Central Bank economists are yet to begin an assessment of the impact of Government’s mandated national minimum wage which became effective April 1.
But Central Bank Governor Cleviston Haynes said if there is one thing he was sure about is that the increased wages will benefit those at the bottom and should increase the spending of these low-income workers.
Speaking at his first quarterly economic review for 2021, Haynes said the question of raising the minimum wage was a complex one as there were still divided views on the subject, and even more so about the timing of its introduction.
“The empirical research has mixed views as to what the impact of minimum wage has on employment in the economy. There are some people who think it has no effect, and there are those who believe it will lead to some reduction in the amount of employment in the economy,” he said during a question-and-answer session with members of the media and the public.
The Central Bank’s lead economist said it was important to consider the circumstances under which the minimum wage was introduced.
Noting that the impact needed to be measured sector by sector, the Governor said: “I don’t think you should really focus on the top line because there are some sectors that will not really be impacted because they are already above the minimum wage. There are some that are sufficiently close to that minimum wage that it does not have an impact. Then there may be some, where there could be a wider gap.
“We in the bank have not been focusing on that yet but what we have to do is see those sectors where the gap between the minimum wage and the actual wage is really significant, such that it could, over time, impact the employment levels in particular firms.”
Haynes stressed the necessity to “understand the profitability” of those enterprises that were paying borderline minimum wages, as well as those that were paying below, to determine if they can absorb the wage increase at this time.
“There is always the question of whether you should do it now or do it gradually. These are always difficult questions to resolve. They require you to better understand where the wages are because there are minimum wages that are binding and there are some that are not.
“If the minimum wage is $8.50 [per hour] but firms are willing to pay $9 or $10 in a particular sector, then it is not much of an issue. There are spillover effects because sometimes [the minimum wage] tends to push up other costs. But a lot will depend on what flexibility firms have, for example, to adjust prices. It is really a complex issue that I do not think you can give a simple answer at this time. You have to monitor it and see how it pans out.”
Importantly, Haynes stressed that an increase in wages is expected to result in increased spending particularly by those at the bottom of the income scale. Their demand for goods and services should improve, thus providing some stimulus to the economy.
The Governor added: “We have to get the right balance and I cannot tell you that we have the right balance based on the rate that has been established. But the empirical evidence on minimum wages [provides] no one answer on what is going to happen once you implement a national minimum wage.”
Barbados’ private sector launched a vocal lobby against the introduction of the minimum wage, insisting that it will have a negative effect on some enterprises, will drive up already high labour costs, and lead to further worker dislocation.
Groups including the Barbados Chamber of Commerce and Industry, the Barbados Private Sector Association and the Barbados Employers’ Confederation, all called on Government to delay the legislation which introduced an across the board minimum wage of $8.50 per hour from April 1. The minimum wage for shop assistants was $6.50 per hour. (IMC1)