Economist Dr has said while a decision concerning an increase in the minimum wage is necessary, it will have to be carefully weighed before it is implemented.
He said given the fact that the spending power of the wider public has consistently eroded for the past years, an increase for workers should be considered.
Arjoon said, “An increase to the minimum wage is warranted especially given the dramatic increase in the cost of living in the last few years. In the last five years, prices increased by approximately 15 per cent, with food prices increasing by 27 per cent. The intention behind any increase in the minimum wage is to improve the purchasing power for those in the low-income brackets, their overall quality of life and help combat poverty. It is also intended to stimulate further economic activity in the private sector from additional spending, given that those in the lower income bracket will have higher disposable income.”
He however noted that if the increase is too high, there could be a negative effect on the economy.
Arjoon said, “However, these benefits largely depend on the extent of the wage increase—if it is too high, especially one that businesses cannot afford, it can create more economic difficulties that will outweigh the potential advantages of the wage increase. When setting the wage increase, the authorities have to take into account two key factors:
(1) The overall rise in the cost of living; and
(2) the extent to which overall productivity has increased.
“If wages are increased by a greater proportion than productivity, we run a serious risk of increased inflationary pressure. Therefore, when deciding the minimum wage increase, a balance must be struck when considering the increase in the cost of living and productivity gains.”
He continued, “There will also be further inflationary pressure, given that a higher minimum wage also increases business costs, and businesses may pass on these higher costs to the consumer as higher prices. Naturally, inflation erodes any improvement to the purchasing power from the wage hike.”
He also warned that such a change could also prompt job losses as businesses could struggle to pay workers under the new wage structure.
“Employment can be affected due to the increase in business costs, especially if the wage hike is too high. Some companies, especially smaller ones, may opt to hire workers on a temporary basis, instead of giving them a permanent position, so that they can better manage their overall wage bill.
“There can also be possible job losses, as some low-skilled positions could be made redundant if the company is not be able to afford to pay the increase in minimum wage. The employer may transfer the responsibilities of that position to someone else without raising their pay, and this reduces job opportunities for those with limited skills and experience. Moreover, a substantial increase in the minimum wage can lower profit margins for small businesses,” said Arjoon, who also noted that it could lead to businesses adopting risky practices to cut or manage costs.
The economist said that if the increase is too high, it can also lead to unethical practices on the part of the employer, as they may opt to leave total pay unchanged and underreport the number of hours employees worked.
“Some might not report employment at all, evading the minimum wage law entirely. This will be more common for those businesses unregistered and operating in the shadow economy,” he said.
This, he said, could also lead to further exploitation of low-skilled workers, who may find themselves out of work due to job cuts and invariably lead to informal employment where they lack traditional security.
“In addition, if some low-skilled workers cannot get jobs in the formal sector, due to the hike in the minimum wage, they may turn to the shadow economy for jobs, which will likely offer them a lower salary. This not only violates the minimum wage law but also leads to further growth in the shadow economy,” said Arjoon.
“To this end, increasing the minimum wage is warranted and of utmost importance given the recent hike in the cost of living. This increase must improve the welfare of workers at the lower end of the ladder and reduce inequality, but at the same time the increase should not be too large to create inflationary pressures, unethical employment practices and growth of the shadow economy.”
The topic of increasing minimum wage re-emerged as a national issue after a Labour Day call by Oilfields’ Workers Trade Union leader Ancel Roget to raise the wage to $30.
The minimum wage was last increased in December 2019 to $17.50. Before that it had been raised to $15 in 2015.
In the wake of that call, the Employers Consultative Association of Trinidad and Tobago stated while it was not opposed in principle to an increase in the minimum wage, as it could lead to an improvement of living standards, other factors needed to be considered as well.
The ECA said, “Minimum-wage setting is a process that considers many factors, beyond just cost of living, and which, if not properly balanced, can have far-reaching implications for businesses—particularly small businesses, job seekers and society. Those who are charged with fixing the minimum wage need to look at that balance which must include the participation of all social partners.”
Last Monday, Minister of Labour, Stephen Mc Clashie stated that a final decision concerning a change in the minimum will be made in the coming weeks.
A day after this was reported, Chairman of the Confederation of Regional Business Chambers, Vivek Charran stated that an adjustment of the wage would place a strain on both the government and the business sector. He instead called on the Government to consider an adjustment to the Value Added Tax system in the upcoming budget as a means to address inflationary pressures and by extension increase the spending power of the public. He said the removal of VAT on certain items, and the introduction of a lower and business sector-controlled sales tax could help in that regard.