Mimimum what?

The message by Neville Martin was written in 1976 as a PNP campaign song touting the achievements of the then Michael Manley-led PNP in the four-five years prior (1972-1976). Just after two lines of "equal pay for women," Neville Martin sings "Juuk then with the minimum wage," his very catchy and captivating lyrics still echo at PNP conferences and meetings today. Neville Martin melodiously outlines why the PNP should have been re-elected.

In fact, the PNP government at the time led ushered in the most widescale labor reforms, The most significant reform was to introduce the minimum wage in jamaica were made in 1974 and later enacted in 1975 with a minimum wage of $25 per week. The following chart has all minimum wages announced sine 1992. ranging from $300 in 1992 to $9000 in 2022. 

Defining Minimum wage 

Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract” - International Labour Organization 

Contextual Framework

To agree with Clemmens (2021) research has indicated that the employment effect of adjustments to minimum wages is essentially zero, in other words, people more than likely will not lose their jobs. However, policymakers and the general public are more in favor of large minimum wage increases. But when it comes down to the brass tacks the people controlling the purse strings, i.e employers is where the analysis should be placed. 

Who is the minimum wage earner?

An important question to ask in our analysis is essentially who is directly affected by increasing minimum wages since it is fair to assume that most persons earn above if not significantly above minimum wage. But there are persons n the society that perform jobs whose valuations are either slightly above or even below minimum wage. For example, household workers, sanitation workers, landscape and gardening workers, construction aides ( workmen with no defined skills), security guards, cashiers, supermarket employees, restaurants workers among many other job functions that the system simply values as low paying jobs. And it is with this understanding we'll be able to critically analyze whether or not the minimum wage issue is really an issue for government or private individuals and firms 

 In a seminal paper by Stigler (1946) wages should be determined competitively, realizing that we do not exist in a perfectly competitive environment wages are set by the employer's budget and the potential employees' reservation wage. The reservation wage is the minimum amount a worker is willing to accept to work as opposed to staying home. In our context, the reservation wage is linked to the minimum wage which is a government-imposed price floor for which an employer cannot pay a worker below.

From a purely economic perspective, it is up to employers to determine how much a worker is worth to them, a minimum wage that is set too high, employers will hire fewer low-wage earners or pass on rising wage costs to consumers,  Clemens(2021) suggest up to 75% passthrough. This implies then that the setting of a minimum has to take into consideration the net effects to the employee, the employer, and the wider society as well as the non-wage compensation to employees, otherwise known as benefits. 

In response to a  minimum wage increase,  a  firm might adjust its noncash compensation offerings, for example,  the generosity of benefits including health insurance, pensions, research budgets, and travel budgets. Other firms cut back overtime allowances, Christmas bonuses, and other non-wage compensation or benefits. This means we have to be careful to not tip the scales too much.

Given this context set above let's describe the current events in Jamaica, 

Current Events 

Effective April 1, 2022, the national minimum wage increases to $9000 per week up 28.5%  from $7000 previously. The first expression from the general public is astonishment as to whether or not someone can survive on that pay. Some have gone as far as to covert the figure to USD across time periods, not accounting for inflation or time period biases,  to make a case as to why it isn't sufficient within their vacuum often without completing the analysis. 

The nominal increase was in fact 28.6% the real increase was only about 9.2%, the latest statin CPI report reflects that the fiscal year-to-date inflation rate is also 9.2% which means that in 2022 the increase in the minimum wage is actually in tandem with inflation. But I don't think we are prepared for that conversation. 

Secondly as it relates to the USD conversion, since we are not yet at April, 2022 the true conversion is as follows: 

$7,000/127.06 = $55.09 (Feb, 2018)

$7000/156.73 = $44.67 (Feb, 2022)

$9,000/156.73 = $57.42  (April. 1 2022)

Thus the true USD comparison increase reflecting the 2022 exchange rate is actually a USD 12.75 increase, accounting for the depreciation of the JMD, which is the same 28.5% increase in nominal terms. 

A lecturer of mine used to always say:  from the bad assumptions you prove anything.

Social Argument

Economists cannot ignore the social arguments argument as to whether or not someone can live on such a wage, the problem is the people who often discuss the realities are not people who often have the lived experience, from our vantage point we use our experiences and lifestyles to judge these people their incomes. For many a minimum wage job is the only job they can get because they lack skills or certifications. And for some who work in the formal system minimum wage is all they can afford to pay someone to work with them. 

Now the government's role in all of this is to ensure that adequate social protection exists for persons with low or no income and create an environment that fosters entrepreneurship, capacity building, and skills training. So that wage increase in tandem with productive output and not just cost of living or inflationary pressures. The same arguments would have to be considered for the liveable wage narrative.