Exploring New Avenues in the Minimum Wage Debate

[dropcap]T[/dropcap]elling the story of economic growth and workers’ rights throughout the Caribbean would not be possible without a special mention of the push for a higher minimum wage. Alongside seeing an increase in income, many minimum wage workers (and their trade union representatives) have so often framed a lift in the minimum wage as a clear-cut victory of David over Goliath.

Any inroads made that advance workers’ rights and lift living conditions are something to celebrate, but the minimum wage debate has often been a lightning rod locally and globally for criticism. Past battles may have been consigned to history but we now have the greatest rich-poor gap in our global economy since the Gilded Age of the early 20th century. Recent years have seen especially odorous revelations come out, in the Paradise and Panama Papers leaks, about how some of the world’s most affluent use Caribbean domiciles to grow and retain their wealth so it’s a fitting time to revisit the minimum wage debate, and explore the contemporary perspectives to it.

New Push in the New World?

Late December saw Mexico’s wage commission indicate they would hike the nation’s minimum wage to around US$5 per day, representing a 16% increase, following through on the new President of Mexico Andres Manuel Lopez Obrador’s pre-election push for a wage hike. This news is not only notable for Mexico, but for what it will spur in wider North and Latin America. For the United States and Canada, the impact could be quite direct.

To what extent will a lift in minimum wages impact the long-term attractiveness of the new NAFTA deal to business? For Latin America, the debate will be broader, but potentially span a far greater scope, for within the debate around minimum wages is not just a reflection on personnel costs in business, but a conversation surrounding the broader progress and advancement of economies and societies. In the United States, the minimum wage is a hotly contested political battleground in a nation that has achieved stable economic growth for generations.

Maximising the Minimum

Throughout the Caribbean, the chronicles of the labour movement and trade unionism have seen the minimum wage issue sewn into the fabric of historic and contemporary pushes for worker advancement, oftentimes as a central issue of dispute.

The push for a higher minimum wage is an enduring trend in the dynamics of Latin America’s business community. While the earnest efforts seeking to raise the minimum wage to lift the living standards of the economy’s lowest paid workers is surely admirable, historically research has shown that higher minimum wages have not  always translated to higher living standards. This is despite the experience of nations like Honduras, where a lift in minimum wages did thankfully result in a reduction of extreme poverty, but also an uneven spread of success. Put simply, those who maintain that a minimum wage would deliver widespread social benefits have found their advocacy can run aground once the real-world application begins.

Oftentimes a legally-mandated minimum wage has not had the desired effect. Instead of securing a good wage for a worker that would cover their living expenses, it has instead provided an avenue for employers to place an artificial barrier surrounding the lowest wage they are permitted to pay. Certainly an individual cannot be paid less than that wage legally, but they may be hesitant to ask for more, especially given that the minimum wage is often applicable only to salaried workers.

Contractors, freelancers, and casual staff (though definitions can vary from one Caribbean nation to another, each of these roles are similar) can commonly be paid at rates outside the minimum wage calculus. Sometimes this can be higher but, equally, it can be lower. For developing nations — of which there are over 150 worldwide — a rise in the minimum wage has been an indicator of a more promising economic future, and also of a society achieving greater social cohesion when it comes to politics and policy making. We are now encountering a growth in voices advocating for alternatives.

Alternatives to the Minimum Wage Measurement

While a rise in the minimum wage can bring additional income to a person, it can also result in bracket creep: the occurrence whereby a (relatively) small increase in someone’s earnings results in a shift into the next income tax bracket. While the individual does earn more each year, they actually have less money in their pocket due to paying more taxes.

In recent years economists have suggested that the efforts to raise a minimum wage should be redirected to a tax break, like an Earned Income Tax Credit (EITC). Instead of a direct raise in the minimum wage, there would be a reduction in the taxes that an individual on a lower wage pays. This would negate the bracket creep problem altogether. Beyond tax credits there is also a growing push around the world for the concept of a basic income — one that would provide a guaranteed minimum income to all citizens of a nation, going beyond the scope of social security programmes like pensions that exist for senior citizens and those with a disability.

While such an idea of all citizens having a basic income may at first seem like pie in the sky to fans of limited government, it has (somewhat surprisingly) a strong advocacy among many business circles. The reasoning is that a basic income would empower entrepreneurs, currently spending most of their working hours in a job they have no plans to continue, to devote themselves more fully to their own venture. This would free up their current job for another worker, with the prospect that their new business would create more (and higher paying) jobs in the future.

The basic income debate has been especially vivid as it is not just jobs of minimum wage workers that are set to disappear should we see a greater adoption of A.I and automation in our workforce, but also the jobs of many middle and high-income earners. Certainly retraining may be easier for the latter groups than the former, but this trend is set to make an impact society-wide. It is one for which all nations must plan as, in an era of automation, there will be a growing challenge to maintain not just minimum wage jobs, but employment across the whole economy.