The latest I read from The STAR newspaper is that the Saint Lucian government is considering the passage of an across-the-board minimum wage bill. This might make some political sense but certainly no economic sense.
The proponents of minimum wage always argue that the minimum wage will benefit the poor or the unskilled. A very common talk amongst themselves is that there is too much exploitation of workers by employers, and therefore, increasing the minimum wage will put a halt to the exploitation.
Again, this approach seems to be very logical, but not everything that is logical is true. Politicians have to remember and understand that wages are part of the huge costs that businesses have to undertake. Someone is valued in a job according to what he or she can contribute to the business profit.
For example, an employer pays a worker $100 a week and the employee contributes $20 to the business profit. Does it make business or economic sense to increase that employees wage to absorb more than the profit that he/she is contributing to the business? NO.
In other words, no one that is in their right mind will buy something at $100 and sell it for any amount less than $100. The same is true for the minimum wage rate; it must always be less or equal to the marginal revenue of an employee.
If an employee’s wage is increased by a certain amount, say $5 per hour, this increase must be justified by an increase in additional revenue by at least $5.
In most cases, the employee’s contribution to production remains the same, and therefore, an increase in the minimum wage is not justified.Another simple example is that if someone produces 10 units of a product in 1 hour and is paid $10 per hour. Should that individual get $13 per hour if he/she produces the same ten units per hour? ABSOLUTELY NOT!
The only way an increase in the wage rate can be justified is if the employee produces more units per hour. In other words, the employee should be more productive more units per hour.
Efficiency can be achieved in one of two ways or both; training and technology. The level of training and technology is different in every business.
If the government implements a minimum wage it will artificially place every business on the same playing field. Will this be fair? NO!