national skills gap” which can partly be attributed to our continual steerage into the hospitality industry as the lion’s share of our economic well-being.
In that same editorial, Bastian makes note of a report by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) which states the “Bahamian tourism sector is becoming increasingly uncompetitive because [The Bahamas] is a high-cost destination and facing competition from other tourist markets that are in close proximity to the U.S…. The problem is compounded by the trend that has emerged of a marked shift towards increases in cruise ship arrivals as opposed to stopover tourists.”
I predict that advancements in artificial intelligence (self-service kiosks, self-checkout machines, mobile check-in services) can replace concierge and reduce human contact in the hospitality industry. It is beneficial for hoteliers who will rely on artificial intelligence to cut costs and boost profits.
Again, this is something to consider.
The question one is moved to ask is, in light of these growing changes to the tourism market, are incumbent governments using the same commitment involved in the Hotels Encouragement Act to steer more young people to pursue skilled work as the solution to the wage issue?
Are these governments aiming to reduce our dependence on hotel tourism through alternative industries on home soil?
If they were, it would certainly require what economists term “shock therapy”, and is sure to result in a dissatisfied electorate.
— Glenn King