Econ­o­mist Dr has said while a de­ci­sion con­cern­ing an in­crease in the min­i­mum wage is nec­es­sary, it will have to be care­ful­ly weighed be­fore it is im­ple­ment­ed.

He said giv­en the fact that the spend­ing pow­er of the wider pub­lic has con­sis­tent­ly erod­ed for the past years, an in­crease for work­ers should be con­sid­ered.

Ar­joon said, “An in­crease to the min­i­mum wage is war­rant­ed es­pe­cial­ly giv­en the dra­mat­ic in­crease in the cost of liv­ing in the last few years. In the last five years, prices in­creased by ap­prox­i­mate­ly 15 per cent, with food prices in­creas­ing by 27 per cent. The in­ten­tion be­hind any in­crease in the min­i­mum wage is to im­prove the pur­chas­ing pow­er for those in the low-in­come brack­ets, their over­all qual­i­ty of life and help com­bat pover­ty. It is al­so in­tend­ed to stim­u­late fur­ther eco­nom­ic ac­tiv­i­ty in the pri­vate sec­tor from ad­di­tion­al spend­ing, giv­en that those in the low­er in­come brack­et will have high­er dis­pos­able in­come.”

He how­ev­er not­ed that if the in­crease is too high, there could be a neg­a­tive ef­fect on the econ­o­my.

Ar­joon said, “How­ev­er, these ben­e­fits large­ly de­pend on the ex­tent of the wage in­crease—if it is too high, es­pe­cial­ly one that busi­ness­es can­not af­ford, it can cre­ate more eco­nom­ic dif­fi­cul­ties that will out­weigh the po­ten­tial ad­van­tages of the wage in­crease. When set­ting the wage in­crease, the au­thor­i­ties have to take in­to ac­count two key fac­tors:

(1) The over­all rise in the cost of liv­ing; and

(2) the ex­tent to which over­all pro­duc­tiv­i­ty has in­creased.

“If wages are in­creased by a greater pro­por­tion than pro­duc­tiv­i­ty, we run a se­ri­ous risk of in­creased in­fla­tion­ary pres­sure. There­fore, when de­cid­ing the min­i­mum wage in­crease, a bal­ance must be struck when con­sid­er­ing the in­crease in the cost of liv­ing and pro­duc­tiv­i­ty gains.”

He con­tin­ued, “There will al­so be fur­ther in­fla­tion­ary pres­sure, giv­en that a high­er min­i­mum wage al­so in­creas­es busi­ness costs, and busi­ness­es may pass on these high­er costs to the con­sumer as high­er prices. Nat­u­ral­ly, in­fla­tion erodes any im­prove­ment to the pur­chas­ing pow­er from the wage hike.”

He al­so warned that such a change could al­so prompt job loss­es as busi­ness­es could strug­gle to pay work­ers un­der the new wage struc­ture.

“Em­ploy­ment can be af­fect­ed due to the in­crease in busi­ness costs, es­pe­cial­ly if the wage hike is too high. Some com­pa­nies, es­pe­cial­ly small­er ones, may opt to hire work­ers on a tem­po­rary ba­sis, in­stead of giv­ing them a per­ma­nent po­si­tion, so that they can bet­ter man­age their over­all wage bill.

“There can al­so be pos­si­ble job loss­es, as some low-skilled po­si­tions could be made re­dun­dant if the com­pa­ny is not be able to af­ford to pay the in­crease in min­i­mum wage. The em­ploy­er may trans­fer the re­spon­si­bil­i­ties of that po­si­tion to some­one else with­out rais­ing their pay, and this re­duces job op­por­tu­ni­ties for those with lim­it­ed skills and ex­pe­ri­ence. More­over, a sub­stan­tial in­crease in the min­i­mum wage can low­er prof­it mar­gins for small busi­ness­es,” said Ar­joon, who al­so not­ed that it could lead to busi­ness­es adopt­ing risky prac­tices to cut or man­age costs.

The econ­o­mist said that if the in­crease is too high, it can al­so lead to un­eth­i­cal prac­tices on the part of the em­ploy­er, as they may opt to leave to­tal pay un­changed and un­der­re­port the num­ber of hours em­ploy­ees worked.

“Some might not re­port em­ploy­ment at all, evad­ing the min­i­mum wage law en­tire­ly. This will be more com­mon for those busi­ness­es un­reg­is­tered and op­er­at­ing in the shad­ow econ­o­my,” he said.

This, he said, could al­so lead to fur­ther ex­ploita­tion of low-skilled work­ers, who may find them­selves out of work due to job cuts and in­vari­ably lead to in­for­mal em­ploy­ment where they lack tra­di­tion­al se­cu­ri­ty.

“In ad­di­tion, if some low-skilled work­ers can­not get jobs in the for­mal sec­tor, due to the hike in the min­i­mum wage, they may turn to the shad­ow econ­o­my for jobs, which will like­ly of­fer them a low­er salary. This not on­ly vi­o­lates the min­i­mum wage law but al­so leads to fur­ther growth in the shad­ow econ­o­my,” said Ar­joon.

“To this end, in­creas­ing the min­i­mum wage is war­rant­ed and of ut­most im­por­tance giv­en the re­cent hike in the cost of liv­ing. This in­crease must im­prove the wel­fare of work­ers at the low­er end of the lad­der and re­duce in­equal­i­ty, but at the same time the in­crease should not be too large to cre­ate in­fla­tion­ary pres­sures, un­eth­i­cal em­ploy­ment prac­tices and growth of the shad­ow econ­o­my.”

The top­ic of in­creas­ing min­i­mum wage re-emerged as a na­tion­al is­sue af­ter a Labour Day call by Oil­fields’ Work­ers Trade Union leader An­cel Ro­get to raise the wage to $30.

The min­i­mum wage was last in­creased in De­cem­ber 2019 to $17.50. Be­fore that it had been raised to $15 in 2015.

In the wake of that call, the Em­ploy­ers Con­sul­ta­tive As­so­ci­a­tion of Trinidad and To­ba­go stat­ed while it was not op­posed in prin­ci­ple to an in­crease in the min­i­mum wage, as it could lead to an im­prove­ment of liv­ing stan­dards, oth­er fac­tors need­ed to be con­sid­ered as well.

The ECA said, “Min­i­mum-wage set­ting is a process that con­sid­ers many fac­tors, be­yond just cost of liv­ing, and which, if not prop­er­ly bal­anced, can have far-reach­ing im­pli­ca­tions for busi­ness­es—par­tic­u­lar­ly small busi­ness­es, job seek­ers and so­ci­ety. Those who are charged with fix­ing the min­i­mum wage need to look at that bal­ance which must in­clude the par­tic­i­pa­tion of all so­cial part­ners.”

Last Mon­day, Min­is­ter of Labour, Stephen Mc Clashie stat­ed that a fi­nal de­ci­sion con­cern­ing a change in the min­i­mum will be made in the com­ing weeks.

A day af­ter this was re­port­ed, Chair­man of the Con­fed­er­a­tion of Re­gion­al Busi­ness Cham­bers, Vivek Char­ran stat­ed that an ad­just­ment of the wage would place a strain on both the gov­ern­ment and the busi­ness sec­tor. He in­stead called on the Gov­ern­ment to con­sid­er an ad­just­ment to the Val­ue Added Tax sys­tem in the up­com­ing bud­get as a means to ad­dress in­fla­tion­ary pres­sures and by ex­ten­sion in­crease the spend­ing pow­er of the pub­lic. He said the re­moval of VAT on cer­tain items, and the in­tro­duc­tion of a low­er and busi­ness sec­tor-con­trolled sales tax could help in that re­gard.