The Good News/Bad News of the Minimum Wages Act

First Published: 2000-06-28

Generally minimum wage legislation, such as the Minimum Standards Act that was circulated for comment in January of this year, is objectionable because it discriminates against the employment of the disadvantaged and creates a costly government bureaucracy where none is needed. The “good” news is that the Minimum Wages Act now tabled in Parliament differs from that earlier proposal in that it reduces the most glaring aspect of that discrimination. The “bad” news is that it enlarges the proposed bureaucratic process for administering it.

Discrimination against the disadvantaged.

In looking at wages –

  1. Some believe that people are paid what they are worth and that the market for labour services is like every other market. Raise the price of labour by government decree and fewer workers will be employed… while

  2. Others believe that the relative power of the employer versus the employee is the principal determinant of wage rates. Raise the price of labour by government decree and the same number of workers will receive a greater amount of money. In their eyes this is a desirable government-directed transfer of wealth from the “haves” to the “have-nots”.

Employment data for the last half century in the United States has been widely studied and supports theory “A”.

The teenage employee is the most marginal in the job market because he is likely to be less experienced and accomplished in the skills and aptitudes demanded by employers. In the U.S. the before-and-after data, 1948 versus 10 to 20-years later, shows a two to three times increase in the unemployment level for teenagers following the implementation of an effective continuous minimum wage program. Data for 1983 through 1994 shows that “the teen age unemployment rate moves in tandem with changes in the real minimum wage.” For instance, if the minimum wage stated in constant dollar value rises so does the unemployment rate. There is no data that invalidates this reality.

In 1999 the Institute for Economic Freedom did three surveys related to the December 1998 draft of the Minimum Labour Standards Act. These surveys showed that 5% of the respondent-s employees earned less than the proposed minimum and these workers were concentrated in fast foods, retail household sundries and gasoline stations. The application of the Minimum Wage to these workers would clearly produce significant layoffs.

The government drafters of this legislation agree with theory “A” and market reality because the present proposal specifically excludes “employees employed in small businesses, students in summer employment, students working and studying, gas station attendants.” This goes a long way to eliminate the harmful employment effects of such legislation. This is the good news.

The drafters, however, raise inadvertently the real question… Why propose this legislation in the first place if in theory and practice it causes unemployment?

The ILO, the IMF and labour flexibility.

In the prior drafts of this legislation the Minister of Labour would have been given unlimited power to set minimum wages, an Inspector Corps to police private business and the power to enforce his orders.

Now the Minister of Labour will not only have the police and enforcement powers… but he will set minimum wages through the creation of seven-member tri-partite wages councils to examine wages where he considers it “expedient”. The actual creation of each council will be subject to a public review process and each council may make a wage proposal to the Minister who may then send it to the Governor-General who may make a “minimum wage order” that will be ratified by both houses of Parliament. An employer-s failure to conform is subject to criminal penalty.

It is ironic that the government is proposing invasive complex regulations at this time. The Bahamas is in a period of prosperity… wages and benefits have increased significantly without the “benefit” of the proposed legislation. Furthermore, there is a severe shortage of qualified workers and the country needs a continued flow of foreign investments.

While the International Labour Organization of the United Nations is pushing this legislation, the International Monetary Fund in its April 1999 consultation with the Bahamas… with good reason… specifically recommended “an increased supply of trained labor, combined with increased labor market flexibility.”

The Bahamas has a choice… Will it be socialist legislation or free market initiatives? It is clear that the Bahamas with the Minimum Wages Act, 2000 is following the recommendations of the ILO rather than the IMF. The greater labour inflexibility promoted by this and the four other labour bills is genuinely bad news for the Bahamas.

Help support The Nassau Institute