IN RETROSPECT: Minimum Wage: Political Sense = Economic Nonsense

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!

Share your feedback with us.

17 Responses to IN RETROSPECT: Minimum Wage: Political Sense = Economic Nonsense

  1. Fer De Lance says:

    Governments cannot create or affect the positive growth in the economy, it driven by the private sector, what the Government did do is destroy any possibility of a quick recovery. The idea of a minimum wage is not possible, it will do even more damage than the VAT is doing.

  2. SLU #1 says:

    Why are we in such deep horse crap if Kenny has so many “SMART” advisers? How many units of work do all the high-paid consultants produce ? Do these units of work have any tangible “positive” effects on the economy ?

  3. M says:

    At aerospace – you don’t understand the subject under discussion, so you are fearful of it. That’s why you lash out and dismiss a trained economist. It looks like you’re the one who needs to invest in a little more quiet time…

  4. artofsilk58 says:

    Wage increase equals cost increase, so the only conclusion is that if you want to increase your wages you will have to accept the ofsetting of cost with job cuts. You can’t have your cake and eat it too, St. Lucia is broke and owes too much. This idea of a wage bill will make the VAT look like the pope.

  5. LuciaBoy says:


    subject to the forces of demand and supply. In this current economic climate demand for labour is very low and the supply overwhelming. Last I checked we have a free market enterprise system where the invisible hand sets the equilibrium price. Be guided lest we throw out the baby with the bath water.

  6. LuciaBoy says:


    flat rate irrespective of industry. A banana farmer as opposed to a hotelier? Valmont as opposed to a Mom & Pop store? These are all factors that must be taken into consideration which makes this a not so clear cut issue. If the intention here is to wipe out worker exploitation, while noble it would be impractical. Worker exploitation comes in many forms and it is a moral issue which cannot be legislated. At what cost of compliance? So it is one thing to look at this issue from a strictly academic point of view, another to see it as good public policy, but implimentation, execution, and enforcement presents far greater challenges and implications. Wages as anything else is…

  7. LuciaBoy says:

    are all impacted. The dilemna is that workers must not be allowed to rely on the benevolence of their employer nine times out of ten the workers’ interests are not well served. in the same token a minimum wage is equivalent to price control and that comes with unintended consequences. The matter becomes controversial in determining the price (or wage). Are we looking for a fair wage? By whose standards? Fair to whom? Is it a living wage that we are aiming for? That is a higher standard and who determines the datum line and what factors come into play in that determination? What about the employers ability to pay and the impact on profitability? Will the minimum wage be set at a…

  8. LuciaBoy says:

    In a more advanced economy a minimum wage policy can work and is even more justified when the economy flourishes and businesses are enjoying greater profits so a revision upwards of the minimum wage is both morally and economically sound. The emotional arguments for an increase in wages are usually not based on evidence of profitability and productivity gains. Most employers are loathe to open their books to workers unions and even when some do you still may not get the accurate picture. Money is a great motivator to a worker and a smart employer will try to keep a faithful and productive worker happy. It’s good for business as employee morale, productivity, customer relations,…

  9. cswaerospace says:

    Dr. Raymond, with all due respect boss man, is your hand in Kenny’s back pocket by any chance??
    It is quite evident that you have absolutely no idea what the general population of Saint Lucia has to endure in this country.

    My Grandfather used to say: If you have nothing positive to say, at least Shut Up.

  10. Daniel says:

    The question you should ask is whether the amount you started the employee at was fair value for the output.

  11. patrik bernard says:

    Actually Dr. Raymond has erred a bit with his statement “The only way an increase in the wage rate can be justified is if the employee produces more units per hour.”

    A wage increase can be well justified even if an employee does not produce more units. I would like to point out that if an employee can create a greater profit from those same units, a wage increase can also be justified.

  12. Woodsman says:

    * correction disregarded …

  13. Woodsman says:

    Are you saying then Ubie that production capacity is the only or key factor for determining wage increases. With such reasoning, the following should thus be disregard as longs as it cannot be proven that one’s productivity has increased:
    – Additional qualifications
    – Inflation
    – Experience
    – A country’s level of economic development
    – The profitability of a business

    Something tells me you would not be invited to a CSA function soon ha ha ha 🙂 🙂 :).

  14. Fer De Lance says:

    A minimum wage bill, really? Do you believe that you actually have an economy to play those games? Do you want to see people lose what little they get from the private sector? Time for Hurricane Kenny to step aside before his winds of disaster flatten the entire Caribbean.

  15. Eh , eh, what the hell am I reading here (choops a lobbyist) . So in retrospect Quack ….I mean Doc you seem very copasetic and hunky-dory in your demeanor regarding the present status quo. You must be a Syrian or “other” or a member head of the “CLIQUE” living in St Lucia gaining or maintaning your wealth off the sweat of poor St Lucians and is just fidgeting on the thought of shelling out more from your pocket for them to live half decent as you do. You fooling “Them” you not fooling me; minimum prosperity is essential in maintaing economic growth and stability.

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