the review – 2 of 1999

First Published: 1999-07-28

Minimum Wage

The Business Editor of the Tribune took issue with the arguments of the Institute against the Minimum Wage in an April 16th editorial. He re-stated popular beliefs and platitudes on this subject and these are worthy of examination.

Define the problem.

Before considering the specifics it should be noted that the Institute defined the problem and The Tribune did not. It did a survey of business and in its sample 109 out of 2,132 workers covered, 5% of the total, earned wages and commissions below the proposed $4.12 per hour/$175 per week minimum. The companies that paid wages below the minimum were in fast food, retail household sundries and gasoline stations. This does not include, for instance, hotel maids that typically earn $152 per week base and $350 in gratuities. Likewise, it did not include sales women at the Bay Street perfume store in the survey. We are talking about "entry level" jobs where the most basic job skills are learned.

Can-t live without them.

The Editorial contends that companies in response to the proposed minimum wage will not downsize (layoff employees) if downsizing means it cannot provide a consistent quality service or product.

This is simply not true. In his effort to earn a profit the businessman has options. For instance, gasoline stations can eliminate full-service. The customer will now pump his own gas… quite possibly alone at night… and walk twice across the cement apron to pay for it. The product has changed and entry-level jobs have been eliminated. In other situations the employer can invest in equipment and employ a higher skilled person.

Dr. Walter Williams, the black American economist, asked more than a decade ago… "Why is it better for a youngster to be unemployed at $3.20 per hour than to be employed at $2.00?" The Business Editor-s answer is that he will remain employed. Dr. Williams and the Institute disagree.

Pass it on.

"If a company doesn-t like the increased cost [caused by a minimum wage], it will pass it on to the consumer."

A company can only do this if the consumer has no alternatives including buying less. The pizza parlor won-t feel it until its customers start baking their own at home… a current theme in TV advertising. In the case of gasoline retailers, the market will accept self-service simply because there is no alternative way to buy gas. The consumer determines whether a company can "pass it on".

Level playing field.

The Editorial states that a Minimum Wage creates a level playing field for workers. "No one potential employee can offer to do the job for less, throwing someone else out of work."

In fact, the minimum wage law discriminates against the less skilled since they cannot use the price of their labour as a way to get a job. The "level playing field" is a favorite trade-union theme since minimum wage legislation reduces the competition faced by unionized workers.

Cheap labour.

"Companies have set up shop in the Bahamas… for more complex reasons than the availability of a cheap labour pool."

Yes… the Bahamas has been well endowed with sun, sand, sea and proximity to the United States. High labour rates and low productivity, however, have hurt the tourist industry in its efforts to meet the competition from other destinations and have discouraged new company formation.

Legalized theft.

The Business Editor argues that a minimum wage puts more money into workers pockets and this creates more spending. If this is such a good idea, why stop at the proposed level of $4.17 per hour? Why not raise the minimum to $10.00 or $20 per hour? The answer is in the total picture.

The government in this case mandates a higher wage and the company attempts to raise prices.

 

  • If the consumer pays the higher price, money is indirectly transferred from the consumer to the worker who in turn spends it. A consumer loss offsets a worker gain… thus no net gain.

     

  • If the consumer does not pay, then the company loses. The company loss offsets the worker gain… once again no net gain.

     

  • If the producer stops selling the product, the consumer loses a desired product and the worker loses a job opportunity. As in the gas station example the company-s gain from lowered administrative expense is offset by worker and consumer losses… thus a net loss.

The Editorial sees only gains and misses the losses. This logic in reality can be, and is used, to justify stealing and this suggests that a minimum wage is nothing more than legalized theft.

The bad guys.

According to the Editorial there are two kinds of corporate citizens… the good guys and the more numerous bad guys. The bad guys "squeeze every dollar out of their employees and don-t pay them fairly because the owner or shareholders want more money for themselves."

The Editor provides no data to support his Charles Dickens-like characterization. He cannot visualize a world where workers, in fact, have alternatives and employers have a real need for honest, hard working and skilled employees. This is the labour market in the Bahamas today. He says nothing about entrepreneurs… the risk-takers who create growth. Are they good guys or bad guys?

The perfect world.

"In [the Editor-s] perfect world, everyone would get a wage they could live on. Businesses would still be allowed to make money because if they didn-t make money or gave it all away, we would call them charities instead."

In his perfect world wages would be related to a politician-s, a bureaucrat-s or a business editor-s definition of a "living wage." On the other hand, there would be two kinds of businesses… profitable companies and charities. In his world there are, in fact, four categories… those companies and charities that are operating and those that are not. Who determines this? Is it the consumers of products, services and ideas that determine which companies are profitable and which charities attract financial support? Or do politicians, bureaucrats and business editors perform this vital function?

In the real world… admittedly an imperfect one… it is the market that allocates resources most efficiently. Here decision-making is diffused among numerous market participants.

Ad hominum.

The Editor states that the Institute has criticized the proposed minimum wage and he alleges that this organization does so because its members are "business people, lawyers and economists."

At this critical period in the labour-relations history of the country the Editor opens his column with an ad hominum argument… an argument against the man rather than the idea… and follows with observations that only provoke controversy. Hopefully the above will cause The Tribune-s readers to re-read the recent contributions of the Institute to the public dialogue.

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