Tuesday, September 14, 2010


Finance Minister Dookeran has managed to keep the new People's Partnership (PP) Government on an even keel. While the budget cannot be described as breaking new ground or as being brimful with new and innovative ideas, most responsible commentators have given the budget a more than passing grade and say that they expect that the economy will right itself in a relatively short period of time. At the moment there seems to be no reason why we ahould not accept the general consensus and congaratulate the Finance Minister. he certainly seems to have created a much needed confidence in the business sector. And without confidence no Government can succeed. Just look at Patrick Manning's regime for a classic example of how to fail and you will understand what I mean.

But what has me more than a little agitated is the nonsense that spews from the mouths of certain politicians and trade union leaders concerning minimum wage. 'The minimum wage must be raised to at least $20' more than one of these so-called leaders have spouted during the recent general elections and afterwards. I even read a report where Ancil Roget, the head of the powerful OWTU, has expressed his disapointment over the fact that the PP Government has failed to raise minimum wage.

These politicians and trade unionists are either being fundamentally dishonest or are really more stupid than they look (or both) when they call for a raising of the minimum wage. Let me state quite categorically a fundamental fact of economics and life: Minimum wage has nothing to do with helping poor people or low wage earners make a better living. Minimum wage has every thing to do with raising a country's productivity! You can test this in several different ways, but for the sake of keeping this short (and hopefully readable) I will use only two different examples:

Example One: The countries in the world which have the highest productivity are the ones with the highest minimum wage. The countries in the world with the lowest productivity have the lowest (or no) minimum wage.

Example Two: Let's say that you have a small mechanics shop where you employ two young boys to sweep out the garage and help with minor repairs every day. You pay them each teh minimum wage ... $9 per hour for 8 hours a day at 5 days a week. In other words, your wage bill is $720 per week ($9 x 8 hours per day x 5 days a week x 2 boys). If minimum wage were to be doubled to, say, $18 per hour, your wage bill would go up to $1,440 per week. The problem is that you aren't making enough to pay those wages. The only way you can survive is to keep one boy and lay off the other. The one that you keep now has to do the work of two ... in other words, his productivity now has to be twice what it was. The one who has been laid off either has to go and re-train in order to get a better job, or has to understand that when he does get another job he is going to be required to work harder than he did before. In other words, for both boys their productivity is forced to increase.

I am sure that you get the point. And politicians, despite what they may say on the campaign trail, understand this fundamental fact that minimum wage is always about productivity and nothing else. And you can see from the two examples above that too great an increase in the minimum wage can and will result in serious ditortions in the labour market as marginally unproductive and/or unproductive workers are laid off.

The new Government has started well ... with a few hiccups, that is true ... but they have started well. One of the things that they must do is to remain honest and true with the people. At this time there is no reason to doubt that they will do just that!

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