Raphael John-Lall
While Prestige Holdings Ltd has blamed its recent price increases at KFC and Starbucks on the new minimum wage, others in the business community argue that there are other ways for business owners to deal with wage increases.
Two weeks ago, Prestige Holdings CEO, Simon Hardy informed the public that KFC would be increasing its prices again with adjustments of between 3 to 5 per cent.
He justified the higher prices by saying that they were a consequence of the new minimum wage which came into effect on January 1, 2024.
He also attributed the new increases in KFC’s prices to price increases from suppliers.
In January, Hardy explained that the Starbucks’ price hike was necessary because of input increases from Starbucks International, as well as the minimum wage increase to $20.50.
While Starbucks and KFC have had price increases, three other companies in the Prestige Holdings Group-Pizza Hut, TGI Friday and Subway are yet to increase their prices.
The Business Guardian reached out to Hardy asking if those other companies would eventually increase their prices because of the minimum wage.
“Each brand has its own cost dynamics based on wage rates and level of staff, which dictates timing of consideration of any adjustment to prices (if at all). However, I cannot predict the future so I cannot say if there will need to be any increases anytime soon,” he told the Business Guardian.
In last year’s budget, the Finance Minister, Colm Imbert announced that the minimum wage would be increased from $17.50 an hour to $20.50 an hour. It took effect on January 1.
Imbert said: “This measure will benefit approximately 190,000 persons in the workforce and will require an amendment to the Minimum Wages Act…via a Minimum Wage Order.”
Retail sector
Business leaders in other sectors, where parts of their workforce earn the minimum wage, have also commented on the consequences of the increase in the minimum wage.
Co-ordinator of the Confederation of Regional Business Chambers (CRBC) Jai Leladharsingh told the Business Guardian that businesses operate in different sectors and sell different types of goods and services and gave an explanation of how prices work in an open market.
“In certain commodities and goods, prices are either elastic or inelastic. Elastic means if there is a rise in the prices, demand will drop. If there is a drop in price, demand will rise. Inelastic demand states that no matter where the price movement takes place, there will still be a demand or the sales of the product will remain the same.”
While acknowledging that prominent businesses and companies have already raised their prices because of the new minimum wage, he said there are other ways in which businesses could deal with it.
“You must apply different financial strategies to raise revenue so that you could meet expenses rather than going with the old model of passing on costs to the consumers. You have to pay people a proper wage so that they could live. Consumer confidence has gone down. The Christmas sales among my membership in the retail sector has been the lowest in the last 25 years. Companies need to find innovative ways to enhance their revenue streams rather than increase prices. Increasing prices is just a lazy way out as you are killing the consumer, your main buyer.”
He does not expect the retail sector to raise prices anytime soon because of the new minimum wage as they already took tough measures to streamline their business operations during the pandemic.
“Most of retailers’ operations have become lean owing to the COVID pandemic. They were forced to cut back a lot because of the decline of the economy. They had to cut back staff and lay off employees. In this way, they focused on the main things that draw revenue. Those businesses closed down some of their activities. Even if the wages increase, the businesses could still continue keeping the prices at a certain level so that the consumers are confident.”
Supermarkets
The supermarket industry is another sector that employs workers who earn the minimum wage.
President of the Supermarket Association of T&T (SATT) Rajiv Diptee told the Business Guardian that apart from labour costs, there are other factors which influence prices.
“Supermarkets are ultimately price takers given that they are at the end of a long value chain where they receive goods from manufacturers and distributors whom are suppliers to stores. Those price increases come to us from suppliers as a result of increases of operational costs which they have decided they cannot absorb.”
He said the overhead costs of the stores will determine, correspondingly, if they are able to absorb those increases in wages.
“It is part of the overall equation where cost of goods, cost of fuel and the cost of labour determine the overall cost of doing business.”
Importance of the
minimum wage
University of the West Indies (UWI) Economist Dr Vaalmikki Arjoon told the Business Guardian that if the minimum wage is well structured, it will contribute positively to the economy.
“A well-crafted minimum wage strategy is an important step in a wider policy framework to lower the significant income inequality among households locally and combatting poverty. The recent increase in the minimum wage was highly warranted especially considering that the cost of living increased by 21 percent since 2016 with the cost of food rising by 42 percent over this period. Those in the low-income bracket spend at least 46 percent of their income on food alone. A higher minimum wage is intended to boost purchasing power and enhance the quality of life for low-income individuals, fostering increased consumer spending and private sector economic activity.”
He qualified this by saying that if businesses are struggling to pay the minimum wage, then there could be negative consequences.
“A higher minimum wage can bite into the profitability of businesses by driving up their overall operating costs. There are exceptions, however, who attempt to absorb the hike in their wage bill, while concurrently lowering other operating costs such as insurance premiums, inventory and marketing costs etc. to accommodate the increased minimum wage, so that their profitability is minimally affected. However, others simply passed on the higher wages to the consumer by raising prices – some of which have high market power and may have afforded to adjust their cost structure to absorb the increase in the minimum wage, at least in the short term.”
He added that to prevent the wage increase eroding their after-tax earnings, certain businesses may evade taxes by understating their sales revenues, so they end up paying less taxes that they actually owe, thereby retaining more profits. This may be more common with cash-heavy businesses.
“There can also be adverse effects on the employment of vulnerable groups especially low-skilled workers, if some firms struggle to cover the minimum wage hike overtime. It is possible that some may hire such workers temporarily or not fill permanent roles to control wages. Job losses may occur if low-skilled positions are cut, if the wage hike is unaffordable, with remaining staff absorbing duties without extra pay, reducing opportunities for less skilled workers.”
He also said laying off workers can be a strategy business owners use to deal with costly minimum wage increases.
“For some firms, if the minimum wage exceeds the contribution of an employee, they may lay off that employee in favour of hiring another that can provide greater productivity. For instance, they may prefer to hire persons more educated or experienced, given that they are paying a higher minimum wage. This may lower the employment opportunities for certain younger persons, especially high-school dropouts, in low wage positions. Therefore, a higher minimum wage may increase the average age and education requirements of those employed in low-wage jobs.”
He said while the bulk of firms will likely be compliant with the wage hike, there may be the odd employer engaging in “wage-theft”, where they avoid paying the full cost of the minimum wage.
“For instance, 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. 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.”