The Minimum Wages Act 2001

First Published: 2001-12-20

On Monday of this week the Employment Act 2001 was passed apparently without discussion in Parliament and the Rt. Hon. Hubert Ingraham will table two more bills. These are intended to produce new protections and secure as yet unrealized economic gains for those who allegedly were denied their fair share in the FNM engineered prosperity of the past six years.

The Bills are controversial because the consequences of such legislation are often the opposite of the stated objectives. The Minimum Wages Act 2001 is a good example.

Minimum wage legislation is popular with politicians seeking voter support …especially during election years. Yet in the United States it has been an economic illusion for the intended beneficiaries. In all probability the proposed Minimum Wages Act 2001 is no exception.

The economic “Law of Supply and Demand” as applied in this case states that if a government mandates an increase in wages paid by private enterprise, then the number of workers employed declines.

The effect of minimum wage legislation has been studied and re-studied in the United States in no small part due to the availability of relevant employment data going back decades. For instance, a study dated June 1998 showed that the 1990-91 increase in the minimum wage reduced employment from three percent to eleven percent for teen-agers and poorly educated adults. And following the 1996-97 increase the employment rates of teen-agers and poorly educated adults were still below the levels registered nine years earlier.

The Bahamian Government, in effect, recognizes this…namely, that its minimum wage will increase unemployment. And so it gives blanket exclusions from the minimum to the employees of small businesses, students in summer employment, students working and studying and gas station attendants and under certain conditions the physically impaired.

It does not address the problem of poorly educated adults. For instance, Government mandated wage increases are likely to accelerate the introduction of computer technologies. The employment of poorly educated adults is put in jeopardy by the legislation.

However, the Bill not only proposes a basic minimum wage but creates a complicated bureaucratic device…wages councils…that can set unique minimum wages for any industry or part of an industry. The International Monetary Fund in its August 2001 Consultation recommended that this provision be ruled out. Wages Councils will submerge business in a process directly analogous to Grievance Lotto…the politically popular labour grievance game played out today before the Industrial Tribunal.

Why would a Government in the same document recognize the adverse impact of minimum wage legislation and at the same time provide the mechanism for creating many minimums?

The Act states that wages must be regulated by tri-partite bodies. Yet, no data or impact statement supports this policy position. The Minimum Wages Act adds to the vicious cycle of higher labour costs, more spending on regulation, more litigation, higher prices, the diversion of scarce entrepreneurial resources, and less employment.

It is ironic that the Bahamian Government is so deeply involved in expanding its regulation of private business when the failures of government management are so apparent.

1. Batelco can’t be sold because it never had a proper accounting system;

2. Bahamasair can’t survive off the public dole and probably is not saleable at any price;

3. BEC is the perfect monopoly; its service is grossly erratic, prices are very high and major power users are not allowed to generate their own;

4. Water and Sewerage is in deficit because of water leakages and unrecorded consumption, and

5. Recently when it really mattered, the inadequacy of the fire fighting capacity of this Government was clearly evident.

A political elite exhibits a profound intellectual arrogance when it dismisses arguments to the contrary and imposes its vision on a society. What makes it worse is that it does so without a ripple of meaningful protest. For the FNM Government, regulation of private industry is a legacy to be realized.

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