Larry R. Gibson
The common thread in all the conversations was that gasoline was $4.75 per gallon, and this coupled with rising food prices, higher electricity costs and higher taxes is a cause of concern for Bahamians throughout the country. However, our official published indices are surprisingly low; in fact, many seem to argue that they are absurdly low.
With inflation non-existent (according to official sources), wage growth will correspondingly be non-existent. Many economists predict that we are in a period where real wages will decline and disposable incomes will come under greater pressure. This is not a pleasant situation, but the reality is that as most countries are going through difficult times trying to balance their national budget, many individuals will experience similar challenges.
In the coming months, there will be much agitation for increasing wages, and the minimum wage in particular. The real question is whether we should be focusing on a minimum wage or whether it should be on a 'living wage'.
Since July 1, 2000, the minimum wage for government employees in the Bahamas has been established at $4.45 per hour, or about $175 per week. If my memory serves me correctly, I believe that the actual legislated rate is $4 per hour or some $160 per week.
Over the years, I have found that very few persons actually take time to understand the issues involved in establishing and maintaining a minimum wage policy. The arguments in favour of a minimum wage seem just as strong as those against it.
I recently came across a March 13, 2007, article by Lisa Smith, a writer for Investopedia.Com, entitled Exploring the Minimum Wage, which I kept in my archives. This article is an excellent and extremely well written, easy to read, discussion that I regard as a 'must read' on the topic and reprint below:
"The International Labour Office in Geneva, Switzerland, reports that some 90 per cent of countries around the world have legislation supporting a minimum wage. The minimum wage in countries that rank within the lowest 20 per cent of the pay scale is less than $2 per day, or about $57 per month. The minimum wage in the countries that represent the highest 20 per cent of the pay scale is about $40 per day, or about $1,185 per month.
"Despite paying one of the highest minimum wages in the world, the minimum wage is a perpetual hot potato among politicians in the United States. The last time the minimum wage was federally increased in the United States was 1997. Proponents of an increase argue that the cost of living has risen more than 25 per cent since then. Since the minimum wage is not indexed to inflation, it does not systematically increase in proportion to changes in costs of living.
Arguments in Favour
"Those in favour of increasing the minimum wage argue that such an increase lifts people out of poverty, helps low income families make ends meet and narrows the gap between the rich and poor. That last argument is underscored by the exorbitant salaries earned by chief executives and other corporate titans, who are also the same people generally arguing against an increase in the minimum wage. The idea of an increase also has a strong populist appeal, particularly in a nation where discussions about social class, when they are held at all, are nearly always framed in terms of the rich versus the poor."
"On the other side of the discussion is the argument that increasing the minimum wage hurts small businesses, squeezes profit margins, leads to inflation, encourages employers to downsize their staff and increases the cost of goods to the end consumer. Interestingly, the arguments against an increase rarely focus on the fact that a good portion of states already mandate a wage that is higher than the federal minimum wage."
By the Numbers
"Economically speaking, the theory of supply and demand suggests that the imposition of an artificial value on wages that is higher than the value that would be dictated in a free-market system creates an inefficient market and leads to unemployment. The inefficiency occurs when there are a greater number of workers that want the higher paying jobs than there are employers willing to pay the higher wages. Critics disagree.
"What is generally agreed upon by all parties is that the number of individuals relying on the minimum wage in the United States is less than 5 per cent. However, this statistic is largely ignored in favor of citations regarding the number of people that live in poverty. Keep in mind that earning more than the minimum wage does not necessarily mean that one is not living in poverty. According to estimates from the CIA World Fact Book, some 13 per cent of the US population lives in poverty - that is 37 million people.
"To put this in perspective, the federal poverty level for a working adult was $9,800 in 2006, according to the United States Department of Health and Human Services. At $5.25 per hour, a minimum wage workers earns $10,920 per year, which is already greater than the federally determined poverty level. If the worker's pay jumps to $7.25, yearly earnings would move to $15,080 per year for a 40-hour week. From a mathematical and logical perspective, increasing the minimum wage does not lift anyone out of poverty because the prior minimum wage already paid more than the official poverty rate.
"The numbers would seem to put the minimum wage argument to rest, but only because of the misaligned focus on the phrase 'minimum wage'. When referring to that phrase, many people actually seem to be seeking a living wage, which is generally defined as the amount required to raise a family on a single wage-earner's salary.
"Pegging that number to the poverty rate for a family of four moves the bar to $20,000 per year. Looking at the argument from this perspective, neither the current minimum wage nor the proposed increased wage will provide a living wage. Even if an increase would move the salary of every worker in the country to this level, it would make little difference in the statistical comparison of the earnings of the average worker to those of the highest-paid chief executives."
No Easy Answers
What is the solution to the minimum wage/living wage issue? Statistics can be gathered to support both sides of the argument. While there are no easy answers, a good first step is to frame the debate in realistic terms. Referring to the minimum wage as a wage designed to support a family confuses the issue. Families need a living wage, not a minimum wage. With that said, generally, working at a fast food restaurant or the local gas station is not a career. These are jobs designed to help entry-level workers join the workforce, not to support the (long term) financial needs of a family.
On the core issue of minimum wage itself, political wrangling is unlikely to result in a real solution. A more practical solution is to join the workforce at the low end of the wage scale, build your skills, get an education and move up the ladder to a better-paying job just as members of the workforce have done for generations.
The reality is that a high minimum wage for a service-driven economy such as the Bahamas leads to concerns about pricing ourselves out of the market. Expensive labour is one thing...but expensive and unproductive labour is a recipe for total disaster.
Therefore, the 'automatic cost of living adjustment' argument can only be contemplated if it is associated with measurable increases in productivity. Really, the need is to strive for service excellence in a service-driven economy.
Perhaps a more practical way to approach this whole issue is to consider the 'living wage' approach. What is a reasonable 'living wage' (the amount required to raise a family on a single wage-earner's salary) for the Bahamas? Maybe this is a statistic we should define for the Bahamas and try to address. We can address this by examining not just wages but also including other means of social/government intervention, and measuring any shortfall. For example, if we determine that the living wage is, say, $15,000 per annum (I have no clue what this number is or should be...it can be calculated), we ought to look at look at wages and other forms of government assistance being delivered, such as food programmes, rent assistance, in order to get a true picture of the 'real' situation.
I would argue that a living wage could provide more insight to the challenges that the 'man on the street' faces, especially in these trying times.
Until next week...
NB: Larry R. Gibson, a Chartered Financial Analyst, is vice-president - pensions, Colonial Pensions Services (Bahamas), a wholly-owned subsidiary of Colonial Group International, which owns Atlantic Medical Insurance and is a major shareholder of Security & General Insurance Company in the Bahamas.
The views expressed are those of the author and do not necessarily represent those of Colonial Group International or any of its subsidiary and/or affiliated companies. Please direct any questions or comments to Larry.Gibson@atlantichouse.com.bs