The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “domino effects” from a minimum wage increase are the private sector’s main concern, a leading executive explaining yesterday that it could result in ‘across-the-board’ salary rise pressures.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that the “ball is already rolling” as a result of the Government’s announcement that it is seeking to increase the minimum wage, based on comments by trade union leaders.

He explained that rather than a minimum wage increase by itself, the Bahamian private sector’s concerns centred on the economic context within which such a rise would take place.

Widespread pay increases, sparked by a minimum wage rise, threatened to fuel inflation and price rises above what Value-Added Tax (VAT is projected to cause, Mr Myers told Tribune Business.

Pointing out that the business community was already being burdened with extra costs, via VAT and potential National Health Insurance (NHI) and private pension reforms, the Chamber chairman said ‘soft costs’ or the ‘labour burden’ stemming from these and various worker benefits typically added 18-20 per cent to basic wages in sectors such as construction and service-related businesses.

And, with the Bahamas already considered a high-cost economy, Mr Myers said imposing all these additional costs on business - one on top of the other, and at the same time - would pose a serious threat to the economy’s international competitiveness.

To determine the precise impact that a minimum wage increase, and rising labour costs, will have on the Bahamian economy, Mr Myers said he had directed three BCCEC divisions to produce a data-based, empirical study similar to the one conducted on tax/fiscal reform by Oxford Economics.

He added that the labour and employment, innovation and competitiveness, and trade and economic development divisions would seek to complete their report within six-eight weeks, aided by the International Labour Organisation (ILO) and International Organisation of Employers (IOE).

Reiterating his belief that major economic policy decisions could not be taken “in a vacuum”, Mr Myers said: “We cannot sit here and simply say we deserve this, we deserve that.”

He added that the private sector feared a minimum wage increase could spiral into increased salary demands throughout the Bahamian economy.

“That’s what we’ve found in the past,” he told Tribune Business. “I don’t think any of us in good businesses are paying anybody $150 a week. There’s nobody in any of my companies making $150 a week, but when the Government starts talking about an increase, the unions get on to it and start to push across the range. That’s typically what happens.

“It starts to put on pressure. We know the unions are already pushing for wage increases for VAT. That’s a jump.”

“It’s not that we’re trying to be anti-minimum wage. It’s all the knock-on effects. There’s a significant risk.”

Mr Myers warned that widespread wage increases could exacerbate the impact VAT is projected to have in the short-term on prices, adding that both the Government’s and private sector’s projections on this score had assumed ‘normal’ wage growth.

Tribune Business understands that the Government’s projections stated that VAT would “in itself not lead to greater inflationary pressures in the economy”, provided wages increased normally in line with productivity.

And Oxford Economics had employed the same assumption in projecting that the Consumer Price Index (CPI) would only increase by between 3.5-3.8 per cent as a result of a 7.5 per cent VAT.

Mr Myers, though, noted that John Pinder, head of the Bahamas Public Services Union (BPSU), was already calling for both a 7.5 per cent salary increase to compensate for VAT, plus a rise in the civil service minimum wage from $210 to $250.

“You’re going to have higher Consumer Price Index and inflationary pressures than Oxford Economics estimated,” he told Tribune Business, if Mr Pinder’s demands were realised.

“If the minimum wage goes up, that’s where it starts the ball rolling. The unions have already said they need an increase; it’s already here. It’s already started.”

He reiterated: “The minimum wage is not an issue for many businesses, as most are paying well above that rate. More important is the issue that a decision by the Government in this direction generally stimulates a trend to increase wages across the board, as is being discussed by many unions and the Government currently.

“It is these general pay increases that will increase the costs of goods to the local and foreign consumer alike.”

If prices rose to unsustainable levels, Mr Myers said the effect would be for the tourism industry to lose further competitiveness and market share, while Bahamian consumers would increasingly shop on line or in Miami.

“We need to stay focused on the fact we have to remain regionally and globally competitive,” the BCCEC chairman said, adding: “Increased costs in our tourism product have resulted in a decline in visitor spending and overnight arrivals.

“The Bahamas has lost 3 per cent in market share over the last 10 years to places like DR, Jamaica and other less expensive destinations in the Caribbean. Tourism numbers will continue to fall if we ignore our regional competitive ranking.”

Mr Myers said the proposed NHI scheme, plus private pension and redundancy Bills, increased National Insurance Board (NIB) contributions and Employment Act changes, all threatened to increase “labour burden costs”.

“There is a dire need to understand the total cost of labour in the country,” he explained. “Current labour burden already includes added costs such as: NIB, holiday pay, vacation pay, redundancy pay, down time, sick pay and non-productive time.

“In the construction industry and many service-related businesses, the labour burden increases wages by an additional 18 per cent to 20 per cent.

“Recognise that businesses then have to add general administrative and overhead costs to these rates to determine a true cost of a productive man hour.

“With energy costs, fuel costs, utility costs, bank interest rates, land costs and equipment costs all being so high, you can imagine why businesses are struggling and the BCCEC is so concerned about the talk of any further price increases to businesses and thus the consumer.”