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Monday, February 24, 2025

An­a­lysts on pub­lic sec­tor min­i­mum wage hike:

SMEs could be hurt

by

GEISHA KOWLESSAR-ALONZO
144 days ago
20241002

While Gov­ern­ment does not wish to place ad­di­tion­al stress on the small busi­ness sec­tor, this can in fact ma­te­ri­alise with the pro­posed in­crease in min­i­mum wage in the pub­lic sec­tor from $20.50 an hour to $22.50 an hour, says Garvin Joe­field, econ­o­mist with the Eco­nom­ic In­tel­li­gence Unit at Re­pub­lic Bank Ltd.

“While the min­is­ter in­di­cat­ed that his de­sire was not to place pres­sure on MSEs (mi­cro and small en­ter­pris­es) and mar­gin­al firms I think the very fact that we would have pro­grammes like CEPEP and URP of­fer­ing high­er rates of com­pen­sa­tion than in the SME sec­tor and for mar­gin­al firms it could bring about the very thing that he feared.

“If we throw our minds back a few years, mem­bers of the man­u­fac­tur­ing sec­tor and some SMEs were say­ing they were hav­ing prob­lems at­tract­ing work­ers be­cause of pro­grammes like CEPEP and URP, which of­fered rel­a­tive­ly at­trac­tive rates of em­ploy­ment...CEPEP and URP might be re­quired to work five hours where as an SME might be re­quired to work eight hours or may be even more,” Joe­field ex­plained to the Busi­ness Guardian in an in­ter­view at the an­nu­al post-bud­get event host­ed by the T&T Cham­ber on Tues­day.

In his bud­get pre­sen­ta­tion on Mon­day, Fi­nance Min­is­ter Colm Im­bert said ef­fec­tive No­vem­ber 1, the min­i­mum wage for pub­lic sec­tor em­ploy­ees will be in­creased by $2 per hour, from $20.50 to $22.50.

This in­crease is ex­pect­ed to cost the Gov­ern­ment $75 mil­lion in fis­cal 2025.

How­ev­er, Joe­field said mak­ing the com­pen­sa­tion rate “more at­trac­tive” could bring about the very chal­lenge that the Fi­nance Min­is­ter had sought to avoid as in­creas­ing the min­i­mum rate on­ly for Gov­ern­ment work­ers could mean that SMEs and oth­er such en­ti­ties would now have to com­pete with the Gov­ern­ment for work­ers and “could be priced out” of the mar­ket or even forced to hire few­er work­ers.

All of this, Joe­field ad­vised, could al­so neg­a­tive­ly af­fect eco­nom­ic ac­tiv­i­ty.

“The pos­si­bil­i­ty ex­ists that we could face some­thing where work­ing for URP, CEPEP or oth­er Gov­ern­ment pro­grammes that of­fer such rates could be more at­trac­tive than ac­tu­al­ly work­ing for SMEs, which as we know, tend to have work­ers spend longer hours on the job and the work might be a lit­tle more in­volved. So if you look at it strict­ly from a com­pen­sa­tion point of view, it might ac­tu­al­ly be a sit­u­a­tion where SMEs be­ing priced out of the mar­ket or fac­ing a sit­u­a­tion where CEPEP or URP could be more at­trac­tive,” Joe­field re­it­er­at­ed.

There have al­so been con­cerns by some busi­ness groups that the in­crease in min­i­mum wage could bring about fur­ther in­equity be­tween pub­lic and pri­vate sec­tor work­ers.

Joe­field how­ev­er, con­tend­ed that this was not a sim­ple “yes or no” an­swer, as there could be sig­nif­i­cant “dis­ad­van­tages” for both.

“What we need to look at is the net ben­e­fit so the net ben­e­fit of an across-the-board in­crease could be sig­nif­i­cant chal­lenges on SMEs to keep up with a min­i­mum wage of $22.50 and we would have some SMEs falling out. We would have a greater lev­el of un­em­ploy­ment. We could have SMEs re­duc­ing the num­ber of em­ploy­ees and which we would have un­der­em­ploy­ment.

“The ap­proach by the Gov­ern­ment to on­ly roll out the min­i­mum wage for its work­ers could have a sim­i­lar im­pact but on a small­er scale but the net ef­fect of that is some­thing that we can­not weigh un­til we have ac­tu­al da­ta...Per­haps a full roll out of the min­i­mum wage could have been more dele­te­ri­ous to the SME sec­tor but I’m say­ing at this point I’m not sure but the risk of a full roll out as op­posed to the risk of a par­tial roll out, they are both ma­te­r­i­al risks and they are both risks we need to con­sid­er,” Joe­field fur­ther ex­plained.

Ad­di­tion­al­ly, he not­ed that in the last ten years coun­try’s labour par­tic­i­pa­tion ra­tio re­gard­ing un­em­ploy­ment fell from around 62 per cent in 2012 in­to the mid 50s cur­rent­ly.

Joe­field said this ra­tio rep­re­sents mem­bers of the labour force who are ac­tu­al­ly ac­tive in seek­ing em­ploy­ment or work­ing.

“What we have is the per­cent­age of the pop­u­la­tion that has been with­draw­ing from the ac­tive labour force; that has been trend­ing up over the last ten years or so.

“So if peo­ple be­come dis­il­lu­sioned for ex­am­ple, with the di­choto­my be­tween high­er wages in the Gov­ern­ment ser­vice as op­posed to the pri­vate sec­tor but they are un­able to get Gov­ern­ment jobs, some of them could just with­draw be­cause of that in­abil­i­ty to se­cure a job for the rate that they de­sire. So it’s a mul­ti­plic­i­ty of things we need to con­sid­er and it would be very dif­fi­cult to say clear cut which pol­i­cy would be the best,” Joe­field em­pha­sised.

On whether she be­lieved the SME sec­tor could be neg­a­tive­ly im­pact­ed by the min­i­mum wage in­crease pro­pos­al, Ki­ran Ma­haraj, pres­i­dent of the T&T Cham­ber of In­dus­try and Com­merce, said, to date, the or­gan­i­sa­tion has not had suf­fi­cient feed­back from its mi­cro and small en­ti­ties to de­ter­mine what this im­pact could be.

How­ev­er, she said the pro­posed min­i­mum wage in­crease can have an im­pact on the SME sec­tor be­cause the min­i­mum wage hike in the pub­lic sec­tor makes the na­tion­al work en­vi­ron­ment more com­pet­i­tive.

At the same time, Ma­haraj not­ed the pri­vate sec­tor of­fers oth­er op­por­tu­ni­ties and op­tions that Gov­ern­ment may not such as re­mote work.

She al­so ad­vised that re­gard­ing the pri­vate sec­tor, this would al­so de­pend on its busi­ness mod­el.

“And it’s go­ing to de­pend on if we can’t in­crease wages be­cause our bud­gets don’t al­low, then can we do some­thing else for our em­ploy­ees that would make them com­fort­able. It may be more time off from work, more va­ca­tion, it may be work­ing from home on a cer­tain day or oth­er priv­i­leges.

“It’s go­ing to de­pend on the ne­go­ti­a­tions with­in each com­pa­ny on how they want to ad­dress it with their em­ploy­ees,” Ma­haraj ad­vised.

But can Gov­ern­ment af­ford to in­crease the min­i­mum wage at this time es­pe­cial­ly faced with an­oth­er deficit bud­get?

Col­in Ram­sey, tax part­ner, EY Caribbean al­so told the Busi­ness Guardian that the con­cern is that giv­en the high Gov­ern­ment ex­pen­di­ture, which is around $60 bil­lion, the in­crease in the pub­lic sec­tor min­i­mum wage would cre­ate more of a deficit sce­nario as op­posed to “get­ting out of it.”

How­ev­er, he said at the end of the day an in­crease in min­i­mum wage is some­thing what the min­is­ter would have bud­get­ed for and based on the arith­metic done, it’s some­thing the coun­try can af­ford. But, he said, more clar­i­ty is need­ed as to where the monies would come from to pay the in­crease in min­i­mum wage.

“What we do know for cer­tain is it would mean more ex­pen­di­ture,” Ram­sey added.

He said the de­ci­sion to in­crease the min­i­mum wage could be a case of Gov­ern­ment want­i­ng to make life a lit­tle more bear­able for cit­i­zens. We have to bear in mind the so­cial is­sues im­pact­ing our so­ci­ety. Crime con­tin­ues to be high, in­fla­tion con­tin­ues to be a re­al is­sue and in or­der to lev­el the play­ing field and make life a lit­tle more af­ford­able for those vul­ner­a­ble in our so­ci­ety, this may be the im­pe­tus be­hind the mea­sure,” Ram­sey ex­plained.


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