Editorials

Toward a new minimum wage 

In its pre-election document, “Our Blueprint for Change”, the Progressive Liberal Party (PLP) pledged to “review minimum wage to phase in a livable wage”.

Noting that the cost of living is well beyond the means of middle and low income Bahamians, the PLP said it would “recommend to the National Tripartite Council that they move towards a minimum wage of $250 per week”.

Yesterday, Director of Labour Robert Farquharson said the government is aiming for an increase in the private sector minimum wage, which is currently $210, by the end of 2022.

Farquharson said the government has received a proposal from the National Tripartite Council, which has representation from the public sector, trade unions and private sector employers, but he did not reveal any details of that proposal.

The last time the minimum wage was increased was in August 2015 when it moved from $150 per week to $210.

Prior to that, a minimum wage was set at $150 in January 2001.

The primary purpose of a minimum wage is to help raise the standard of living for those most vulnerable in the labor market, though making ends meet on $250 a week in the current economic climate would still be a tremendous struggle for many.

Opponents of an increase argue that it would lead to job losses and higher costs of operating businesses, many of which already find it difficult to stay afloat given the impact of high inflation.

Studies have shown that increasing the minimum wage could worsen inflation as businesses increase costs to cover higher labor costs, thereby defeating the purpose of the increase.

The Bahamas Chamber of Commerce and Employers Confederation’s Labour Committee said yesterday the private sector is generally not opposed to a “reasonable” increase in the minimum wage.

But it said consideration must be given to the fact that there are two knock-on effects of a material increase in the minimum wage.

“Firstly, a material increase in the cost of labor will lead to the further inflation of the price of goods and services to the consumer in a time when inflation is already high, due to factors external to the business community and the country,” it said.

“Secondly, if such inflation is not tolerated by the consumer, meaning that the consumer decides not to buy or dramatically reduce their spend on goods and services, the result will be a downsizing of labor, further affecting the unemployment rate or result in the [cessation] of operations of some of the impacted businesses.”

Proponents of a minimum wage increase say it would actually help spur economic activity. Consumers with more money in their pockets are likely to spend more, not save, they argue.

Farquharson said the Department of Labour has studies that show that raising the minimum wage in 2015 actually had a direct impact on economic improvement.

A World Bank publication concluded that “although the range of estimates from the literature varies considerably, the emerging trend in the literature is that the effects of minimum wages on employment are usually small or insignificant (and in some cases positive).”

In The Bahamas, the unemployment rate went from 14.8 percent in November 2015 to 12.7 percent in May 2016, notwithstanding the increase in the minimum wage in August 2015.

The International Labour Organization (ILO) points to studies that show that minimum wages not only help to reduce wage dispersion and to channel productivity gains into higher wages, but they also can contribute to higher labor productivity – both at the enterprise level and at the aggregate economy-wide level.

Importantly, the ILO recommends that sufficient resources be allocated for monitoring the effects of minimum wages.

Monitoring the effects of minimum wages is a key element of an evidence-based minimum wage system, it said, adding that findings from rigorous impact assessment studies should find their way back to governments and social partners, and inform subsequent rounds of adjustment or changes to the system.

Enough resources should therefore by allocated to studying the effects of minimum wages.

We look forward to hearing the recommendation of the National Tripartite Council, which we assume took an empirical approach in its effort to reach an agreement all stakeholders could comfortably live with.

At the same time, the government’s focus on driving economic growth, and more aggressive and expansive skills training programs would be more beneficial in effecting meaningful wage improvements across the board. 

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