Minimum wage hike may fall short without enforcement — economist

The government’s planned increase in the national minimum wage this April risks falling short of its intended benefits unless robust enforcement mechanisms are implemented, noted Economist Jeremy Stephen has warned. 

He cautioned that without proper oversight, many employers may fail to comply with the new rates, as was the case when the minimum wage was first introduced in 2021.

He told Barbados TODAY: “If the government does not have the means to enforce or check whether employers are actually increasing the minimum wage, that in itself is a major issue. It all comes down to enforceability. The question is not just whether the economy can bear an increase but whether employers will follow suit.”

Stephen highlighted that government agencies might lack the capacity to ensure businesses comply with wage regulations. He emphasised that enforcement is critical for achieving the desired outcomes of a wage hike.

“Employers were asked to hold strain because of the social compact a few years ago. That ended fairly recently, and a lot of them make decisions based on past actions. They held strain, then saw a dip in profitability. Now, everyone is looking to recoup their investment,” he explained.

He added that many business owners might view a wage hike as premature — an expense undertaken before they see justifiable increases in revenue.

“If they don’t see a justifiable increase in profitability to share that increase in wages, then they would naturally resist it,” Stephen said. 

However, he acknowledged an alternative perspective suggesting that higher wages could stimulate economic activity by increasing consumer spending.

“There’s another point of view that states if you raise wages, you raise expenditure because poor people tend to have a higher capacity to consume. They’ll spend more, especially on retail items,” he said.

Stephen also advocated for industry-specific adjustments rather than uniform wage increases across all sectors. He pointed out that tourism — a key sector in Barbados — is highly seasonal and may require a different approach compared to non-seasonal industries such as banking or retail.

“If you have minimum wage legislation, it has to be issue-specific. Tourism, for example, is a seasonal industry, so a monthly wage adjustment doesn’t always make sense. A system based on hourly rates might be more appropriate,” he explained.

He cited recent targeted wage adjustments for security guards as an example of effective policy but questioned why similar measures were not applied to other sectors.

“The government had industry-specific minimum wages for security officers, but tourism — one of the country’s largest employers — wasn’t given the same tailored approach,” he said.

Stephen warned that tourism businesses might respond to higher wages by increasing seasonal employment rather than offering stable year-round jobs. 

“The more you raise minimum wages, the more seasonal some people will become,” he said.

The economist argued that monitoring employer compliance should be straightforward if relevant agencies are adequately equipped. He suggested that institutions like the Barbados Revenue Authority (BRA) and the National Insurance and Social Security Service (NISSS) could play key roles in ensuring compliance by sharing payroll data with the Ministry of Labour.

But, Stephen expressed doubts about whether such systems are currently in place or whether sufficient resources have been allocated for enforcement. 

“I don’t think the Estimates have given the Ministry of Labour more money to help with enforceability,” he said. “For the next year, at least, we’ll have to wait until after the March Budget to see if any changes are coming.”

Despite his concerns about implementation challenges, Stephen reiterated his support for raising wages: “I am the grandson of a maid — there’s no way I would ever not support raising wages. My problem is always about how it’s done.”

On Tuesday, Minister of Labour Colin Jordan announced plans for a minimum wage increase in April and indicated that a system would be introduced for periodic adjustments. The current sectoral minimum wage entitles workers on a 40-hour week to $340 per week or $8.50 per hour. Security guards earn $9.25 per hour and receive $13.88 per hour for overtime and $18.50 per hour on public holidays.

The planned increase comes four years after Barbados officially introduced its first standardised minimum wage in April 2021. 

sheriabrathwaite@barbadostoday.bb