Mr. Stephen Saunders in his Letter "Minimum wage protects" in Thursday's Tribune asked The Nassau Institute "Why it is not good for the Bahamas to have a minimum wage, but it is good for the United States and Western Europe?"

The answer is not simple or pleasant.

· The minimum wage in the United States offers politicians the opportunity to appear to be doing something for the worker/voter. For the politician, this "perception" is everything.

· In fact, each and every increase in the minimum wage in the United States increases unemployment among the less skilled workers of America. This is a thoroughly tested economic reality.

Economic reality.

In the 1980s Dr. Walter Williams, the Chairman of the Department of Economics at George Mason University asked the question "Why is it better for a youngster to be unemployed at $3.20 per hour than to be employed at $2.00?" In 1948 black and white teenage unemployment rates were about the same-9.4% for black and 10.2% for white teens. He pointed out that as the minimum wage rose in the 1960s and 1970s, the unemployment rate for blacks roughly doubled compared with whites - to 37.7 percent for black teens by 1980, compared to 18.5 percent for white teens.

The passage of time has not altered this story. A Dallas research institute analyzed U. S. Department of Labor data for the period 1983 through 1994. It showed that -

· Between 1883 and 1990 the Minimum remained unchanged; and with inflation the rate became less "effective".the minimum was worth less and teenage unemployment dropped from 22-23 percent to less than 15 percent.

· The Minimum was increased in two steps in 1990-91 and teenage unemployment peaked at a new level in the spring of 1991.

· "Subsequently, teenage unemployment rates fell, although not to the low levels of 1989 or early 1990"

The study showed that on the whole, the teenage unemployment rate moved in tandem with changes in the real minimum wage.

The reality is that the Government may mandate a "higher-than-market" wage rate but the employer has options that will help maintain profits. He can reduce the number of workers employed, and retain only those that can work at a higher level justifying the higher wage rate. He may change the product offered.no more "full service" gas stations, only self-service. Or.he may raise prices so all consumers lose.thus offsetting the expected income gains of the worker.

Political reality.

The Bahamas is a polarized society where deeply held beliefs and sentiments exist in a "we-they"/"us-them" framework. Within such a socio-political context the Minimum Wage has special appeal. In this case the PM is saying that he will cause the employer to pay workers more. This is what voters want to hear.

However, this is an illusion. In this game the winners are the successful politician, government bureaucrats, lawyers and those that remained employed. The losers are the new unemployed, consumers, taxpayers, employers no longer in business and the country.

The political appeal of the Minimum Wage is great. However, there are several meaningful exceptions. Singapore does not have one and Hong Kong has one that is flexible downward in a recession. Both countries have been extremely successful small island countries.

Furthermore, there is the experience of the 1990s in the Bahamas. With pro-growth government policies real gross domestic product reached 4 percent per year after more than a decade of economic stagnation. And in this growing economy the lower 60 percent of Bahamian households took a bigger share of the bigger economic pie. During the 1980s the lower 60 percent took a smaller share of a virtually stagnant economic pie. This happened without a Minimum Wage. That's reality.

The Stephen Saunders Letter is short but over half of it is a tirade against free markets. He contends that markets are controlled by those "who share common social, and/or economic interests" and "the employer will pay you nothing if he could." This is the ideology of Marxism and socialism that the last 50-years of world history have demonstrated is neither an efficient nor a fair way to run a society.