Living-wage bandwagon shifts up into high gear
The Royal Gazette has hosted a flurry of articles and propaganda pieces advocating a living, or minimum, wage of $18.23 for those whose salaries are inadequate for them to enjoy a reasonable standard of living in Bermuda. For those who are lowly paid, employers will be compelled under law to pay a wage of at least $18.23 per hour that will provide an income high enough for workers to enjoy a dignified lifestyle.
Supporters claim many benefits from passing such a law, the most important of which would be people being able to become self-sufficient, no longer carrying a stigma of being poor in an affluent society such as Bermuda. The senator Jason Hayward states that 3,557 jobs in Bermuda have wages that pay less than $18.23 per hour.
The morality of such a move is so self-evident that to speak against it is a modern form of heresy. Apart from a few critical comments on the Gazette blog from reactionaries, the great and the good of Bermuda are now in full flight, eager to end poverty in Bermuda by passing a law. They are even more eager to garner the 3,557 votes that are now up for grabs.
Leading the charge is Rolfe Commissiong, and he has mustered his troops well. Just a few of the heavyweight names are Martha Dismont of Family Centre, Sheelagh Cooper of Habitat for Humanity in Bermuda and a longstanding anti-poverty campaigner, former Attorney-General Philip Perinchief, Mr Hayward of the Bermuda Public Services Union, Citizens Uprooting Racism in Bermuda, and Royal Gazette columnist and letter writer Khalid Wasi and E. McNeil Stovell respectively.
The Premier, David Burt, also seems to be a supporter. I will collectively refer to them as “dreamers” of the living wage. All make the same pitch, namely that many employees are not paid enough to live at a reasonable standard of living.
The solution is deceptively simple: pay employees more and the problem will be solved. With a stroke of the pen, the House of Assembly can solve the problem with a minimum-wage law. Social justice will be achieved overnight.
Who can be against a law that provides for everyone to enjoy a wage that allows them to live decently? Only the cold, callous and uncaring, and those who are apologists for profit-hungry business interests, according to its supporters.
For example, Mr Perinchief in an article for the Gazette on August 8, 2018 castigated Nathan Kowalski — one of the most perceptive economic Royal Gazette columnists — for wishing to consult with employers and others who might have an interest in the subject.
Apart from the personal attack, Mr Perinchief expressed an unbalanced opinion concentrating, as do many of the promoters, on the tribulations of those living on low incomes. He failed to mention anywhere in his long article how an increase in wages would be paid for.
The dreamers all assume that because a law requiring employers to pay at a minimum level has the good intentions of helping the disadvantaged, it will in fact have that intended effect. But, as many have pointed out in the past, there are a number of flaws in this argument.
The greatest flaw arises from Parliament, while having the power to grant wage increases by legislation, not simultaneously possessing the authority to compel employers to hire people to do a job at that rate. If an employee earns for the employer, say, $15 per hour, a law that compels an employer to pay $18.23 per hour will not work because the employer will fail to hire anyone whose productivity is less than $18.23.
To the employer, the impact of costs are critical, especially if the business is just surviving — as is the case with many businesses in Bermuda at present. The expansion of Casablanca restaurants is based on self-service. Could it be that the cost of labour is too high?
The logic of the employer is not difficult to understand: if an hour of your labour adds $20 to an employer’s net revenues, it is smart to hire you at $18.23; if an hour of your labour adds $16 to an employer’s revenues, it is foolish to hire you at $18.23.
In the latter case, the minimum wage will not induce an employer to hire, but to instead leave the position empty or find a machine that will do the job. Few people now bother to cash cheques with a bank teller — they use an ATM. Much cheaper and no need to pay for overtime.
An employer does not hire workers because of a whim. A worker is hired because of the expected difference his efforts will make to the sale of the final product. The best, even the only, way to raise wages is to raise skills and productivity — legislation does not do the trick. But that is another story.
This brings me to an important consideration that has never been mentioned by anyone yet, at least to the best of my knowledge. It is that politicians count on the electorate being gullible enough to believe that there is something for free; that there is no cost to passing a living-wage law. But the facts of financial life are immutable.
There is nothing for free, everything has a cost, and the cost of the living wage has to be paid for. If costs cannot be covered, there will be no job. The result will be unemployment.
The Government has no power miraculously to alter economic reality. If the price of labour is too high, the working poor will be priced out of the labour market.
There is another factor to consider: the people most affected by low wages tend to be those with little experience, few skills and limited education. In Bermuda, that group tends disproportionately to be young black males. By making it difficult, if not impossible, to get a job that overcomes these disadvantages, young males may possibly gravitate to drug dealing or other criminal activity, as has been the case in the United States.
By making it illegal to pay someone less than a government-mandated minimum wage, those with less experience are at a severe disadvantage in the labour market.
The employment of teenagers is now a classic Catch-22 dilemma. One can just imagine the following conversation taking place between a young job hopeful and an employer.
“Do you have experience?” the employer asks.
The teenager is honest and shows initiative by answering, “No, but I’m willing to work at a lower wage to gain experience.”
“Sorry,” the employer says. “I would be breaking the law if I hired you for any amount less than the minimum wage. I can hire someone older, with experience and training at the same wage as I would have to pay you.”
“But I can’t get experience if you won’t hire me” pleads the teenager.
Answer: “I am sorry I can’t help. Complain to the promoters of the living wage.”
It was such a situation that led the famous economist Milton Friedman to write that “minimum-wage age laws are about as clear a case as one can find of a measure the effects of which are precisely the opposite of those intended by the men of goodwill who support it”.
He also stated that the minimum-wage law was the most anti-Negro Act on the books.
The present living-wage debate represents an intrusion by the Government into the employer-employee relationship. It is the Government’s way of saying that it knows the financial worth of employees’ services better than employers and potential employees.
A number of the dreamers also mentioned that research abroad has shown that the introduction of a minimum wage has few downsides. With respect, they are obviously unfamiliar with modern research on the employment effects should a living wage be introduced.
The best short statement about the impact of the minimum wage on labour markets is contained in an essay by Professor Linda Gorman in The Fortune Encyclopaedia of Economics, pages 499-502. Mr Commissiong would learn a lot from reading that essay.
In addition, let me provide a shortlist of five of some of the more prominent scholarly studies whose authors find that even modest hikes in minimum wages destroy some jobs:
• Jeffrey Clemens and Michael Wither, The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers
• Jeffrey Clemens, The Minimum Wage and the Great Recession: Evidence from the Current Population Survey
• Jonathan Meer and Jeremy West, Effects of the Minimum Wage on Employment Dynamics
• David Neumark, J.M. Ian Salas and William Wascher, More on Recent Evidence on the effects of Minimum Wages in the United States
• Yusuf Soner Baskaya and Yona Rubinstein, Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings across the US States
One can dispute the accuracy of all of the above findings, but no one can dispute that these findings, along with many others that reach similar conclusions, are part of the scholarly record — a record that belies the assertion by the promoters that it is “well established” that modest minimum-wage hikes do not destroy jobs.
I find it difficult to understand why the promoters ignore this substantial body of evidence.
It may well be that conditions in the US are very different from Bermuda, although that argument does not impress me. It may be that they do not wish to be bothered with such tedious things as evidence. It is a thankless task to talk sense on wages when nonsense is all the rage.
There is always a tendency to see only the immediate effects of the minimum wage, or its alleged effects only on a special group such as the poor, and to neglect what the long-run effects of that policy will be on everyone.
More compelling, I think, is the conclusion reached by the late Robert Merton, who posited that there is an “imperious immediacy of interests”. By that he was referring to instances in which someone wants the intended consequence of an action so much that he purposefully chooses to ignore the evidence and any unintended effects. That type of wilful ignorance is very different from true ignorance.
Do-gooders like to feel noble, virtuous and righteous by means of spending the funds of other people in the name of their fuzzy ideals and good intentions. They believe in their dreams despite the evidence.
But if dreamers believe that wages can be increased by passing an Act of Parliament, why not raise the living wage to $100 per hour, even $500 per hour — that would mean real living! The $18.23 proposal is chump change.
Whatever the evidence, and whatever the facts, I suspect that the implementation of a living wage will take place because it will win votes from the gullible, and because it sounds good — changing the terminology from minimum wage to living wage also helped. The public and young jobseekers are deceived for the benefit of short-term gains.
The dreamers may be optimists when it comes to finance, but they are as cunning as foxes when it comes to votes, even if that means selling the future of young black males down the river, and destroying their chances to get a worthwhile job.
When the adverse effects of the living wage become apparent in the years ahead, those who are now prominent in espousing its virtues will be nowhere to be found.
In The Royal Gazette blog of August 27, a perceptive commentator wrote: “If this feel-good legislation passes, every employer who has to make a firing decision should invite Mr Commissiong and everyone who voted for and supported a ‘living wage’ to make the firing decision for the business.
The employers should also invite a reporter from The Royal Gazette to attend the firing decision meetings. When those individuals and politicians fail to show up, the story should be front-page news.”
When politicians come to us pretending they are Santa Claus delivering benefits only, the public should ask: “What is the cost? Who is going to pay? And why?”
• Robert Stewart is the author of two books on the Bermuda economy
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