WHY THE MINIMUM IS NEVER ENOUGH
Published in The Tribune - http://www.tribune242.com/news/2021/apr/15/why-minimum-never-enough/
THE MINIMUM WAGE DEBATE
According to a 2020 survey report, The Bahamas is the fourth most expensive country in the world to live, with a cost of living index of 100.68 and purchasing power of 71.40. The three countries ranking ahead of The Bahamas are Iceland (123.96: 87.85); Switzerland (131.39: 126.15) and Norway (113.70: 107.95). Luxembourg follows The Bahamas as one of the top five (96.56:116.73). The country is in fact more expensive to live than the city of New York, with two important differences, rents are cheaper and taxes are much more favourable.
Iceland has no official minimum wage, however, there is a benchmarked salary of 351,000 ISK per month, which translates to approximately $2,720 USD per month or approximately $540 per week. I suspect that this is highly influenced by professional salaries. In Switzerland, the minimum wage recently determined in November 2020 is 19 pounds or $25 per hour, giving a minimum wage of approximately $3,800 per month or $760 per week. Norway has no official minimum wage either but as an example, a hospitality worker makes $19.50 per hour while cleaning staff makes $22 per hour. Comparatively the rates are significantly higher than The Bahamas and for important economic reasons that is expected to change. In many ways other than being in the same category as a high cost country, the fundamentals are significantly different. This is information though, and provides context as in absolute terms the gap between the cost of living and earning potential at the lowest levels instinctively tells a story of what realities are likely to be for many. It is the issue of how we can reduce the impact of this gap, knowing that wages will never approach the level of those cited above, with which this piece is most concerned.
In conversation with a leading public figure recently the question was raised, how do we facilitate positive changes in the personal economy of citizens such that the individual becomes more capable of being self-sufficient and be able to create wealth thereby collectively helping to drive the economy. I believe that this is such a powerful thesis on which to think about economic growth and development, the advancement of citizens and national building. It provides broad, rich and personal context for discussing matters which when placed on the table quickly narrows to harden positions destroying the potential for fundamental assessment and analysis and radically diminishing the serious strategic incursions into the root drivers of the surface issue, which usually triggers the discussion, low minimum wage. A rethink through this kind of lens forces the players to see not just the thing but to accept and appreciate the opportunities for humanizing the issue and its attendant problems and challenges. How do we think and engage beyond the usual chatter with the view of getting to that place of understanding that the ability to become better is what is most important in changing lives and shifting generational trends.
It is often sage advice that effectively admonishes that if you are to achieve anything of significance you have to do more than the minimum. Those who go the extra mile realize the massive successes. These are both true and while the logic will certainly not hold here there is some level of coercive influence that as a country we must move beyond the minimum wage debate, make the necessary corrections and look at the other important fundamentals which will improve the lives of those meandering at or below the poverty line. It requires no analysis to conclude that any reasonable increase, one that on balance takes into account the interest in employers and employees, will never change the fortunes of any significant number of persons. In a country listed as having the sixth most expensive city (for our purposes the entire country), $210 or any new number, after a nominal increase, is simply not sufficient to facilitate the standard of living typically assumed, on average, across the nation. With a stated per capita income of approximately $32,000, the minimum wage produces $11,000 in annual income, a third of the average. The comparison provides a compelling tug toward an increase; unfortunately, the idea of an increase is not the totality of a seemingly simple but complex imperative. Let me disabuse the reader of any inference that I may be proposing increases that would make the above statistics look more reasonable but I support an increase in the current level of minimum wage, for reasons beyond persons just having more money to spend and as part of a broader national approach, which ultimately benefits all, benefits the country.
THE NEW NORMAL IS ALREADY HERE
I believe that the remainder of 2021 and into 2022 will be characterized by unprecedented levels of volatility and uncertainty. Securing agreement on this position should certainly not be very difficult. Additionally I am convinced that the said period, and beyond, will also be characterized by a significant level of economic scarring where individuals will suffer the lingering effects of global financial downturn. The Bahamian economy continues to show small signs of coming back to life. A large part of this is psychological given where the world is with vaccines and the possibilities that it presents for significantly changing the trajectory of the pandemic.
However, there is no doubt that over the last year many individuals and businesses have taken a significant economic hit. Unemployment is at an all-time high, many employees have been furloughed for long periods, government social support has been historical, parliament has suspended the automatic trigger for redundancy payments and there are many companies hemorrhaging for liquidity. The truth is that despite the positive outlook the true extent of the hurt is not yet truly evident. This certainly provides an interesting backdrop for discussing a myriad of social issues including, poverty, economic inequality and creating wealth.
The extent of the hurting is expected to emerge in the now fabled “new normal”. The “new normal”, a period of sustained high uncertainty and volatility characterized by leapfrogging adaption and adoption of technology and innovation, an ever shrinking global community and radically new opportunities, many of which will lead to creative disruption and in some cases destruction of employment. That new normal is here and the table has been perfectly set for a potentially challenging period. With significantly weakened fiscal fundamentals, driven largely by a bulging national debt stock there are some structural headwinds to grapple with. In an environment where for the first time the historical composition of foreign and domestic debt could flip with reduced national income, (though expected to increase) the possibility of seeing significant adverse pressure on low income earners is significantly high. It is in this environment that we now have a raging debate about the pros and cons of increasing the minimum wage. At a time when the country is at one of its lowest economic states, the spotlight has been turned to the question of whether low-income earners are earning enough, should it be raised and to what extent. Should there be an even broader consideration of a “living wage” and not just a minimum wage? Issues and questions such as these always arise during times of significant economic upheaval. From a pure humanistic point of view, I am and will always remain a staunch proponent for the need to pay special attention to the advancement of low-income earners. There are, however, very important wider national economic implications as to why one would wish to align self with the idea of any form of progression in the personal economic wellbeing of individuals.
On the other hand, there are people who strongly hold that any increase in minimum wages will be detrimental to the country. One would have to be very naïve to think that there would be no negative effect of such a change. Proponents point to the impact on cost of living given that the additional cost will simply be passed on to the consumer. Some point to attendant stress placed on workers as organization makes adjustments such as reduced days or hours to compensate for or effectively eliminate increased cost resulting in workers simply working harder and effectively disadvantaged. Some see the increase as simply talking points amongst the political machinery, a natural issue that pops up during any season of heightened political activities as is being experienced at this time. Many will agree with these sentiments while others will find these challenging to accept.
Consider further that there are person who take the view that there should be no minimum wage at, let the free market decide they say, let the individual's ambition to grow push them to areas where wages and salaries are high, create a shortage of workers in the low income earning segment of the market and wages will increase. It is essentially a debate, which is poorly premised, and one that is likely to run like two locomotives on parallel tracks, they may come close but the two shall never meet. It is my considered opinion that the conversations are being had in the wrong way. It is not simply a consideration of raising or not raising the minimum wage. The issue is definitely larger and is pregnant for a more refined and fundamental conversation. Even in the absence of economic upheavals, the issues are critical. In our assessment, we must be always mindful of the perennial structural challenges experienced in the country and the effect that this has of those living especially on the margins. However, let us consider the effects of the global financial crisis and the reasons it should radically cause the current arguments to be rearranged.
ECONOMIC SCARRING AND MINIMUM WAGE
According to a 2009 Economic Policy Institute (epi.org) report by John Irons, “Economic Scarring - The long-term impacts of the recession”, “Economic recessions are often portrayed as short-term events. However, as a substantial body of economic literature shows, the consequences of high unemployment, falling incomes, and reduced economic activity can have lasting consequences”. This is what is referred to as economic scarring “…that is, long-lasting damage to individuals’ economic situations and the economy more broadly”. Based on this report, the effects of economic scaring manifest itself in a number of important areas. For the purposes of this article, I am focusing on those that can be linked directly to the individual.
The report states that, “Educational achievement: Unemployment and income losses can reduce educational achievement by threatening early childhood nutrition; reducing families’ abilities to provide a supportive learning environment (including adequate health care, summer activities, and stable housing); and by forcing a delay or abandonment of college plans.” Clearly, these are fundamental considerations in assessing the future wellbeing of the citizen. The extent to which there is access to and ability to take full advantage of educational opportunities I think have a direct correlation to the extent to which low-income persons can truly change their fate and turn around generational lack and degradation.
The report goes further to point to opportunities, it states, “Opportunity: There can be no doubt that recessions and high levels of unemployment lead to reduced economic opportunity for individuals and families. Job loss, reductions in incomes, and increases in poverty all result in losses to individuals and the broader economy”. There can be no doubt that in the aftermath of this current crisis all of these things will be experienced within the country. The extent to which this is so is yet to be determined. Note though that the effects are never limited to just the individuals impacted, there are a wider national economic implications. This is one of the fundamental elements, which is missing from the current debate, as argued by many. However, simply arguing that we will fare worse, or calling for persons to become more educated is inadequate. At every step, if we are serious about advancing the overall economic welfare of the country. One must always be mindful that the fate of citizens are either on one hand enhancing the economic state of affairs or creating a burden. There is also the consideration of how the optimizing of the state of affairs of the ordinary individual ultimately leads to an optimization of the productivity and earning capacity of the country. Economic upheavals affect lower income earning individuals much more than any others and given the need for the country to provide social support for these persons in this vulnerable class, it is to the benefit of the wider population that their circumstances improve in such ways that they develop greater resilience to the normal vagaries of economic shocks. Bearing in mind this potential manifestation of economic fallout, we should be more pointedly asking what needs to be done to create opportunities for the citizenry. What can be done to lift more persons out of poverty? How through policy and programs can the standard of living for all persons be enhanced? These are important things to be asked as general questions but certainly with a focused attention on low-income earners.
According to the report cited able “Job loss: Losing one’s job obviously creates problems for most individuals and families. The income loss can persist for years, even after a new job is taken (often at a lower salary)”. This issue seems to escape many. Economic upheavals lead to losses. The incidence of these job losses exposes workers to what we can term an employer’s market and increases the possibility that persons finding new employment are doing so at reduced levels. One of the overarching motives of a minimum wage increase, in the midst of a crisis, is not simple in response to the increased hardship of the individual, though it may be a significant motivator. Policy makers generally are keeping a keen eye on the stimulus impact such an increase will have on the economy. The thinking is easily understood and the effect is real largely because the typical low-income earner will likely spend every cent of any increase. High consumption helps the economy to grow. Generally, the more conscientious individuals will see their earnings go toward consuming items with little to none available for things such as personal development and education; investment and wealth creation; home ownership.
While many will spend on what we will loosely call here “luxury spending”, entertainment, flashy clothes and grooming, dining, many simply cannot or do not and still struggle to make ends meet. Regardless of how they spend the monies are generally mostly gone before the next pay period. It is this proclivity or necessity for spending all why the impact of a minimum wage increase should not simply be dismissed as an act that will heighten the cost of living. All things being equal, in an economy that is experiencing vibrancy and growth, persons should find things easier. Vibrancy could for example lead to greater demand for workers that could influence the level of wages paid even at the lowest end of the range. Are we therefore articulating the issue in the right manner or allowing ourselves to be influenced by absolutist point of views? Are we thinking beyond the confines of the wage transaction and questioning how to secure exponential impact because it exists? Are we thinking in terms of a more empowered and motivated worker and the potential that their now empowered state of mind holds for increased productivity? On the other hand, are we simply locked into a narrow myopic assessment, driven by emotions?
One very important effect of economic scarring is the extent to which persons are pushed into (or pushed deeper into) poverty and live a life of lack, living on the periphery of society, often within sight, but outside the grasp of opportunities. According to the 2009 Economic Policy Institute “Poverty and wealth: Simply put, poverty is not good for the economy. When children grow up in poverty, they are more likely, later in life, to have low earnings, commit crimes, and have poor health. Wealth also shapes economic opportunities, providing a lifeline when times are tough (such as a recession) and can finance additional education, retraining, or the startup costs of a new business.” The attitude of “every man on his own and the devil takes the hindmost” is clearly not the way to go in contemplating the effects of a financial crisis on lower income earning individuals. The state has a role to play in the protection of all citizens and helping persons to live a more decent existence is in my opinion one such way of discharging that responsibility. I hasten to add that I am not arguing for any kind off a socialist approach but rather a larger recognition of the connectivity and the interdependence of the ultimate potential of the economy on the state of its citizenry.
A high concentration of poor persons weakens the potential of the economy, burdens the public purse and ultimately further harms those who fall in these categories by entrenching generational lack. It is therefore unfortunate that some see matters such as minimum wage control through the spectrum of an immediate “win-lose” proposition as opposed to the facilitation of a longer-term potential win-win proposition. I honestly believe that as part of the way forward there needs to be greater attention placed on how these matters are framed, messaged and sold. My thinking on this matter may be significantly informed by my own life experience, I am aware that I have an inclination to lean towards those who are challenged and struggle to make it financially and economically. However, I do recognize that those who may fall on the other side of this thinking often feel comfortable because they fail to see or rather focus on how this grouping gives to the wellbeing of the collective. When seen purely through the lens of one side giving up without potential gain it becomes an infinitely more difficult thing to navigate. High tide floats all boats and the bigger boats will always have the ability to hold more in that improved circumstance without hitting bottom.
The final aspect that I will address as it relates to economic scarring is, according to the report “Economic mobility: …intergenerational mobility—or the lack thereof—can lead to persistent impacts of recessions. Poorer families can lead to less opportunity and worse economic outcomes for their children through a variety of mechanisms—be it through nutrition, educational attainment, or access to wealth. A recession, therefore, should not be thought of as a one-time event that stresses individuals and families for a couple of years. Rather, economic downturns will affect the future prospects of all family members, including children, and will have consequences for years to come''. In the same vein, I state that the issue of the minimum wage level should not be looked at as an event for just today but for its far-reaching impact, having the ability to positively influence the economic mobility of individuals. During a financial crisis, the issues of resilience and vulnerability become pronounced, not only for the country but also for the individual. Like the country, the national economy, which is easily assessed as needed to be shored up, to be diversified, to be more resilient, being able to withstand shocks, so too is the individual. Again, policies and programs, minimum wage being but one element, ought to be seen in this light. The effort is to take foundational action today in order to secure a stronger reality in the future. Here the object is to create more economically nimble, capable and mobile citizenry, never simply a wage increase or a social hand out.
MAKING THE SHIFT
Given the issues laid out above, whether you agree or not with the changing of the minimum wage you will undoubtedly agree that the issue carries with it greater dimensions or at least can be complicated beyond the obvious. My intention is not to lobby for an increase, though you would by now accurately conclude that I am not against such a position. What I seek to demonstrate is the need to be more fundamental in our deliberation on matters with economic implications. The issues are always nuanced and never simply black and white. As long as we continue to see and debate problems in the abstract, we will miss opportunities for more sustained solutions. The reason for this is simple. Problem definition holds significant importance in broadening the impact and the value we can derive from any challenge. The individual who wishes to learn to ride a bike because he no longer wishes to walk long distances is solving a fundamentally different problem than another who wishes to do so to maintain a healthy lifestyle, be environmentally friendly and to better enjoy the coastline view. Both will eventually learn to ride but their focus while intersecting from time to time will remain different. The same is true for the minimum wage argument. We should not simply be solving for increased pay for individuals but creating a more facilitative environment for economic mobility and wealth creation. We should be focused on solving two connected issues, which holds adverse friction for each other, low minimum wage and low productivity.
Currently the Bahamas enjoys a relatively low level of employee productivity and does not compare well with peers in the region or on the wider global scene. Many argue that relative to the cost of living minimum wage too is very low. Minimum wage in The Bahamas compares very favourably with regional peers, superior in most instances. The civil service for example, an area that on average clearly does not pay minimum wage experience a very low level of productivity as noted by a recent report. However, these two measures have an important difference. The minimum wage is absolute while the productivity level is an average. One could argue that failing to increase (or having a low level of) the former punishes those who operate at the highest percentile in the productivity scale but functionally find themselves in circumstances from which it is not easy to extricate themselves in favour of more favourable employment arrangements. There are factors which cause some people to become stuck in an unforgiveable cycle harshly facing the issues we explore earlier, relative to poverty and economic mobility.
Not unlike our cycling example, we should see that the potential for broader gains lies in fixing both. One is much easier to fix than the other is. One has the power to incentivize the other. The focus must be to work in our various spheres on improving training and productivity. However, the policy discussion must necessarily connect the dots on this and therefore manage the consistently prevailing sentiments. Let us have a national thrust to improve human development index and productivity. Let’s build into the national strategy the means of doing so, for example by leveraging BVTI more, encouraging and incentivizing night school for high school diploma, putting government support behind businesses that will seriously facilitate apprenticeship programs, incentivize corporations serious about training and development, use fiscal policy and stimulus apparatus to encourage fundamental shifts. Let us usher in a new era where there is a national renaissance and a seismic shift in rendering rewards based factors other than merit, at all levels of society, a real strategic and deliberate thrust to build a culture of meritocracy.
The reasons for going beyond simple consideration of an increase in minimum wage are many. Poor people stuck in a survival mode do not generally dream and work in ways, which extends national capacity. The problem to be solved at a fundamental level is more than giving up a few more dollars, it is strategizing and building a cohesive plan and implementing viable treatments geared at unleashing national potential. The individual who can better afford to spend on a little more education, or take on a productive endeavor becomes a more productive citizen. With critical mass, the community and the country can change radically. Greater national income could ultimately leads to a lowered cost of living and greater benefit for all, in the long run. I understand there is a downside to this argument but let us think in terms of the single mother who works her finger to the bones day in and day out and then struggle to make ends meet. Her salvation lies not in earning an increased minimum wage but in the ability to pull herself well beyond the confines thereof. I have heard persons propose that it is best to allow the market to drive the rate of pay, if only life was that simple. There are persons who must be protected, there are persons being exploited daily and living horrid lives because others refuse to pay them their worth. In some ways, the minimum wage mechanism is designed to do just that but we must be consistently thinking higher, thinking about how to change fortunes. I readily anticipate some will counter that persons must do better for themselves, go get new skills. But the practicality of that must be considered, without a different look at the problem, the right solutions will never be derived. To be clear I support the idea of persons putting in the effort to lift themselves up, totally agree any such sentiments, with the caveat that until the environment is optimally facilitative there is work to be done remembering that such efforts, when successful, delivers benefits for all. Let us not limit the thinking to giving more wages, which is not likely to result in any significant change, but rather improving a person's ability to live a decent life.
If you look at this from a different perspective, giving that individual the few more dollars may in fact facilitate the ability to do more for self and lift themselves up but it is not likely to be of sufficiently significant impact. Having regard for our discussion to this point and the challenges highlighted we must certainly ask and explore the question raised earlier: how do we facilitate positive changes in the personal economy of citizens such that the individual becomes more capable of being self-sufficient and be able to create wealth thereby collectively helping to drive the economy? The country has some unique challenges that cannot be solved by money alone. The economic indicators of being a wealthy country is significantly skewed against lower wage earners, the gaps between cost of living and income potential for many are too wide; the economic growth is too weak to buoy and systemically shift the fortunes of these persons. Defined and more clinical effort is needed at the individual level but broad based enough to influence a critical mass of persons such that the difference can be felt nationally.
Against the backdrop of this discussion, I propose that as a country we take the following approach:
● Rethink the way the approach to the conversations when discussing minimum wage. Great care should be taken to frame conversation not simply in terms of what will accrue to the individual in dollar value but rather in the wider context of the potential economic impact on the country and benefit for the productive sector. The discussion should not be framed narrowly and strictly in terms of the need for an increase but rather on how any shift can be leveraged to facilitate growth.
● Rethink the effort to create value for the targeted individuals to ensure that ultimately they are given the best opportunity for growth. The focus should be centered on creating a culture of high national productivity, which serves as a driver for national economic growth and in turn serves as the engine for driving up average wages. Within the context of this discussion, there must be a clear focus on solving the productivity challenges of the country across all sectors with the public sector taking a more definitive lead.
● View the post COVID-19 recovery not simply on macro terms. Understand that the desire for resilience and being in the best position to mitigate vulnerabilities start with the collective financial and economic strength of the citizenry. Policy positions therefore, in the face of limited options compared to countries cited herein must have impact that is more indigenous. The drive for individual and collective productively, for advancing human capital development should be intrinsically linked to supported and enabling entrepreneurial efforts designed to advance the level of participation of the regular citizen, average income demographics and small business entrepreneur at the highest possible level of the business arena as their willingness, competence and capacity will allow. Effectively creating wider and deeper economies around individuals and businesses through local investment and entrepreneurial activities, which up to now have largely been “exclusive” or has been historically challenging for broad based participation.
● Policy makers and those speaking to national policy should consistently make the effort to tie the ability for continuous improvement in average earning potential into economic discussions. The idea is to ensure that the citizenry becomes hyper-conscious of our need to earn our way into a better state. This approach must then see robust fiscal and economic strategies employed to secure the progress needed nationally. Ultimately, only an approach that embraces growth will secure the ability to bring sufficient positive economic changes to support the ideas explored in this piece.
Like many aspects of the country, especially at this time, the solutions to the many issues faced are complex but certainly more pronounced. In this piece, we sought to shed some light on how the way we approach the discussions may actually complicate the path to solutions and to caution on resisting the urge to narrow the assessment and analysis too early. If as a country, we shift the thinking away from solely focusing on the financial metric, in this case a minimum wage, to take into consideration how the root causes can be addressed and how to use it as an indicator of the broader matters and problems that need to be solved. The sustainable solution to low income earners is the enhancement of their ability to create wealth thereby breaking generational cycles of poverty and low earning capacity. The conversations must identify the high potential for economic scarring and consider how the vulnerable low-income earning population, as well as other persons across broader demographics, will be affected. Now is the time to go well beyond the minimum. This going beyond is not simply in terms of a dollar amount but with regard to serious policies, initiatives and programs. These policies, initiatives and programs must be fundamentally designed to facilitate persons, causing the country as a collective to more actively and easily answer: how do we facilitate positive changes in the personal economy of citizens such that the individual becomes more capable of being self-sufficient, be able to create wealth and thereby help to drive the national economy forward? I believe the answer lies in going beyond simple financial treatments.
© Hubert Edwards 2020
Hubert Edwards is the Principal of Next Level Solutions Limited. Hubert specializes in finance; internal controls; enterprise risk management; governance, risk and compliance (GRC), with over twenty years of experience in corporate governance, policy and procedures development, enterprise risk management, regulatory consulting, anti-money laundering and strategic planning.
Former Chief Business Development and Strategic Planning Officer at financial institution. Senior Manager Audit and Regulatory Consulting with a Big Four firm. He holds a MBA and LLB, with honours. He has lectures and trains on topics such as anti-money laundering and compliance; internal controls; corporate governance; and risk management.
Edwards is the Founder of HubertEdwardsGlobal and Success Summit. He a radio and television host and is the producer and host of the radio show The Essentials! in addition, he is a regular radio and television commentator on economic and financial issues.