The notion of a Living Minimum Wage (LMW) has been dominating the news cycle, ever since the Government announced the appointment of a multi-stakeholder Committee, to examine the issue and to recommend a way forward. I expect this domination will continue well after August 1, when a new LMW is legalized.
The on-going debate rekindled memories of my time as a Labour Inspector in the early 1980s, when I was involved in the enforcement of the law on minimum wages, as well as in minimum wage fixing. In support of these roles, I was exposed to two ILO workshops on the subject. For many decades, an autographed copy of a book by ILO Expert, Gerald Starr entitled “Minimum Wage Fixing: A review of International Practices” occupied a special place on my bookshelf, until I donated it to the Central Library.
Drawing on this background, I can say that setting an LMW is no walk in the park; and enforcing it will likely be even more challenging. It’s important to note that a “minimum wage” and a “livable wage” don’t mean the same thing. The former is the lowest wage a worker can be paid, as set by law; while the latter is a wage on which a worker can live. Usually, a livable wage is higher than a minimum wage and is not legally mandated by law.
A Question of Priorities
It is widely appreciated that the functional value of an LMW is dependent on the lifestyle choices people make, and the extent to which they prioritize their needs over their wants. I can say with certainty that participation in carnival, jazz or weekend fetes is not among the “basic needs” that would have occupied the minds of members of the LMW Committee. And in stating this, I’m not trying to be facetious. The simple fact is that no wage or salary will be adequate if our people don’t set the right priorities.
In committing to an LMW, the Government is announcing its intention to set a legally enforceable minimum wage that gives the average worker an income that is adequate to survive. However, I think we can agree that one’s ability to survive is determined by more than income. It’s also about a worker’s spending power, relative to the cost of the necessities for survival, including shelter, nutritious food, healthcare, education, and transportation, and other critical basic needs.
Marriage of Policy and Law
I’ve long been of the view that good policy enables good law making. In the case of the LMW exercise, I feel that a prices and incomes policy (PIP) would have informed the Committee work and helped to remove grey areas in the minds of the public, regarding for example, the macro-economic objectives of an LMW, and its intended contribution to poverty reduction. Additionally, a PIP would have indicated how the government intends to ensure that any negative effects from the introduction of an LMW would be mitigated. I hasten to clarify that I’m not referring to the traditional PIP that was widely used in Europe in the 1970s and 1980s, when Governments imposed limits on the rate of increases in prices and incomes. As a student in the UK in the mid-1980s, I recall the fierce political debate which engulfed the PIP process, which ultimately led to its death and burial. This outcome is not an indication that a PIP is inherently flawed. If anything, it hints at the challenges of introducing a PIP in a politically charged environment.
The realities of Smallness
In any event, in small, open, economies like ours, Governments do not have much latitude to control the prices of imported goods, except to subsidise the prices of imported energy products, and basic food items like flour and sugar. Governments may also reduce the prices of its public services, such as vehicle and drivers’ licenses, but this will mean less money to build and maintain road infrastructure. I cannot recall any Government in Saint Lucia imposing statutory limits on wage increases. There were occasions, especially during the “guava years” in the 1980s, when governments tried to leverage the ideals of tripartism to reach informal agreement with trade unions and employers on wage and prices in the national interest. I was part of a technical committee for this initiative, which was established by the then Director of Finance, Dwight Venner. A Productivity Committee was also established. These efforts did not produce any memorable, positive outcomes, because co-operation among the parties was often lacking.
In some respects, the mere initiation of a process to set an LMW, can be interpreted as an element of an incomes policy. It can be seen indicating Government’s determination to assist workers who do not have the requisite collective bargaining power to get wages increases, especially in times of inflation. As things now stand, a large swathe of non-public sector workers is not unionized. Certainly, this is the case in the island’s tourism industry.
Assault on Wages
There’s no doubt the wages of workers in Saint Lucia are under assault from the rising prices of goods, foods, and services. Unionised workers are not as badly affected, because their wages can be adjusted to take account of increases in the cost of living when collective agreements are renegotiated. However, they too are challenged by inflationary spikes that occur between collective agreements. It’s a mystery to me how non-unionised laborers in the construction, retail, and security services sectors get by on the wages they earn. Take food, for example. The average citizen takes a minibus to get to and from a supermarket, where he/she buys mostly imported food, at uncontrollable and uncontrolled prices. On returning home, perishable food must be refrigerated, or cooked, which requires the use of imported energy. Throughout this process, the average citizen is exposed to uncontrollable prices caused by inflation. The options include paying more for food and cutting back on other spending; paying less by shifting to cheaper, less nutritious food items; or cutting back on the number of food items in a shopping cart.
Benefits
The need for, and the benefits to be gained from an LMW are beyond question. By giving workers the ability to cope with increases in the cost of living, an LMW can help these workers to move out of poverty, and reduce demand for Government-provided social assistance. It could prompt more workers to actively seek work, more certain in the knowledge they would be paid fairly. Employers might see an improvement in worker morale and a corresponding increase in productivity, which together with an increase in the spending power of workers, could spur economic growth.
Challenges
The real question is how to establish an LMW that generates these benefits but does not create more problems than it was meant to solve. In a press statement made in September 2023, Minister for Labour Minister Dr. Virginia Albert-Poyotte acknowledged an LMW carries serious implications for the government and the private sector. She hinted that when introduced, the LMW will not be a flat rate, across-the-board and that the LMW will vary for different sectors. This suggests to me that the Committee has given some consideration to differences in the job specifications of workers in the various sectors. I suspect the Committee would have been challenged in doing this, because of the absence of a national standard classification of occupations. Ordinarily, this is a complex and time-consuming exercise, requiring that clear distinctions be made between a job, a skill, skill level, and occupation, as defined by the International Standard Classifications of Occupations (ISCO).
Downsides
To be sure, the introduction of an LMW is not without downsides. It could energize increases in wages and salaries across the board, which could then increase the operating expenses of businesses and force them to either increase the prices of their products and services or cut back on their labour costs.
Saint Lucia’s economy is dominated by micro, small and medium enterprises (MSMEs) which cater solely to the local market. The small size of the market inevitably means stiffer competition and tighter profit margins. Moreover, many of these businesses import their inputs, meaning they are exposed to the vagaries of the global market, including energy price shocks and supply chain disruptions. Thus, an MSME may feel it has little choice but to pass on increases in its labour costs to its customers, that is, workers, or cut its workforce to give it a better chance of staying afloat. Pipeline businesses may be able to incorporate these increases in their break-even analyses and in their overall business plans. The government should assist businesses to adapt to increases in their labour costs caused by an LMW by becoming more efficient.
A big unknown is how unions will react to an increase in the LMW. In some respects, this is uncharted territory. Much will depend on whether the LMW is set lower than minima in existing collective agreements. If the LMW is higher, will unions press employers to exceed that figure in future collective agreements?
I expect these and other unknowns will be cleared up over the next year or so, as the LMW works its way through the economy.