In the second of a three-part series, Hubert Edwards says the minimum wage should be viewed as part of a long-term strategy to combat poverty and not merely a 'hand out' . . .
According to a 2009 Economic Policy Institute (epi.org) report by John Irons: “Economic recessions are often portrayed as short-term events. However, as a substantial body of economic literature shows, the consequences of high unemployment, falling incomes and reduced economic activity can have lasting consequences.” This is what is referred to as economic scarring: “Long-lasting damage to individuals’ economic situations and the economy more broadly”. Based on this report, the effects of economic scaring appear in a number of important areas. For the purposes of this article, I am focusing on those that can be linked directly to the individual.
The Economic Policy Institute report states: “Unemployment and income losses can reduce educational achievement by threatening early childhood nutrition; reducing families’ abilities to provide a supportive learning environment (including adequate health care, summer activities and stable housing); and by forcing a delay or abandonment of college plans.” These are fundamental considerations in assessing the future well-being of citizens. The extent to which there is access to educational opportunities, and the ability to take full advantage of them, are how low income earners can truly change their direction in life.
The report goes further to point to opportunities. It says: “There can be no doubt that recessions and high levels of unemployment lead to reduced economic opportunity for individuals and families. Job loss, reductions in incomes, and increases in poverty all result in losses to individuals and the broader economy”. There can be no doubt that, in the aftermath of this current COVID crisis, all of these concerns will be experienced in The Bahamas. The extent to which this occurs is yet to be determined. Note, though, that the effects are never limited to just the individuals impacted for there are wider national economic implications. This is one of the fundamental elements that is missing from the current debate, as argued by many, on the minimum wage. Simply arguing that we will fare worse, or calling for persons to become better educated, is inadequate. If we are serious about advancing the overall welfare of the country, one must always be mindful that economic upheavals affect lower income-earning individuals much more than others. Given the need for The Bahamas to provide social support for persons in this vulnerable class, it is to the benefit of the wider population that their circumstances improve in such ways that they develop greater resilience to economic shocks. Bearing in mind this economic fall-out, we should be asking what needs to be done to create opportunities for Bahamians. What can be done to lift more persons out of poverty? How, through policy and programmes, can the standard of living for all persons be enhanced? These are important questions to be asked generally, but certainly with a focused attention on low-income earners.
According to the Economic Policy Institute report: “Losing one’s job obviously creates problems for most individuals and families. The income loss can persist for years, even after a new job is taken (often at a lower salary).” This issue seems to escape many. Economic upheavals lead to losses. These job losses expose workers to an employer’s market, and increase the possibility that persons finding new employment are doing so at lower income levels. One of the overarching motives behind a minimum wage increase, even in the midst of an economic crisis, is not simply a response to the increased hardship of the individual, though it may be a significant motivator. Policymakers generally are keeping a keen eye on the stimulus impact such an increase will have on the economy. The thinking is easily understood, and the affect is real, largely because the typical low-income earner will likely spend every cent of any increase. High consumption helps the economy to grow. Generally, the more conscientious individuals will see their earnings go towards consuming items, with little to nothing available for items such as personal development and education; investment and wealth creation; and home ownership.
While many will spend on what we will loosely call “luxury spending”, such as entertainment, flashy clothes and grooming, many simply cannot or do not - yet they still struggle to make ends meet. Regardless of how they spend, their income is largely gone before the next pay period. This proclivity, or necessity for spending all, is why the impact of a minimum wage increase should not simply be dismissed as an act that will heighten the cost of living. All things being equal, in an economy that is experiencing vibrancy and growth, persons should find things easier. Vibrancy could, for example, lead to greater demand for workers and influence the level of wages paid even at the lowest end of the spectrum. Are we therefore articulating the issue in the right manner, or allowing ourselves to be influenced by absolutist point of views? Are we thinking beyond the confines of the wage transaction and questioning how to secure wider impacts? Are we thinking in terms of a more empowered and motivated worker, and the potential that their now-empowered state of mind holds for increased productivity? On the other hand, are we simply locked into a narrow myopic assessment driven by emotions?
One very important affect of economic scarring is the extent to which persons are pushed into (or pushed deeper into) poverty, living on the periphery of society. This often happens within sight but outside the grasp of opportunities. According to the 2009 Economic Policy Institute paper: “Simply put, poverty is not good for the economy. When children grow up in poverty, they are more likely, later in life, to have low earnings, commit crimes and have poor health. Wealth also shapes economic opportunities, providing a lifeline when times are tough (such as a recession), and can finance additional education, retraining or the start-up costs of a new business.” The attitude of “every man on his own and the devil takes the hindmost” is clearly not the way to go in contemplating the effects of a financial crisis on lower income-earning individuals. The state has a role to play in the protection of all citizens, and helping persons live a more decent existence is, in my opinion, one such way of discharging that responsibility. I hasten to add that I am not arguing for any kind off a socialist approach but, rather, a larger recognition of the connectivity and interdependence of the ultimate potential of the economy on the state of its citizens.
A high concentration of poor persons weakens the potential of the economy, burdens the public purse and ultimately further harms those who fall into these categories by entrenching generational poverty. It is therefore unfortunate that some see matters such as minimum wage control through the spectrum of an immediate “win-lose” proposition as opposed to the facilitation of a longer-term potential win-win proposition. I honestly believe that as part of the way forward there needs to be greater attention placed on how these matters are framed, messaged and sold. My thinking on this matter may be significantly informed by my own life experience. I am aware that I have an inclination to lean towards those who are challenged and struggle to make it financially and economically. However, I do recognise that those who may fall on the other side of this thinking often feel comfortable because they fail to see - or rather focus - on how this grouping gives to the well-being of the collective. When seen purely through the lens of one side giving up without potential gain, it becomes an infinitely more difficult issue to navigate. A rising tide floats all boats, and the bigger boats will always have the ability to hold more in that improved circumstance without hitting the bottom.
The final aspect that I will address as it relates to economic scarring is mobility. The report said: “Intergenerational mobility - or the lack thereof - can lead to persistent impacts of recessions. Poorer families can lead to less opportunity and worse economic outcomes for their children through a variety of mechanisms, be it through nutrition, educational attainment or access to wealth. A recession, therefore, should not be thought of as a one-time event that stresses individuals and families for a couple of years. Rather, economic downturns will affect the future prospects of all family members, including children, and will have consequences for years to come’’. In the same vein, I state that the issue of the minimum wage should not be looked at as an event for just today but for its far-reaching impact, having the ability to positively influence the economic mobility of individuals. During a financial crisis, the issues of resilience and vulnerability become pronounced, not only for the country but also for the individual. Like the national economy, which needs to be shored up, diversified, made more resilient and able to withstand shocks, so too does the individual. Again, policies and programmes, the minimum wage being but one element, ought to be seen in this light. The idea is to take action today to secure a stronger reality in the future. Here the objective is to create more economically nimble, capable and mobile citizens; never simply a wage increase or a social hand out.
To be continued.......