Real effects of minimum wage hike


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Category: Trinidad Society Date: 13 May 01

Ira Mathur concludes her look at the Basic Conditions of Work and Minimum Wages Bill, 2000 and its possible impacts.


Politicians in Britain, Ireland, France and America want to establish or increase minimum wages. This may not help the working poor. The impact is clear, however, for the young.


Workers younger than 25, who generally have few skills and little experience, tend to have much higher unemployment rates than older workers.


In France, the unemployment rate for workers under 25 was a shocking 28%. Minimum wages are one explanation.


The OECD study - which considers data for 1975 to 1996 from nine countries, including America, Japan, France, Spain and the Netherlands - finds that a 10% rise in the minimum wage reduces teenage employment by between 2% and 4% in both high and low minimum-wage countries. (The Economist - June 25, 1998)


Last week we looked at the draft outline of the “Basic Conditions of Work and Minimum Wages Bill 2000.” It is a ticklish Bill that should be judiciously considered. Politically, it’s something of a gamble, since it may hurt the ruling party’s traditional support group, that is, small business. Equally, it may bring greater benefits to a wider section of the grassroots population.


The following is a layperson’s assessment of the draft Bill as it is:

Workers who do not presently work under a union contract will benefit, as the terms and conditions of the Bill cover most of the areas under standard industry union contracts. Workers will probably face higher taxes but in general, the sick leave and other benefits will outweigh these costs.


The Government will benefit in two ways. Increased wages (though no figures have yet been announced) usually mean higher tax returns to the Government. With their improved reporting systems (a centralised computer coming online at the end of 2002), the new law should give the Labour Ministry greater access to information on the small business sector which is adept at ducking from the Inland Revenue Division and the law insurance companies.


In the section dealing with benefits, the Bill is strongly biased in favour of pension plans. As the insurance companies seek to invest these funds, there will also be a knock-on effect on various sectors - the stock market and possibly lower costs to Government’s issuing bonds.


Larger companies, especially those with union contracts, will also be affected. The new Bill demands all companies meet similar worker-related obligations as the larger companies, levelling the playing field in this area.


The Bill tacitly assumes that the Labour Ministry’s staff will be beefed up substantially to deal with greater demands. In addition, the Bill gives this Ministry far greater powers of coercion. There will be a greater demand for labour relations professionals to deal with complaints.


Smaller employers will be the major losers. They will have to deal with increased costs and more paperwork, making it more difficult to compete with the larger companies. Despite the fact they employ most of the workers in the private sector, they are not organised enough to make their representation felt.


Since Government and other unionised workers are already in receipt of the ancillary provisions of the Bill, eg sick leave, pension plans, etc, they will not be getting any additional benefits. However, as consumers, they will probably have to pay higher costs, as businesses pass these on to their consumers as higher prices.


Because of the higher costs of employing staff, smaller employers will cut costs by laying off casual workers before the legislation comes into effect, causing a small surge in unemployment figures.


Positive effects on the economy will include increased consumer spending and increased government revenue in the medium term, only when a new minimum wage is implemented. The productivity figures will improve as businesses invest in labour-saving equipment.


On the negative side, the costs of complying with the Bill may inject to what economists refer to as an inflationary surge. Unless there is a corresponding fall in the value of the dollar, our manufactured export industries will be less competitive versus the Central and South American countries.


There is much more to be said, but these are early days yet.


A figure for the new minimum wage is far from being set and I expect much fine-tuning will take place even before the draft Bill is placed before the Senate again. (It is now before the Standing Tripartite Committee on Labour Matters).


The Basic Conditions of Work and Minimum Wages Bill, which affects as much as 80% of our working population, specifically needs to focus on systems of enforcement without which it will be little more than a piece of paper. What systems will be put into place to ensure the law is enforced?


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All Articles Copyright Ira Mathur