The Impact of a Minimum Wage Policy on the

Economy of Barbados

by

Andrew S Downes PhD Professor of Economics and University Director

Sir Arthur Lewis Institute of Social and Economic Studies University of the West Indies, Cave Hill Campus

PO Box 64, St Michael, BARBADOS

Final Version February 2008

*Prepared for the Centre for Policy Studies, Barbados National Productivity Council

ii

Acknowledgements

I would like to thank the Centre for Policy Studies and the Barbados National Productivity

Council for giving me the opportunity to undertake this study. The participants at a seminar

sponsored by the Council and the Sir Arthur Lewis Institute of Social and Economic Studies

(SALISES) in April 2007, the Public-Private Sector Consultation in October 2007, the 2007

mid-term delegates’ conference of the Congress of Trade Unions and Staff Associations of

Barbados (CTUSAB) and the Sunday call-in radio program on the Voice of Barbados

provided very useful comments and perspectives on the issues raised in this study. I have

sought to address several of these comments in this final version of the study. Professors

Morley Gunderson (University of Toronto, Canada) and Eric Strobl (Ecole Polytechnique,

France) provided supporting comments and copies of their own work. I would like to

warmly thank Doris Downes for her research assistance especially with the bibliography and

typing. Finally, Olivia Chase needs very special mention as the Council’s coordinator of the

study. She not only provided generous comments on the study but also coordinated the

survey of establishments with the help of a number of interviewers. I would also like to

thank her for her patience and forbearance while this study was overdue. John Pilgrim, CEO

of the Council must also be thanked for his understanding and encouragement.

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Executive Summary

According to the ILO (1970), the minimum wage is a floor below which the nominal wage

rate should not fall. There is some form of minimum wage legislation within CARICOM

countries. In Barbados, in particular, only certain categories of workers (shop assistants,

domestics, agricultural workers) have been covered by minimum wage legislation over the

years.

The objective of this study is to examine the likely impact of a minimum wage policy on the

economy of Barbados. Arguments are presented for and against a minimum wage.

Alternative systems of pay, such as a national, regional, sectoral and occupational minimum

wages are examined. The criteria for setting a minimum wage based on ILO Convention 131

are listed. The objectives of a minimum wage policy in Barbados should be to prevent the

exploitation of workers, eliminate unfair competition in the labour market and to promote

social justice, economic development and stability.

The study analyzes the impact of a minimum wage policy with regards to employment,

prices, wage equality, poverty, the informal sector, productivity and a living wage. The

empirical literature on the impact of some form of the minimum wage is examined for both

developed and developing countries. In summary, the review indicates that minimum wages

have a negative but small effect on employment and hours worked, a positive impact on

prices and individual poverty, a negative impact on small enterprises and mixed results on

household poverty, inequality and training

The empirical analysis for Barbados is then presented, followed by recommendations for a

minimum wage framework for Barbados. It is recommended that a national wage be

implemented (at a rate of $ 7.50 per hour or $ 60 per day) supplemented by selected

occupational minimum wages. A tripartite body, supported by modern legislation, should be

established to oversee the policy. A database of the affected occupations should be designed

and established. A minimum wage policy should complement other economic and social

policies to reduce poverty in Barbados

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Table of Contents Acknowledgements ii

Executive Summary iii

1 Introduction 1

2 The Nature of Minimum Wage Policy 3

2,1 Objectives of a Minimum Wage Policy 3

2.2 Alternative Minimum Wage Systems 6

2.3 Criteria for Determining Minimum Wages 7

3 Features of the Barbadian Labour Market 8

4 The Impact of a Minimum Wage Policy on the Economy 13

4.1 Empirical Research on the Impact of Minimum Wages 16

4.2 Minimum Wages in the Caribbean 19

4.3 Survey Results for Barbados 20

5 Towards a Framework for Analyzing the Impact of a Minimum Wage Policy 24

6 Conclusion and Recommendations 26

Tables 29 References 51 Appendices 53

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1

The Impact of a Minimum Wage Policy on the Economy of Barbados 1 Introduction A minimum wage policy forms part of a country’s labour market regulatory system. The

government would set a floor below which the nominal wage rate of a worker should not

fall. The International Labour Organization (ILO) has established a convention relating to

the creation of the machinery for fixing minimum wages - Minimum Wage Fixing

Machinery Convention 26, 1928 - which has been ratified by several member countries.

Minimum wage legislation therefore exists in several developed and developing countries.

A special ILO convention, C131 Minimum Wage Fixing Convention 1970, applies to

several developing country members and convention C99 (1951) refers to the agricultural

sector. Within the Caribbean Community (CARICOM), only Antigua and Barbados, St

Kitts and Nevis, Suriname and Trinidad and Tobago have not ratified at least one of the

minimum wage conventions [see Table 1.1]. However, all of the CARICOM countries

have some form of minimum wage legislation.

There is now a large theoretical and empirical body of literature on the nature and effects

of minimum wage legislation in both developed and developing countries. Much of this

literature is controversial since the impact of minimum wage legislation depends on the

form of the legislation, the structure and operation of the labour market and the nature of

the overall economy. There are economic, social and political considerations associated

with the implementation of minimum wage legislation. Minimum wages can apply to

selected occupations and sectors and/or the overall economy (that is, a national minimum

wage). The impact of the minimum wage depends on the degree of competition in the

labour market (perfectly competitive or imperfectly competitive), the degree of coverage

of the minimum wage and the type of production technology used by firms. While

legislation applies to the nominal wage rate, workers are concerned with the real

consumption (purchasing power) wage rate; hence there is a need to relate the two wage

rates when setting the level of the minimum wage(s).

2

In recent years, there has been a call to re-examine the minimum wage (MW) policy

which exists in Barbados. There is the perception that the current legislative structure

governing the MW policy in Barbados, namely, the Wages Council Act, Cap 363, and

the Domestic Employees Act, Cap 344, are woefully inadequate to protect the lowest

paid and most vulnerable workers in the country (primarily young, female, non-unionized

workers and disabled and foreign workers). Although minimum wage legislation covers

both shop assistants and domestic employees, minimum wages have only been set for

shop assistants. Lowe (1990) notes that Barbados has had a long history with minimum

wage legislation covering agricultural and industrial workers, shop assistants and

domestics. This legislation has been minimalist as it only covered selected occupations.

Barbados ratified the ILO Convention 26 in 1967 shortly after it had achieved

constitutional independence. A Labour (Minimum Wage) Act was however in force

from 1938. This Act was replaced by a Wages Board Act in 1943 primarily to cover

shop assistants in the Bridgetown area. Due to unsatisfactory elements in the Wages

Board Act, it was replaced by the Wages Council Act, 1955 which provided for the

establishment of specialized wages councils: shop workers and workers in shirt and

garment operations.

In addition to the above measures, the government also passed the Sugar Workers

(Minimum Wage and Guaranteed Employment) Act 1968 and the Domestic Employees

(Rate of Pay and Hours of Duty) Order, 1982) to establish minimum wages for these

two categories of workers (sugar workers and domestic (household) workers). While the

Domestic Employees Order, the Sugar Workers Act and the Wages Council Act are still

on the statute books, only the Shop Wages Council which sets minimum wages for shop

assistants is active today.

This study examines the likely impact of a revised minimum wage policy on the

economy. The main issues to be considered in a study are: what type of minimum wage

policy should be implemented (national, sectoral, occupational), what impact or target

economic variables should be considered (employment, prices, wage inequality, poverty,

etc.) and how the impact of minimum wage policy should be assessed. The study begins

3

by outlining the basic objectives of a minimum wage policy and the current theories of

and global trends in minimum wages. The basic features of the labour market in

Barbados are then presented in order to establish the background for designing and

implementing a new minimum wage policy in the country. A selected review of the

empirical literature on the impact of a minimum wage policy is presented. This selected

review is used as a backdrop for the presentation of the results of a survey of

establishments in Barbados on the nature and likely impact of a minimum wage policy.

The author then presents a framework for analyzing the future impact of a proposed MW

policy on the economy of Barbados. This framework helps to identify the data which

would be required for analyzing the MW policy impact on key economic variables. The

final section summarizes the main conclusions of the study and makes a number of

recommendations which are relevant to Barbados.

2 The Nature of Minimum Wage Policy The design of a MW policy must be informed by clear goals and objectives and an

understanding of the alternative MW systems. These issues have given rise to a large

body of analytical and empirical research on MW policy in various countries [see, for

example, Eyrand and Saget, 2005, Gunderson, 2005, Neumark and Wascher, 2006, World

Bank, 2006 and Cunningham, 2007 for recent surveys].

Objectives of a Minimum Wage Policy

The clear identification of the objectives of a minimum wage policy is critical to the

design and implementation of such a policy. A minimum wage policy can be designed to

achieve several objectives, some of which can be in conflict. In addition, some of these

objectives can be achieved more effectively by alternative policy measures, thus making

a minimum wage policy a second best policy.

One of the objectives of a minimum wage policy is to eliminate or prevent the

exploitation of workers (that is, sweat labour) especially where “no arrangements exist

for the effective regulation of wages, collective agreement or otherwise and wages are

exceptionally low” (ILO, C26, Article 1). It has been recognized that anomalies can exist

4

in the wage structure whereby certain trades or occupations which are not easy to

organize by labour unions, are paid well below what they should be earning. In this case,

the government needs to establish a standard for the remuneration of workers in such

positions. Domestic workers and informal sector workers generally fall into this group.

A second objective is to reduce poverty in the country. Although the causes of poverty

are myriad, it has been argued that the implementation of a minimum wage policy can

assist in raising the incomes of individuals above the poverty line. Since the factors

influencing the degree of poverty are complex and the possibility that the introduction of

a minimum wage can reduce employment (that is, create dis-employment), a minimum

wage policy to achieve a poverty reduction objective has always been contentious. A

minimum wage policy can, at best, supplement a poverty reduction program and reduce

the extent of the ‘working poor’ (that is, persons who are working for wages which are

insufficient to get them above a poverty line).

A third objective relates to the elimination of unfair competition in the labour market.

With an emphasis on increasing competition in the commodity market as part of the

globalization and regionalization processes, it is felt that such competition would take

place at the expense of workers. International capital would flow to areas of relatively

low labour costs (in developing countries) and workers in low-wage countries would

migrate to higher wage countries and create competition in the labour market. Such

concerns have been expressed in the Caribbean in the context of the globalization process

and the free mobility of labour within the CARICOM Single Market and Economy

(CSME). In order to prevent such exploitation and competition, it has been argued that a

minimum wage policy should be developed. It has also been suggested that a ‘regional

minimum wage’ should be implemented by Caribbean governments.

A fourth objective relates to the resolution of industrial relations problems in an industry

by establishing a floor below which wage rates cannot fall. For example, in Barbados

and Antigua, minimum wage legislation was introduced to resolve industrial relations

problems in the sugar industry [Lowe, 1990 and Spencer, 1978].

5

A fifth objective is based on the “efficiency wage” hypothesis which indicates that

increases in wages result in increases in productivity. There are several variants of the

“efficiency wage” hypothesis, but the variant which is relevant to the minimum wage

policy is the ‘nutritional’ one. It is argued that workers who obtain an increase in their

wages due to the minimum wage legislation can benefit from an increase in their

purchasing power which can have positive nutritional effects. A more nourished worker

is expected to be more productive in the workplace.

A sixth objective is the promotion of social justice, economic growth and stability. This

is a broader objective of a minimum wage policy. Governments introduce a minimum

wage policy in order to provide for minimum level of material needs of the population.

This policy is usually supported by a policy or arrangement whereby the real wage does

not fall and even rises over time. The provision of the basic needs of the population in

this regard is achieved through the labour market rather than through a direct government

subsidy.

These objectives generally provide the arguments for instituting a minimum wage policy.

There are however a number of arguments against such a policy, namely, that it imposes

an implicit tax on employers in the formal sector, creates dis-employment

(unemployment especially among unskilled, teenage, secondary workers), induces labour

market segmentation, leads to misallocation of labour and depresses wages in the

informal sector.

Given the general objectives or arguments for a minimum wage policy, it is imperative to

be clear about specific objectives of a minimum wage policy in Barbados. In the context

of Barbados, the appropriate objectives may relate to the prevention of exploitation of

workers, the elimination of unfair competition in the labour market and, at the

macroeconomic level, the promotion of social justice, economic growth and stability.

6

Alternative Minimum Wage Systems

An examination of MW systems across the world indicates that there four (4) systems in

existence: national, regional, sectoral and occupational (Eyrand and Saget, 2005). A

national MW involves setting one basic rate for the whole country. Such a system is

relatively easy to understand and monitor since all wage rates can be compared with the

single basic rate. It sets the basis for determining the ‘reservation wage’ of workers and

prevents the growth of an ‘unemployment trap’, whereby persons remain unemployed

where the gap between the market wage and their reservation wage is large. As Eyrand

and Saget (2005) note, this is the ‘most commonly used’ method of MW setting in the

world. A regional MW system tends to apply to large countries with distinct regional

areas. Since large distinct regions have ‘local labour markets’, then it is better to set a

minimum wage for a specific regional labour market. The sectoral MW applies to all

enterprises operating within a given sector; for example, an agricultural sector MW or a

tourism sector MW. Finally, MWs can be set for different occupations which are the

targets of labour market policy (occupational MW). These occupations tend to be at the

lowest levels of the job hierarchy (maids, cleaners, domestics, shop assistants, etc.).

These alternative MW systems can be determined by the state, the collective bargaining

process and/or a tripartite body (involving the Government, labour unions and private

sector employers). Some countries have a mix of MW systems, for example a national

MW can coexist with occupational MWs. In the case of the Caribbean, the occupational

MW system is the most commonly used [see Table 2.1]. Four CARICOM countries have

a national MW which, in some cases (Jamaica and Trinidad and Tobago), is

complemented by an occupational MW system.

An examination of the target groups covered by MW legislation in the Caribbean

indicates that household assistants/domestics, shop assistants and security workers are

mainly subject to such legislation.

7

Criteria for Determining Minimum Wages

One of the challenging issues in the design and implementation of a MW policy is the

determination of the level(s) of the minimum wage(s). The ILO, Convention 131, 1970

highlights two sets of factors which should be considered in setting the rate(s):

(i). The basic needs of workers and their families:

- the general level of wages in the country

- the cost of living and changes therein

- the social security and other non-wage benefits

- the relative hiring standards of other social groups

(ii). Economic factors

- the requirements of economic growth and development

- the levels of productivity

- the desire for a high level of employment

These basic factors are usually taken into account when specifying the level of the

minimum wage (s). As expected, additional factors are also taken into consideration, for

example:

- demand for ‘living wages’ or ‘healthy income’;

- the ability of enterprises (especially small and medium size

establishments) to pay;

- the skill levels of certain categories of workers;

- the need to induce enterprises to invest in certain industries or l

locations;

- the public sector wage structure and fiscal situation;

- the fair return on the capital employed by enterprises;

- the degree of poverty and income inequality in the country.

While the above factors are important in the determination of minimum wages, changes

in these wage rates are usually linked the cost of living, average earnings, basic

negotiated wages, the poverty line or an estimate of the ‘living wage’.

8

3 Features of the Barbadian Labour Market The basic characteristics of a country’s labour market tend to influence the design and

impact of a minimum wage policy. This section therefore updates recent reviews of the

Barbadian labour market undertaken by Craigwell and Warner (2003), Greaves (2006)

and Downes (2006) by examining developments since 1995.

On the supply side of the labour market, the total labour force increased from 136,800

persons in 1995 to 143,600 persons in 2006, that is, an average annual growth rate of 0.7

percent [see Table 3.1]. The growth rate of the male labour force was marginally higher

than the female rate, 0.8% versus 0.6%. Over the past decade, Barbados experienced a

relatively low rate of adult population growth, namely, 0.5 percent which, coupled with a

low labour force growth rate, suggests an increasing tightness in the labour market from

an aggregate perspective.

While the male labour force participation rate has been higher than the female rate, the

female rate increased faster than the male rate over the 1995-2006 period. The male rate

decreased from 74.5% in 1995 to 73.4% in 2006, while the female rate rose marginally

from 62.7% to 62.8 % over the same period [see Table 3.2]. The generally higher rate of

increase in the female participation rate reflects a widening of opportunities available to

women who have sought to increase their human capital through education and training.

For example, at the Cave Hill Campus of the University of the University of the West

Indies (UWI), females account for 70 percent of the total student population. In addition,

data from the 2001 Continuous Household Survey indicate that 24 percent of the female

labour force indicated that their highest level educational attainment was university level.

There are several institutional programs geared towards enhancing the quality of the

workforce. The Barbados Vocational Training Board (BVTB), the Samuel Jackman

Prescod Polytechnic (SJPP), the Barbados Community College (BCC), the Barbados

Institute of Management and Productivity (BIMAP) and the School of Continuing

Studies of the University of the West Indies (UWI) are the main institutional providers of

post-secondary training. These are supported by a number of private institutions,

9

community-based organizations, trade unions and non-governmental agencies, especially

in the area of technical and vocational educational and training. Indeed, the Barbados

Technical and Vocational Educational Education and Training (TVET) Council which

has membership from several stakeholders provides general policy direction and some

funding for TVET and other training opportunities.

Over the 1995-2006 period, employment grew at an average annual rate of 1.6 percent,

with male employment growing at 1.5 percent per annum and female employment

growing slightly higher at 1.8 percent per annum. These relative growth rates are

reflected in the ratio of male to female employment which fell from 1.11 in 1995 to 1.07

in 2006 [see Table 3.3].

In terms of the sectoral distribution of employment, Barbados has experienced a decline

in the absolute and relative contributions of the agricultural sector to employment. The

agricultural sector (sugar, other agriculture and fishing) employed approximately 4

percent of total employed persons over the 1995-2006 period. The main employers of

labour were the government, general business/commercial services and the distribution

(wholesale and retail) sector. The tourism and construction sectors also made a

significant contribution to employment creation [see Table 3.4]. Since labour demand is

a derived demand, the sectoral shift in employment reflects the changing structure of

production in the country, namely, the transformation from an agricultural based

economy to a services-oriented economy.

A recent trend in the labour market has been the growth of employment of university

educated females. As indicated earlier, the human capital base of the female labour force

(as measured by the level of tertiary level education) has increased at a higher rate than

the male labour force. Although females still dominate the clerical and service/shop

occupations, the number of employed females with university degree education rose from

6,900 (6.3% of the employed) in 1995 to 8400 (6.5%) in 2004. The corresponding

figures for male employment were 5100 (4.6 percent) and 7,100 (4.0%) in 1995 and

2004, respectively.

10

The private sector is still the largest employer of labour in Barbados accounting for 79.2

percent of total employment in 1995 and 78.7 percent in 2005. This reflects a marginal

increase in public sector employment over the period.

Unemployment declined significantly over the 1995-2006 period. The total number of

unemployed fell from 26,900 in 1995 to 12,500 persons in 2006. The corresponding

unemployment rates were 19.7 percent and 8.7 percent respectively. The unemployment

rate among females was still higher among males with the differential falling from 6.2

percentage points in 1995 to 2.1 percentage points in 2006 [see Table 3.5]. A noticeable

feature of the unemployment situation over the decade was the government’s ability to

reduce the rate to under 10 percent for the years 2000-1 and 2004-6.

Like several other developing countries, Barbados has a ‘youth unemployment problem’.

The unemployment rate among the 15-19 years age group was 52.9 percent in 1995 and

among the 20-24 years age group it was 31.1 percent. In 2004, the corresponding rates

were 34.6 percent (15-19 years) and 18.8 percent (20-24 years age group). These figures

suggest that some headway has been made in reducing the high level of youth

unemployment. Not surprisingly, the female youth unemployment rate was generally

higher than the male youth rates although the differential narrowed over the period from

12.6 percentage points in 1995 for the 15-19 years age group to 3.7 percentage points in

favour of females in 2004. For the 20-24 years age group, the differential was 9.9

percentage points in 1995, while in 2004 it was 6.6 percentage points. The human capital

base of the unemployed has been low with over 55 percent of the adult population having

no form of academic certification in the 2000 census year.

There are very few estimates of employment in the informal sector in Barbados, which is

estimated at 10 to 15 percent of measured GDP. One study of the informal sector

undertaken by the Barbados Statistical Service (BSS) in 1997-98 indicated that:

11

(i). the number of informal sector business operations constituted 40.4 percent of

the average number of ‘employers’ and ‘own-account’ or ‘self-employed’

workers;

(ii). the number of informal sector employees was 5.9 percent of the average

number of persons employed;

(iii). of the estimated 6,904 persons employed in the informal sector, 61.4 percent

were males and 38.6 percent were females;

(iv). the majority of the persons employed were concentrated in the distribution,

agricultural, general services and construction sectors;

(v). approximately 62 percent of the persons employed were between the ages of

30 to 59 years, while 12 percent were between 20 and 29 years;

(vi). most operators had primary or secondary level education which reflects the

compulsory secondary level education received by Barbadian students.

Over the past decade, there has been a gradual increase in the number of persons

classified as ‘self-employed’. These persons undertake work in both the formal and

informal sectors.

Little information exists on the extent of poverty and income inequality in Barbados. A

poverty survey undertaken during the period August 1996 and July 1997 indicated that

with a poverty line of Bds$5503 (US$2751), 8.7 percent of total households (6953) or

13.9 percent of the population (about 35,000) lived below the poverty line [see IADB,

1998]. Estimates for 2004 indicate that 10.7 percent of households fell below the

poverty line [see Greaves, 2006, p.26]. The poor tend to be concentrated in the ‘urban’

areas of St Michael and Christ Church and have low levels of human capital (only

primary level education or non-certificated secondary level education). Several poor

households were headed by females with several generations of occupants [IADB, 1998].

Through the Ministry of Social Transformation, several initiatives have been introduced

to reduce poverty in Barbados: skills training, community development, financial and ‘in

kind’ assistance, home help and small business development [see Blackman, 2006].

12

Minimum wages have been changed for shop assistants within the past decade. In 2004,

the statutory minimum wage payable to shop assistants was increased by approximately

18 percent over the 1997 rates for persons 18 years and over. In addition, the age

distinction for granting the minimum rates was removed [see Table 3.6]. Although the

minimum rates have been calculated to be sufficient to meet minimum living standards,

several employees generally earn more than the statutory minimum wage due to the

influence of the collective bargaining process. In 2006, approximately 17.2 percent of

the employed labour force was service/shop workers [see Table 3.7].

Available data indicate that about 30 percent of the labour force is unionized. There has

been an increase in the degree of unionization since 1995, with the rate increasing from

24 percent in 1995 to 30 percent in 2005. There has also been increased labour union

recruitment by the Barbados Workers Union [see Table 3.8]. The public sector is highly

unionized through the National Union of Public Workers, the Barbados Workers’ Union,

the Barbados Union of Teachers and the Barbados Secondary Teachers Union. There are

also associations for nurses, police, firemen and school principals. These labour unions

and staff associations fall under the umbrella of the Congress of Trade Unions and Staff

Associations (CTUSAB).

Data from an occupational wage survey indicate that 52 percent of the employed were

wage earners and 48 percent salaried employers during the third quarter of 2003 [see

Table 3.9]. The average weekly earnings of both wage earners and salaried employees

were highest in mining and quarrying, electricity, gas and water and construction, while

the lowest in agriculture, manufacturing, distribution and hotels and restaurants. The

lower wages partly reflect the main sources of informal sector employment in Barbados.

Overall, real wages increased by 13 percent between 1995 and 2005, while labour

productivity grew by 6 percent over the same period. While part of this differential

between real wages and labour productivity may be due to an underestimation of

aggregate labour productivity, it suggests that real unit labour costs have been increasing

over time [see Table 3.10]. Sectoral labour productivity (defined as real sectoral GDP

13

divided by sectoral employed persons) indicates that the highest levels are in electricity,

gas and water, tourism and transport and communications. The lowest levels are in

government services, construction and services [see Table 3.11].

Although unemployment is relatively high in Barbados, the heterogeneity of the labour

market means that there will be vacancies or skill shortages in selected occupations.

While historically Barbados has issued work permits for several categories of high

income professional, technical and managerial occupations (especially from extra-

CARICOM countries), in recent years there has been an inflow of workers in the

construction and agricultural sectors. For example, permits have been granted to

Caribbean nationals to work as carpenters, masons and plumbers. In 2005, work permits

to Caribbean nationals accounted for approximately 76 percent of permits issued. With

the establishment of the CSME and the associated free movement of labour, work permits

for certain categories of workers would not be needed. There is a fear that this mobility of

labour would undermine the wage structure in Barbados and hence there is a need to

widen the MW policy to include other categories of labour or to introduce a single

national minimum wage.

Given the basic features of the Barbadian labour market, the formulation of a MW policy

should be informed by research on the impact of alternative MW systems in other similar

countries. The findings would help to fashion the type of MW structure which would

have little or no adverse effects on the labour market and the overall economy.

4 The Impact of a Minimum Wage Policy on the Economy A significant amount of theoretical and empirical work has been undertaken on the

impact of minimum wages on such economic variables as employment, unemployment,

prices, poverty, wage structure, training and the informal sector. Most of this research

has taken place on the impact of minimum wages on employment, especially in

developed countries - USA, Canada and Europe. In many respects, the impact of a

minimum wage policy depends largely on the characteristics of the labour market.

14

Standard textbook analysis of the impact of a minimum wage indicates that in a ‘perfectly

competitive’ labour market if the minimum wage is set above the market clearing

(equilibrium) wage, then there is a reduction in the employment of those covered by the

minimum wage policy. These displaced workers however find work in the informal

(uncovered) labour market of the economy. In the case of a non-perfect monopsony

market, increases in the minimum wage can have an insignificant or small positive

impact on employment [see, for example, Cahuc and Zylberberg, 2004]. A significant

amount of empirical research has been undertaken to examine these two situations [see

the discussion in Section 4.1 below]. The impact of changes in the minimum wage on

employment (labour demand) also depends on the elements of the Marshall-Hicks rules

of labour demand, namely: the elasticity of substitution between the covered labour and

other inputs, the own-price elasticity of demand for the output produced by the covered

labour, the share of labour costs in the total costs of production and the elasticity of

supply of the other factors used in the production process [see Appendix 1]. These

factors along with the nature of the labour market usually determine the impact of a

minimum wage on employment (labour demand).

The impact of minimum wages (above existing low wages) on prices results from the

increase in the marginal cost of labour and hence marginal cost of production. To the

extent that firms engage in (marginal) cost-based pricing, the minimum wage can have a

positive impact on prices and hence the cost of living. The extent of the effect depends on

the share of labour costs in total costs, the number of persons affected and the spillover

effects of the MWs on the wage structure within enterprises.

The use of minimum wages to reduce the extent of poverty in an economy has always

been a contentious issue. The link between minimum wages and poverty reduction has

been difficult to establish empirically. Given certain conditions, increases in minimum

wages can reduce employment and hence push those affected below the poverty line or

into the informal sector where there is little protection. In effect, the minimum wage can

increase rather than decrease poverty if the wage elasticity of demand for labour is high

[see Appendix 2].

15

The minimum wage can reduce inequality by increasing the wages of low-skilled

workers, but it may also increase inequality through its negative impact on employment.

The imposition of or increase in a minimum wage for the lower categories of labour has

the effect of truncating the distribution of wages for the workforce. This truncation has

the effect of increasing the wages of occupations above the minimum wage, giving rise to

‘spill-over effects’ in the wage distribution as participants seek to establish wage

relativities. The extent to which the imposition of or increase in the minimum wage on

wage inequality depends on the wage elasticity of demand for the affected categories of

labour. If the effect is significant, several workers can receive zero income (due to

unemployment), hence worsening the overall income inequality.

It has been argued that policies other than a minimum wage should be used to reduce

poverty and inequality in an economy due to the possible negative impact of the wage

employment. The main reasons for such an approach are: several workers may not be

covered by minimum wage legislation, there can be a low compliance by firms and the

demand for such low-skilled workers tends to fall. Indeed, non-compliance is a major

issue associated with minimum wage legislation in developing countries. In extreme

cases, enterprises would use modern technology to replace covered workers, especially

where they are significant to the production process.

Acemoglu and Pischke (1999) have argued that minimum wages can reduce the degree to

which firms invest in the training of covered workers as they cannot take a wage cut to

finance training within the context of a perfectly competitive labour market. Where the

labour market is non-perfect, minimum wages can increase the training of covered

workers by inducing the firms to train such unskilled covered workers.

The introduction of a minimum wage arrangement can lead to the increase in the informal

labour market as covered workers displaced from formal sector jobs seek jobs in the

informal sector. This tends to intensify the incidence of the ‘working poor’ as conditions

of work and remuneration in the informal sector tend to be worse than in the lower levels

16

of the formal sector. The minimum wage also influences the ‘reservation wage’ of

workers. If the minimum wage is set at a level to raise the reservation wage, then

unemployment queues can increase as workers refuse jobs which do not correspond to

their revised reservation wage.

In recent times, the introduction of a minimum wage policy has been linked to the

concept of a ‘living wage’ defined as a certain minimum hourly wage plus a reasonable

benefits package. Such a ‘living wage’ would allow workers to enjoy a decent standard

of living. By setting a minimum wage, one component of the living wage would be

established. This raises concerns about the trade-off between non-wage benefits and the

setting of the minimum wage. By setting the minimum wage too high, firms might seek

to reduce certain benefits accruing to covered workers, especially if they are not

minimized.

4.1 Empirical Research on the Impact of Minimum Wages

Most of the empirical research on the impact of minimum wages has been undertaken for

the USA, Canada, Europe and selected countries in Latin America. Very little empirical

research has been undertaken on Caribbean countries which have minimum wage

legislation. A substantial portion of this empirical research has examined the impact of

minimum wages on employment.

While the empirical results on the dis-employment effects of minimum wages are mixed,

the general conclusion that emerges from the research is that minimum wages do have a

negative impact on the employment of those covered by the legislation, but this effect is

generally small or insignificant [see Neumark and Wascher, 2006 and Table 4.1]. The

focus has been on such groups as part-time workers, teenage employees, low-skilled

workers, service workers and female employees since the minimum wage arrangements

tend to affect the bottom of the employment hierarchy.

Since employers have a trade-off between hours of work and the number of persons

employed, the institution of minimum wage legislation can affect the number of hours

17

worked by employees. The available research suggests that minimum wages can reduce

the average number of hours of work by those covered by the legislation [see Table 4.1].

The limited research on the impact of minimum wages on prices indicates that there is a

positive effect especially around the time when minimum wages are introduced or raised

[see Table 4.1 and Lemos, 2008]. The impact of minimum wages on inequality has been

somewhat mixed. Some studies indicate that minimum wages have resulted in a

reduction in wage inequality, while others have suggested that there has been a

compression of wage inequality since those workers who are working at or near the

minimum wage are adversely affected ( that is, dis-employed) with increases in the wage.

With respect to the impact on poverty, studies on the USA indicate that minimum wage

changes (increases) had a positive impact on poverty reduction. Evidence from Ghana

indicates that minimum wage policies resulted in the reduction of formal jobs and an

increase in jobs in the informal sector. This could have resulted in an increase in the

‘working poor’. In Latin America, the impact of minimum wage legislation on poverty

has been mixed [see Cunningham, 2007]. For example, in Columbia, the minimum wage

was set too high thus creating unemployment and poverty, while in Mexico, the modest

increase in the wage enhanced the economic welfare of low income households. As

indicated earlier, the impact of a minimum wage on poverty depends on the wage

elasticity of the demand for labour hours.

The available evidence on the impact of minimum wages on the wage structure indicates

that average wages (earnings) increase with a hike in minimum wages especially in

sectors covered by the legislation. The impact of minimum wages on training is

somewhat mixed especially for the USA.

In summary, the available empirical research in non-Caribbean countries point to the

following conclusions regarding the impact of minimum wages: a small negative impact

on employment in areas covered by the legislation, a reduction in average hours worked,

some increases in prices, an increase in average wage (earnings) and mixed results with

18

respect to inequality, poverty and training. More research is however needed to refine

these conclusions.

4.2 Minimum Wages in the Caribbean

Minimum wage legislation exists in most CARICOM countries. The annualized

minimum wage varied from US $231 (Haiti) to US $9256 (Bahamas) in 2005 and

represented a range of between 15 (St. Lucia) and 128 (Guyana) percent of GDP per

capita [see Table 4.2]. Although there have been regular changes in the statutory

minimum wages in some Caribbean countries (for example, Jamaica and Trinidad and

Tobago), there has been little empirical work on their impact on aspects of the

economies. Downes, Mamingi and Antoine (2004) undertook a study of labour market

regulations on employment in Barbados, Jamaica and Trinidad and Tobago and found

that changes in the minimum wage rates in Jamaica and Trinidad and Tobago did not

have a statistically significant impact on aggregate employment.

Strobl and Walsh (2002, 2003 and 2004) have studied the impact of minimum wage

legislation on selected labour variables in Trinidad and Tobago over the period 1996-98

using household data. The main conclusions of their research are:

(i). The introduction of a national minimum wage increased the probability of

involuntary job loss (disemployment) among low wage workers;

(ii). The national minimum wage increased the incidence of involuntary part-time

employment by 22.4 percent amongst those workers whose employers complied

with the legislation (namely, large firms);

(iii). Non-compliance was relatively high among small and medium size

establishments.

Although little econometric research has been undertaken on the impact of the National

Minimum Wage in the Jamaica economy since its introduction in 1975, there are a few

interesting observations about its relationship with inflation and poverty. Between 1975

and 1998, the level of inflation was generally higher than the increases in the national

minimum wage, while the reverse occurred between 1999 and 2005.

19

In the case of poverty, the minimum wage has been “sufficient to cover the minimum

expenditure on goods and services necessary for adult males to remain out of poverty”.

Over the period 1989 to 2005, the minimum wage was generally over 100 percent of the

poverty line for Jamaica.

In a study of the socio-economic conditions and coping strategies of persons who earn a

minimum wage (security guards, domestic helpers and garment workers in free zones in

Jamaica), Henry-Lee et al (2000) reached the following conclusions:

i. There was a significant reliance on social networks for survival – for example,

remittances from abroad;

ii. Workers have low levels of human capital and this is reflected in their low

wages;

iii. While the minimum wage is enough for an adult to cross the poverty line, it is

not adequate where several dependents are involved;

iv. Male minimum wage earners (security guards) were better off than female

earners (domestics and garment workers.

A survey of establishments in Trinidad and Tobago undertaken by the Employers’

Consultative Association in 2003 found that the minimum wage had the following

effects:

i. The increase in the minimum wage from TT$7.00 per hour to TT$8.00 per hour

had no major impact on 61% of the responding enterprises. Others experienced

increases in their wages bill and reduced employment. There was some increase

in prices and reduction in hours worked;

ii. Large and medium sized establishments were least affected by the increase, while

small establishments had to reduce employment, increase prices and reduce the

number of hours worked by employees;

iii. The petroleum/chemical, construction/real estate and the non-governmental/trade

union sector experiences little or no impact on their operations. The

manufacturing, recreational/hospitality sectors and the general services sectors

suffered the greatest impact of the wage increase.

20

A recent simulation study by Moore, Browne and Thompson (2007) found that a national

minimum wage would have only marginal effects on poverty and equality in Barbados.

The empirical results from both surveys and econometric work suggest that a minimum

wage arrangement can result in a decrease in employment of some covered workers

especially in small and medium sized operations. In some cases, the hours of work of

these workers have changed, that is, from full to part time. In general, the effects on the

economy have not been very significant and probably reflect the specification of the

minimum wage at or near the lowest wages in the labour market. Only small enterprises

seem to be adversely affected by any significant increase in the minimum wage in the

Caribbean.

4.3 Survey Results for Barbados

A survey of establishments in Barbados was undertaken during the period May to August

2006 in order to determine their views about the likely impact of a minimum wage policy

on the economy [see Appendix 5 for the questionnaire]. A stratified random sample of

300 establishments was used for the survey, where stratification was based on the sectoral

distribution of employment in 2004 [see Table 4.3]. Sixty seven (67) establishments

responded to the survey giving a response rate of 22.3 percent [see Table 4.3]. While

such a rate can be regarded as being low, the responses to the survey questions provide

some indication of the likely impact of a minimum wage policy in Barbados.

The basic characteristics of the respondents indicate that a majority of them were in

existence for over 20 years and were mainly small to medium size (under 50 employees).

Twenty five percent of the survey respondents can be regarded as being ‘large’ by

Barbadian standards, that is, employing over 100 persons [see Tables 4.4 and 4.5].

Barbados has minimum wage legislation on its statute books covering shop assistants and

domestics. Thirty-nine respondents (58 percent) were aware of such legislation, while 28

21

of them (42 percent) were unaware. A significant percentage of the respondents, eighty-

four percent, expressed the view that Barbados should introduce National Minimum

Wage legislation. There was a significant support for a ‘combined’ national minimum

wage structure [see Table 4.6]. Nine establishments (15 percent) recommended a single

wage for the overall economy, while 45 percent of the respondents suggested a

‘combined’ minimum wage structure. There was equal support for a sectoral or

occupational-based minimum wage structure. The main reasons posited for the choice of

a structure were:

1. differences in the characteristics of the sectors (26 responses)

2. the needs for equity with respect to the job and pay (10 responses)

3. the level of qualifications of workers (8 responses)

4. the skill differentiation of workers (7 responses)

5. the enforcement and management of the arrangement (5 responses)

Of the small number of respondents (16 percent) indicating that no national minimum

wage legislation should be introduced, with “letting the free market determine wages”

was identified as the main reason.

A number of factors were identified by the respondents in formulating a national

minimum wage policy for Barbados. These included:

1. the cost of living/inflation (38 responses)

2. current economic conditions (8 responses)

3. level of qualifications (7 responses)

4. the skills of workers (6 responses)

5. differences amongst the sectors (6 responses)

In terms of the factors which should be considered in determining the level of minimum

wages, the cost of living/inflation was by far the main factor with 54 responses. Current

economic conditions 97 responses) and the level of qualifications (7 responses) were also

identified as important elements.

22

In summary, the cost of living/inflation was identified as the main factor which should

be considered in determining both the policy for and structure of national minimum

wages in Barbados. The prevailing economic conditions and the level of qualifications of

workers were also considered as important variables. The results suggest some form of

price indexing of the national minimum wage of workers.

Thirty-three percent of the respondents suggested that the minimum wages for workers

should be changed every 5 years while 29 percent indicated a change every 2 years.

There was little support for annual changes in minimum wages (15 percent).

The likely impact of national minimum wage legislation on a number of economic

variables was solicited from the respondents. In the first instance, if a minimum wage is

set higher than the lowest wage in an establishment, then it is likely that the labour costs

would increase and profitability would fall. It is also expected that prices of goods and

services would increase slightly [see Table 4.7]. It is also likely that the competitiveness

of the establishment’s goods and services would decrease slightly. This scenario is in

keeping with economic analysis, namely, the increase in the minimum wage above the

lowest wage in the establishment results in an increase in labour costs and hence the

marginal cost of production. Prices of goods and services would rise as a result of the

increase in marginal costs, thus lowering competitiveness and profitability.

The higher minimum wage can have some slight impact on the number of applicable

employees. In general, a minimum wage higher than the lowest wage in the

establishment would have no significant impact on the number of working hours of

employees, non-wage benefits, wages of non-applicable employees and turnover of staff.

If the minimum wage is set lower or equal to the lowest wage in an establishment, then in

general there is likely to be little or no change in the behaviour of the responding

establishments. It is however possible that there might be some improvement in the

profitability of the establishment [see Table 4.7].

23

Establishments were asked to provide their assessment of the macroeconomic impact of a

national minimum wage. The responses indicate that a national minimum wage is likely

to result in an increase in the average level of real wages, increased prices and an

improved standard of living [see Table 4.8]. These possible effects assume that the

minimum wage would be higher than the lowest wage paid to workers. There was some

agreement that a national minimum wage structure would result in poverty reduction, the

enhancement of decent work, reduced wage/salary differentials and greater part-time

work. In light of the discussion on labour mobility and migration in the context of

CARICOM Single Market and Economy (CSME), it was felt that a national minimum

wage arrangement can result in an increase in immigration.

While it was indicated that the minimum wage can result in greater part-time work, as

witnessed in the case of Trinidad and Tobago, the respondents felt that it would decrease

employment (based on head count) or increase unemployment. This conclusion can be

based on the limited range of occupations that would be affected by the minimum wage

(i.e., very lowly paid workers). Respondents did not agree that the minimum wage would

adversely affect labour productivity, output or competitiveness. They were unsure about

the degree to which the informal sector would expand with the introduction of the

minimum wage. There were few strong sentiments about the impact of minimum wage

legislation.

Establishments were asked to indicate their willingness to pay a given set of wage rates if

a national minimum wage were introduced in January 2007. The results indicate that a

national minimum wage of Bds$8 per hour, Bds$64 per day or Bds$320 per week would

be the ‘optimal’ level for the establishments [see Table 4.9]. The highest frequency was

however Bds$5 per hour, Bds$40 per day or Bds$200 per week wage category which

accords with the current statutory minimum wage payable to shop assistants.

The respondents indicated that a minimum wage policy and structure should be carefully

thought out as both low income workers and employers should benefit from the

arrangement. Special attention should be given to compliance and enforcement aspects

24

of the minimum wage legislation. These issues would be particularly important in the

case of multiple minimum wages (sectoral or occupational). It was thought that the

minimum wage structure should be linked to productivity. Domestic workers were

perceived as a particularly vulnerable occupational group.

5 Towards a Framework for Analyzing the Impact of a Minimum

Wage Policy The previous section provided evidence that the implementation of a national minimum

wage policy can have differential impacts on the operations of establishments/companies

and also on the overall macroeconomy. Policy analysts therefore need to assess the

impact of the policy from time to time in order to determine whether or not adjustments

are needed. There are several tools available for analyzing the impact of national

minimum wage legislation on establishments and the economy:

(i). Sample survey of establishments/companies;

(ii). Regression analysis;

(iii). Difference-in-differences estimation analysis;

(iv). Computable general equilibrium analysis;

These methods differ in terms of their data requirements and technical sophistication.

A sample survey of establishments can be undertaken to ascertain in a quantifiable way

the impact of the introduction of a minimum wage policy (or increases in a minimum

wage structure) on selected variables at the firm/establishment level. A questionnaire

similar to that in Appendix 5 can be used to solicit information from various

establishments in the economy. The questions should be designed to elicit as much

quantitative data on the impact of the policy as possible and less on the general opinions

of respondents.

Such an approach means that different personnel in an establishment would have to work

together to provide the necessary data - accountant, human resource manager, marketing

officer, chief executive officer, line managers and supervisors. The information provided

25

through a sample survey can be used as raw material for the other more sophisticated

techniques.

Regression analysis is a natural technique for examining the impact of a minimum wage

structure and its changes on key economic variables. It specifies the relationship between

a set of explanatory variables (for example, prices, employment). For example, if the

impact of a national minimum wage on prices is being examined, then the regression

equation specification can be:

lnP = a0 + a1lnMW + other variables affecting Prices

where P indicates the price index of goods and services and MW is the minimum wage.

Regression analysis has been the most popular technique used to measure the impact of

minimum wages on key economic variables and also on important

company/establishment variables (for example, establishment level profitability). There

are two ways in which the minimum wage variable can be incorporated into the

regression analysis. First, it can be used in its index or natural form as a separate variable

or secondly, as a Kaitz index which is the minimum wage relative to the average earnings

for the establishment or economy. A macroeconomic framework for analyzing the impact

of a MW is outlined in Appendix 3.

The difference-in-differences estimation procedure compares the outcomes before and

after the introduction of a MW policy. In this case, two groups are identified: a treatment

group which is affected by the policy measure and a control group which is not affected

by the change. The difference-in-differences (DD) estimate is given as:

DD = [E(Y1| T) - E(Y0|T)] - [E(Y1|C) - E(Y0|C)]

where E(Y0,1| T) is the average effect of the outcome variable, Y, at time 0, 1 respectively

for those affected by the policy measure (treatment group), while E(Y0,1|C) relates to the

average effect for those not affected by the policy measure (control group) at time 0,1

respectively.

26

The DD estimate effectively corrects the simple difference on an outcome variable (e.g.,

employment, prices) before and after for the treatment group (those targeted by the

policy) by subtracting the simple difference for the control group (those not targeted by

the policy). This approach allows analysts to undertake “natural experiments” which

“take advantage of changes that were not made explicitly to measure the effects of

policies” [Duflo, 2000, p.12]. The DD procedure can easily be extended to the regression

analysis framework [see Stock and Watson, 2003, chapter 11]. If dY is the value of the

outcome variable, after the policy is completed minus the value of the variable before the

policy and X is a binary treatment variable which is randomly assigned, then the

regression equation is:

dY = b0 +b1X

where the estimate of b1 is the difference-in-differences estimator. Other explanatory

variables can be added to the regression equation.

The isolation of the impact of the MW on a given variable from other forces in the

economy can be difficult and therefore needs a more comprehensive estimation strategy.

A computable general equilibrium model allows the analyst to incorporate several

variables, sectors, commodities and policy variables in analyzing the effects of a

minimum wage policy. Such a model is however highly data intensive, but is useful for

undertaking policy simulation.

Given the data base in Barbados, the sample survey and regression/difference-in-

differences approaches would be adequate for analyzing the impact of a MW policy on

selected variables (employment, prices, unit costs, poverty, and so on).

6 Conclusion and Recommendations This study has examined the likely impact of a minimum wage policy on the economy of

Barbados. It has drawn on the general theoretical literature dealing with impact of

employment/unemployment, prices, poverty, wage structure and distribution, training and

27

migration. The bulk of the empirical research has focused on the employment impact of

a minimum wage especially in developed countries (USA, UK, Canada and Europe).

There is generally a paucity of literature on the effects on the economies of developing

countries.

In the context of the Caribbean, it has been observed that some form of minimum wage

legislation exists in all the countries with an occupational form of minimum wage

structure being the most common, National minimum wages exist for Antigua, Jamaica

and Trinidad and Tobago. The empirical research undertaken on the impact of minimum

wage arrangements indicates that there has been a decrease in the employment of some

covered workers, especially in small and medium size enterprises, a reduction in the

number of hours worked, with employers offering part-time rather than full-time work, a

positive impact on prices, a reduction in individual, but not necessarily household poverty

and a general problem of enforcement and non-compliance.

In formulating a minimum wage policy for Barbados, it is necessary to take into

consideration not only the feature of the labour market but also the empirical results of

the impact of a MW in similar economies. It was noted that some of the lowest paid

workers (care of elderly, domestics) in Barbados were paid about $40 per day/$5 per hour

in 2006/7 although there are cases ( such as gas attendants) where the rates of pay were as

low as Bds $150 to Bds $175 per week. Given that the objectives of a MW policy in

Barbados should prevent the exploitation of workers and contribute to the provision of

decent work, a single national minimum wage (that is, a nominal wage floor) should be

established.

It is estimated that a national minimum wage of Bds $60 per day/$7.50 per hour would be

a reasonable starting point effective January 2007 [see Appendix 4]. This wage would be

adjusted periodically to reflect cost of living, wage distributional and productivity effects.

This national minimum wage should be complemented with selected occupational

minimum wages to reflect the specific attributes of the occupation (skill level, precarious

work, sectoral differences, etc). The establishment of a national minimum wage would

28

allow new occupational groups to be covered as the economy evolves and new

occupations come on stream. It also provides time to assess whether there need for a

special minimum wage rate for new occupational groups. A national MW can guard

against worker exploitation within an ‘internal labour market’ where the pricing and

allocation decisions associated with labour services are determined by administrative

rules and tradition.

A tripartite body should be established to set and monitor the minimum wage situation.

Such a body would allow the main stakeholders to properly discuss the specific issues

relating to the level of the minimum wage and the occupations to be considered in the

application of the minimum wage. This body should be supported with the necessary

modern legislation to ensure compliance, enforcement and full representation of the

stakeholders.

One of the challenges associated with administering a minimum wage policy is

identifying the category and number of workers affected. It is important to develop a

national database of occupations and the number of persons employed in these

occupations to adequately monitor the implementation of the minimum wage policy.

Some of the categories of occupations to be considered include shop assistant, maid,

messenger, watchman, general worker, driver, gas attendant, security guards, traffic

warden, beach attendant, dishwasher, laundry worker, cashier, waitress and farm worker.

The available data for Barbados suggest that these occupations account for approximately

25 percent of the labour force.

The design of a minimum wage policy should be related to other policy measures to

address the concerns of low income workers - reverse tax credit, poverty alleviation,

decent work and social welfare. It is important that at a macro level, the objective of

social and economic justice in the labour market is achieved. Workers and their

dependents should be able to live comfortably by receiving at least a minimum healthy

living wage or income.

29

Table 1.1

Ratification of ILO Conventions Relating to the Minimum Wage in the Caribbean*

Country C26 (1928) C99 (1951) C131 (1970)

Antigua and Barbuda

Bahamas x

Barbados x

Belize x x

Dominica x

Grenada x x

Guyana x x

Jamaica x

St Kitts/Nevis

St Lucia x

St Vincent and the Grenadines x

Suriname

Trinidad and Tobago Note: Ratification at 30 November 2005. C26 is the Minimum Wage Fixing Machinery Convention; C99 is

the Minimum Wage Fixing Machinery for Agriculture and C131 is the Minimum Wage Fixing Convention of 1970.

Source: Goolsarran, 2005

30

Table 2.1 Minimum Wage Arrangements in CARICOM

Country Current Arrangements (2006) Antigua/Barbuda National The Bahamas Occupational Barbados Occupational Belize Occupational Dominica Occupational Grenada Occupational Guyana Occupational Haiti National Jamaica National and Selected Occupational Montserrat None St Lucia Occupational St Kitts/Nevis Occupational St Vincent/Grenadines Occupational Suriname None Trinidad/Tobago National and Selected Occupational

Source: ILO Caribbean Office - Caribbean Labour Statistics

31

Table 3.1

Labour Force, 1995-2006

Total Male Female

Year ‘000 ‘000 % ‘000 %

1995 136.8 69.1 50.5 67.6 49.5

1996 135.4 69.0 50.9 66.5 49.1

1997 135.8 69.8 51.4 66.0 48.6

1998 136.3 70.3 51.6 66.0 48.4

1999 136.6 71.1 52.0 65.5 48.0

2000 138.4 71.9 52.0 66.5 48.0

2001 145.2 74.9 51.6 70.3 48.4

2002 143.4 74.1 51.7 69.2 48.3

2003 145.5 74.6 51.3 70.9 48.7

2004 146.3 75.0 51.3 71.3 48.7

2005 146.8 75.0 51.1 71.7 48.9

2006p 143.5 73.4 51.1 70.1 48.9

Growth Rate (%) 0.7 0.8 - 0.6 - Note: p = provisional Source: Barbados Statistical Service (BSS), Labour Force Sample Survey Report, 1994-1999, 1996-2001 Central Bank of Barbados: Annual Statistical Digest, 2005, Ministry of Economic Affairs and Development Barbados Economic and Social Report 2005

32

Table 3.2

Labour Force Participation Rates by Sex, 1995-2006

(%)

Year Male Female Total

1995 74.5 62.7 68.2

1996 74.3 61.6 67.4

1997 73.6 62.1 67.5

1998 74.0 62.0 67.7

1999 74.7 61.4 67.7

2000 74.8 62.7 68.4

2001 75.9 63.8 69.5

2002 74.8 62.7 68.5

2003 75.1 64.0 69.2

2004 75.3 64.2 69.5

2005 75.2 64.5 69.6

2006p 73.4 62.8 67.8 Note: p = provisional Source: Barbados Statistical Service, Continuous Labour Force Sample Survey Report,

1994-1999, 1996-2001, Ministry of Economic Affairs and Development: Barbados Economic and Social Report 2005, 2006

33

Table 3.3

Employment in Barbados by Sex 1995, 1998, 2001, 2004 and 2006

Note: p - provisional Source: Barbados Economic and Social Report, 2006

Number of Persons Employed (‘000) Percent

Year Total Male Female Male Female

1995 109.9 57.7 52.1 52.5 47.4

1998 119.6 64.4 55.2 53.8 46.1

2001 130.9 68.9 61.9 52.6 47.2

2004 132.1 68.3 63.8 51.7 48.3

2006p 131.0 67.8 63.2 51.8 48.2

34

Table 3.4

Sectoral Distribution of Employment 1995, 1998, 2001, 2004, 2006

(‘000)

Sector 1995 1998 2001 2004 2006p

Sugar ,Other Agriculture and Fishing 5.1 5.2 5.4 4.4 4.7

Construction and Quarrying 8.8 12.5 14.2 13.4 14.5

Manufacturing 11.7 10.7 9.2 7.6 5.5

Electricity, Gas and Water 1.0 1.3 1.9 1.8 2.3

Wholesale and Retail 16.6 18.2 19.1 19.6 16.7

Tourism 11.9 13,8 13.7 12.2 13.5

Transport and Communications 5.1 5.1 5.7 5.2 4.4

Financial Services 7.6 7.5 10.4 10.8 9.8

General Services 19.3 19.9 22.9 28.9 32.0

Government 22.9 24.5 26.2 27.5 27.1

Total 109.9 119.6 128.8 132.0 131.0 Note: p - provisional Source: Barbados Economic and Social Report, 2006

35

Table 3.5

Unemployment in Barbados

1995-2006

Number Unemployed (‘000) Unemployment Rate (%)

Year Total Male Female Total Male Female

1995 26.9 11.2 15.7 19.7 16.5 22.7

1996 21.5 8.5 13.0 15.6 12.4 18.9

1997 20.0 8.0 12.0 14.5 11.3 17.8

1998 16.9 6.0 10.9 12.3 8.4 16.4

1999 14.6 5.7 5.9 10.4 7.5 13.3

2000 12.4 5.1 7.3 9.3 7.4 11.4

2001 13.0 7.3 5.7 9.9 8.0 11.9

2002 14.8 6.4 8.4 10.3 8.7 12.1

2003 16.0 7.2 8.8 11.0 8.6 12.6

2004 14.2 6.7 7.5 9.8 9.0 10.6

2005 14.6 6.0 8.2 9.7 8.0 11.4

2006p 12.5 5.6 6.9 8.7 7.7 9.8 Note: p = provisional Source: Central Bank of Barbados, Annual Statistical Digest, 2006 Ministry of Economic Affairs and Development: Barbados Economic and Social Report 2006

36

Table 3.6

Statutory Minimum Remuneration Payable to Shop Assistants 1997, 2004

(Bds $) Item From June 12, 1997 From December 20, 2004

Weekly Payable Rate 158.001

170.002

200.00

Daily Payable Rate for persons not

employed on a weekly basis

31.601

34.002

40.00

Hourly Payable Rate for non-

weekly and non-hourly paid

workers

3.951

4.252

5.00

Overtime Rate of Wages Payable

for Ordinary Working Days

5.931

6.382

7.50 per hour or part thereof

Overtime Rate of Wages for

Public Holidays

7.901

8.502

10.00 per hour or part

thereof Note: 1 - for persons under 18 years of age 2 – for persons 18 years and over

37

Table 3.7 Employed by Occupation, 1996, 2001, 2006

(000 persons)

1996 2001 2006 Occupation M F T M F T M F T

Legislators, Managers 5.3 3.5 8.8 6.3 4.5 10.9 6.1 4.9 11.0 Professionals 4.6 6.4 11.0 6.1 8.9 15.0 6.3 9.4 15.7 Technicians, Associated Professionals 5.4 2.6 7.9 6.4 4.3 10.6 5.9 4.7 10.6 Clerks 2.6 13.4 16.0 3.1 12.0 15.2 2.9 13.8 16.7 Service/Shop Workers 7.9 10.0 18.0 8.6 14.9 23.5 7.4 15.1 22.5 Skilled Agricultural Workers 2.2 0.7 3.0 2.6 0.4 3.0 2.9 0.5 3.4 Craft and Related Workers 13.2 1.0 15.2 15.2 2.1 17.3 16.9 2.2 19.1 Plant and Machine Operators 6.4 2.5 8.9 7.1 2.0 9.1 6.9 1.3 8.2 Elementary Occupations 14.1 12.5 26.5 13.3 12.7 26.0 12.4 10.9 23.3 Not Stated 0.4 0.1 0.5 0.2 0.1 0.3 0.2 0.2 0.4 Total 62.2 53.6 115.8 68.9 61.9 130.9 67.9 63.0 130.9 Note: M = Male; F = Female; T = Total Source: Barbados Statistical Service

38

Table 3.8

Unionization in Barbados

1995-2005

Year

Unionisation

(%))1

BWU New

Membership (no)

1995 23.9 2406

1996 25.8 2442

1997 24.1 5397

1998 25.3 4311

1999 25.5 3689

2000 27.5 3501

2001 29.5 2911

2002 30.7 4096

2003 30.7 2563

2004 30.3 2709

2005 30.2 3048 Note: Unionisation is defined as estimated trade union membership as a percentage of the labour

force n.a. – not available Sources: Ministry of Labour: Digest of Statistics (various issues) Barbados Workers Union

39

Table 3.9

Employment and Earnings by Industrial Group

(Quarter ending September 2003)

Total Employees (No) Average Weekly Earnings (Bds $) Industrial Group

All Employees

Wage Earners

Salaried Employees

All Employees

Wage Earners

Salaried Employees

Agriculture 2089 1723 366 417.35 328.08 838.14 Mining and Quarrying 468 308 160 816.20 737.48 968.21 Elec, Gas, Water 10,614 7441 3174 494.08 383.32 730.32 Construction 1926 1220 706 834.09 565.94 1297.17 Wholesale & Retail Trade 5448 4486 962 511.93 441.58 839.95 Hotels & Restaurants1 26,763 17,834 8929 426.06 324.57 628.76 Transport & Communications 8650 2902 5748 598.03 434.08 680.81 Financial Services /Real Estate 15,752 6655 9096 538.23 333.14 688.28 Gov’t Services /Other Services 32,950 12,092 20,858 643.79 447.28 757.74

Total/Overall 104,658 54,660 49,998 546.15 385.35 721.95

Note: 1 Average Weekly Earnings for Hotels and Restaurants and Other Services are as follows: All Employees Wage Earners Salaried Employees Hotels & Restaurants 386.36 330.64 674.46 Other Services 496.25 278.92 619.28 Source: Barbados Statistical Service: Occupational Wage Survey, September 2003

40

Table 3.10

Wages, Prices and Labour Productivity in Barbados

1995-2005

Year

Nominal

Wage Index

(1995=100)

Retail Price

Index

(1995=100)

Real Wage

Index

(1995=100)

Labour

Productivity

Index

(1995=100)

1995 100.0 100.0 100.0 100.0

1996 103.0 102.4 100.6 99.2

1997 109.2 110.3 99.0 102.2

1998 113.6 108.9 104.3 105.3

1999 118.2 110.6 106.8 103.5

2000 122.7 113.3 108.3 103.3

2001 127.0 116.2 109.3 96.4

2002 130.8 116.3 112.5 98.5

2003 134.7 118.3 113.9 99.7

2004 138.7 119.0 116.6 102.6

2005 142.9 126.3 113.1 106.0 Note: The nominal wage index is calculated using data from the Annual Statistical Digest and average salary increases granted by the Government and private sector. Sources: Calculated from data in Barbados Economic and Social Report 2005 and Central Bank of

Barbados: Annual Statistical Digest, 2004.

41

Table 3.11 Labour Productivity by Sector 1995 - 2005 (Bds $’000)

Sector 1995 1997 1999 2001 2003 2005 Agriculture and Fishing 10.4 10.2 11.3 10.3 8.5 10.8 Manufacturing 7.3 8.2 8.6 8.8 9.0 12.1 Electricity, Gas and Water 30.4 23.5 19.8 20.6 15.7 20.9 Construction, Mining and Quarrying 6.1 6.1 6.5 5.5 6.7 8.0 Wholesale and Retail Trade 9.7 11.9 10.9 9.6 9.7 11.6 Tourism 11.0 11.0 11.7 10.8 11.0 12.5 Transport and Communications 13.7 16.1 18.2 14.7 17.0 16.0 Finance, Business Services and General Services 5.5 5.3 5.4 4.9 4.8 4.5 Government 5.1 5.1 4.9 5.1 4.9 5.3 Total 7.7 7.9 8.0 7.5 7.6 8.3

Source: Central Bank of Barbados: Statistical Digest (various issues)

42

Table 4.1

Impact of Minimum Wages on Selected Variables

Author Country Results

Impact of Minimum Wage on Employment

Bell (1997) Columbia Mexico

Using panel data, substantial disemployment effects of minimum wages, where the impact was between 2 and 12 percent over the 1981-87 period. Minimum wage is the effective wage Minimum wages had no-effect on employment. Minimum wage is not the effective wage.

Abdulahad and Guirgius (2003) USA A negative and significant relationship between real minimum wages and employment levels of part-timers and teenager employers.

Adams and Neumark (2005) USA Living wage laws raise wages of low income workers but reduce employment among the least skilled. Baker, Benjamin and Stanger (1999) Canada Minimum wage (MW) legislation over the period 1975 to 1993 is examined. At low frequency variation in

the data, a 10% increase in the MW was associated with 2.5% decrease in employment. At high frequencies, the impact is positive but insignificant.

Bernstein and Schmidtt (1998) USA The 1996-97 minimum wage increases had a generally small and statistically insignificant impact on the employment of low wage workers.

Burkhauser, Couch and Wittenburg (2000) USA Using monthly data for the period 1979-1997, a significant but modest negative relationship is found between MW increases and teenage employment using controls or allowing employer responses to the policy to occur with some delay.

Campolieti, Fang and Gunderson (2005) Canada Using data over the period 1993-99, for 24 MW changes occurring in different provinces, the study indicates that MW increases have increased the transition from employment to non-employment of employed low wage youth by around 6 percentage points. These disemployment effects imply minimum wage elasticities of about -0.4 (ranging from -0.3 to -0.5).

Card and Krueger (1993) USA With an increase in New Jersey’s minimum wage from $4.25 to $5.05 in 1992, employment in the fast food restaurants increased by 13 percent relative to those in Pennsylvania. Stores in New Jersey that had to increase their wages increased their employment.

Card, Katz and Krueger (1993) USA No support that MW has an adverse effect on teenage employment. The 1980 increase in the Federal MW had no adverse impact on employment. Subminimum wages are rarely used casting doubt on the claim that subminimum wage provisions temper any employment losses attributable to the minimum wage.

Canneiro (2004) Brazil A time series analysis using monthly aggregate data over the period 1982 to 2002 indicates that increases in the MW resulted in a robust and negative impact on employment in the formal sector in the short and long runs, with the reverse taking place in the case of informal employment (i.e., disemployment in the formal sector and employment in the informal sector.

Abourd, Kramaz, Lemieux and Margolis (1998) France The minimum wage had very large negative employment effects (for men aged 25-30 years an increase in the MW by 1 percent would reduce their probability by keeping their job by 4.6 percent).

De Fraja (1996) USA The effects of MW on employment are limited, there are positive spillover effects on high wage workers and

43

there is bunching of workers at the MW. Dickens, Machin and Manning (1999) UK MWs do not have a negative impact on employment. Dolado, Kramarz and Machin (1996) Europe No general evidence that MW reduced employment except perhaps for young workers. Freeman and Freeman (1991) Puerto Rico The US MW substantially lowered employment and altered the allocation of labour across industries. Gundling and Terrel (2004) Costa Rica A 10% increase in MW lowered employment in the covered sector by about 1.09% Leigh (2003) Western

Australia Raising the MW during the 1994-2001 period reduced the employment to population ratio. The elasticity of labour demand was -0.13.

Mills, Roy and Williams (1999) USA MW increases negatively impacted on teenage employment and shifted the composition of the MW work force.

Neumark and Wascher (1999) OECD Using pooled cross-section series data for 16 OECD countries for the period 1975-1997, MW caused employment losses among youth. There is variation across countries:

(i). Disemployment effects are smaller when there are subminimum wages for youth; (ii). Policies which restrict employers’ ability to adjust non-pecuniary charactristc of jobs (e.g., hours

restrictions or work rules), exacerbate the negative effects on youth employment; (iii). Active labour market policies which bring non-employed individuals to the work force tend to

exhibit smaller disemployment effects.

Orazen and Matila (2002) USA MW reduce employment opportunities for young and unskilled workers in Iowa.

Rama (2001) Indonesia MW decreased urban wage employment in the 1990s (especially in small firms). Some large firms saw their employment increase.

Impact of Minimum Wage on Working Hours

Stewart and Swaffield (2004) UK The introduction of the MW reduced basic hours of low-wage workers by between 1 and 2 hours per week Couch and Wittenburg (2001) USA MW increases have a negative effect on the hours of work of teenagers (ages 16 to 19) Gindling and Terrel (2004) Costa Rica MW increase of 10% resulted in a decrease in the average number of hours worked of those who remain in the

covered sector about 0.6%.

Impact of Minimum Wage on Prices

Lemos (2006) Brazil MW increased overall prices not only in the month of the increases but also in two months prior to the change as well as the change. MW increases in Brazil tend to be large and frequent (over the period 1982 to 2000)

Aaronson, French and McDonald (2005) USA Using both store-level and aggregated price data from the food-away-from-home component of the Consumer Price Index, the empirical analysis shows that restaurant prices rise in response to an increase in the MW.

Droca, Machin and Van Reenen (2005) UK In an analysis of 240 industries, the price effect of a change in the MW was positive but statistically insignificant. The canteen industry was the only one which showed a pronounced price effect.

Aaronsom (2001) USA and Canada

Restaurant prices generally rise with increases in the wage bill that result from MW legislation. The response tends to be concentrated in the quarter surrounding the month during which the legislation is enacted.

Lemos (2004) USA A survey of research using different methodologies, data sources and period found that a 10% increase in MW raises food prices by no more than 4% and overall prices by no more than 0.4%.

44

Impact of Minimum Wage on Income Distribution

Angel-Uridonata and Wodon (2004) Columbia Brazil

Net impact of minimum wage depends on the distributional weights used for inequality measurement. For standard weights, the likely net impact is a reduction in wage inequality.

Card and Krueger (1995) USA The declining real value of the MW over time contributed to the increasing wage inequality. The increase in the nominal MW in 1991 resulted in a diminution of wage inequality as those who benefited were from lower income families.

Horrigan, Michael and Mincy (1993) USA MW changes did not have a significant effect on inequality as MW workers were fairly evenly distributed across families in different income groups

Bernstein and Schmitt (1997) USA In assessing the impact of the 1996 MW increase, they concluded that it increased the earnings of low wage workers and low income working families. Hence some decrease in wage inequality.

Das Subesh (1998) India MW set on the basis of a national criteria can do more good in terms of income distribution. Dickens, Machin and Manning (1999) UK MW significantly compressed the distribution of earnings between 1975 and 1992 Freeman and Freeman (1991) Puerto Rico The USA MW had a ‘massive’ effect on the earnings distribution Grindling (2004) Costa Rica Changes in MWs over the period 1987 and 1997 reduced the degree of inequality in the distribution of

earnings Neumark, Schweitzer and Wascher (2000) USA Workers initially earning near the MW are adversely affected by MW increases, while higher-wage workers

are little affected. Relatively low wage union members gain at the expense of the lowest-wage non-union workers when MW increases.

Impact of Minimum Wage on Poverty

Bernstein (1997) USA The 1996/97 minimum wage increase (from US$4.25 to US$5.15) benefited the low income families, that is,

most of the benefits went to the poorest 40% of working families. The MW was effective in getting benefits to the intended recipients but the MW system might not be an effective tool for preventing poverty as the real purchasing power of the MW dropped.

Neumark and Wascher (2002) USA Over a 1 to 2 year period, MWs increased both the possibility that poor families escape poverty and the probability that previously non-poor families fall into poverty. MW tend to boost the incomes of poor families that remain below the poverty line. Some families gain and others lose with increases in MW.

Impact of Minimum Wage on Wage Structure

Card, Katz and Krueger (1993) USA Covered-weighted relative MW index is shown to be negatively correlated with average teenage wages. Chirwa (1993) Malawi A long run relationship exists between real average sectoral in the formal labour market and real statutory

minimum wages for four out of eight sectors. Evidence indicates that real minimum wages unidirectionally Grainger cause real earnings.

45

De Fraja (1995) The impact of MW on employment is limited with a positive spillover on high wage workers. There is bunching of workers at the minimum wage. It is assumed that employers can alter the working conditions of their employees.

Dickens, Machin and Manning (1999) UK Livingstone (1995) Malawi Changes in MW have a direct effect on wages paid in specific sectors. Outside of these sectors, there is no

effect. Rama (2001) Indonesia MW increased average wages by 5-15 percent.

Impact of Minimum Wage on Training

Acemoglu and Pischke (1999) USA State and federal increases in the minimum wage between 1987 and 1992 did not reduce the training of low

wage workers. Neumark and Wascher (1998) USA Higher MWs reduce training (especially formal training aimed at improving skills on the current job). There

is little or no evidence that MWs increase training undertaken to qualify for or obtain jobs. Overall MWs substantially reduce training received by young workers.

Impact of Minimum Wage on the Informal Sector

Jones (1997) Ghana MW policies during the 1970s and 1980s led to a reduction of formal sector jobs and an increase in informal

sector jobs.

46

Table 4.2

Minimum Wages in CARICOM Countries, 2005

Country

Minimum Wage

Annual Wage US $

Percent of GDP per capita

Antigua and Barbuda EC $6.00 an hour for all categories of labor 4,6221 44 Bahamas B$4.00 per hour for the private sector; B$5 per hour for government employees 8,320/9,256 45/50 Barbados Bds$5 per hour for household domestics and shop assistants 5,2001 45 Belize US$2.25 BLZ an hour for all workers 2,6332 66 Dominica Set by law for various categories of workers (last revised in 1989); as low as EC$1.00 per hour for

some categories of workers (e.g., household employees) if meals are included; for most workers ranges from EC$2.00 per hour for tourist industry workers to EC$3.00 per hour for occupations such shop clerk; labor laws provide that the labor commissioner may authorize the employment of a person with disabilities at a wage lower than the minimum rate in order to enable that person to be employed gainfully.

770/1,541-2,3111

20/39-59

Grenada Set for various categories of workers, for example, agricultural workers were classified into male and female workers; rates for men were EC$5.00 per hour, and for women EC$4.75 per hour; however, if a female worker performed the same task as a man, her rate was the same; the minimum wage for domestics was set at EC$400 monthly.

1,778-3,852

39-85 Guyana G$22,099 per month: G$3,300 per week for certain categories of private sector workers; affected

occupations include retail cashiers and clerks, printers, drivers, and conductors. 855/1,321 83/128

Haiti 36 gourdes a day 231 46 Jamaica J$2,400 per week and J$90 per hour for private security guards 1996 56 St Kitts and Nevis EC$150 per week for full time domestic workers; EC$200 per week for skilled workers 2,889/3,852 27/35 St Lucia EC$300 a month for office clerks; EC$200 for skilled workers 711-1,333 15-29 St Vincent and the Grenadines

EC$25 per day for agriculture industry workers; EC$30 per day for industrial workers earned 2,407/2,889 61/73

Suriname None - - Trinidad/Tobago TT$9.00 per hour 2,9791 24 1 40 hours per week; 2 45 hours per week Source: ILO database.

47

Table 4.3

Distribution of Sample and Responses by Sector

Sample Size Responses Sector

No % No Rate %Tourism 28 (9.3) 7 (25.0) Manufacturing 17 (5.7) 10 (58.8) Wholesale/Retail 45 (15.0) 3 (6.7) Financial Services 25 (8.3) 10 (40.0) Other 185 (61.7) 37 (20.0) Total 300 (100.0) 67 (22.3) Note: These sectors reflect the focus of the study. ‘Other’ includes agriculture, construction and quarrying, electricity, gas and water, transport and communications, government services and general services. The distribution of the sample by sector is based on the sectoral distribution of employment.

Table 4.4

Distribution of Respondents by Years of Operation

Years Number Percent Under 5 7 11 5 to 10 12 19 11 to 20 9 14 Over 20 36 56 Total 64 100

Table 4.5

Distribution of Respondents by Establishment

Size Category (Employment)

Number

Percent

Under 25 persons 24 38 25 to 50 persons 11 18 51 to 100 persons 12 19 Over 100 persons 16 25 Total 63 100

48

Table 4.6

Recommended National Minimum Wage Structure

Responses Type

Number Percent Single Wage for the Overall Economy 9 15 Occupational-based 12 20 Sectoral-based 12 20 Combination of the Above 27 45 Total 60 100

Table 4.7

Possible Impact of National Minimum Wage Legislation on Selected Variables (no)1

Considerabl

e Decreased

Slightly Decreased

No Change

Slightly Increased

Considerably Increased

Don’t Know

Variable

(a) (b) (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) Number of Applicable Employees

1 0 9 1 41 54 2 4 0 0 8 2

Number of Working hours of Employees

1 0 6 0 49 58 1 2 0 0 5 1

Non-Wage Benefits 2 0 7 0 45 53 1 4 1 0 5 3 Wages of Non-Applicable Employees

1 0 3 0 42 57 7 1 0 0 8 2

Prices of Goods/Services

1 0 2 2 24 50 18 2 2 0 10 4

Profitability of Company

5 0 24 1 18 41 2 13 0 0 10 5

Competitiveness of Goods/Services

2 0 10 1 37 37 1 7 2 1 7 4

Turnover of Staff 2 0 1 0 37 48 3 3 1 0 17 9 Labour Cost 0 1 1 7 7 43 37 5 0 0 6 4 Note: (a) refers to the case where the minimum wage is set above the lowest wage in the company and (b) where it is set ‘lower than’ or ‘equal to’ the minimum wage

49

Table 4.8

Likely Impact of a National Minimum Wage on Selected Macroeconomic Variables (no)

Variable Strongly Agree

Disagree Neither Agree/Disagree

Agree Strongly Agree

Poverty Reduction 4 11 20 23 4 Enhancement of Decent Work 4 9 23 25 2 Expansion of the Informal Sector 2 8 28 20 5 Increase in Income Inequality 4 24 20 15 0 Increased Unemployment 1 25 21 18 0 Reduction in Wage/Salary Differentials 2 12 22 28 0 Decreased Employment 2 25 20 17 0 Increase in Average Level of Real Wages 1 6 20 36 0 Increased Labour Productivity 6 20 19 19 0 Reduced Output 2 31 23 6 0 Increased Prices 0 7 13 38 4 Reduced Competitiveness 1 23 21 17 1 Increased Immigration 1 12 22 25 3 Improved Standard of Living 3 5 15 39 1 Greater Part-Time Work 2 10 20 26 5 Note: The highlighted items indicate the highest number of responses per variable

50

Table 4.9

Willingness to Pay a National Minimum Wage if Introduced from January 2007

National Minimum Wage ($) Number of Companies Willing to Pay

Per Hour Per Day Per Week Number Cumulative 5 40 200 38 38 6 48 240 32 70 7 56 280 29 99 8 64 320 29 128 9 72 360 16 144 10 80 400 11 155 11 88 440 5 160 12 96 480 4 164 13 104 520 5 169 14 112 560 5 174 15 120 600 5 179

15+ 120+ 600+ 4 183

51

References Acemoglu D. and J. Pischke (1999): “Minimum Wages and On-the-Job Training”, NBER

Working Paper, no 7184, June. Blackman R. (2006): “Social Welfare as Empowerment” (Ministry of Social

Transformation, Barbados). Cahuc P. and A. Zylberberg (2004): Labour Economics (Cambridge, MIT Press). Craigwell R. and Warner A. (2003): “Labour Market Dynamics in Barbados: Policies and

Implications of Globalisation” in H. Codrington et al (eds): Facing Globalisation: Impact and Challenges for Barbados and the Caribbean (Bridgetown, Central Bank of Barbados), pp 113-138.

Cunningham W (2007): Minimum Wages and Social Policy: Lessons from Developing Countries ( Washington, D.C., World Bank).

Downes A.S. (2006): “Reforming the Labour Market” in L. Rojas-Suarez and D. Thomas (eds): Barbados: Meeting the Challenge of Competitiveness in the 21st Century (Washington, D.C., Inter-American Development Bank), pp 93-143.

Downes A.S., N. Mamingi and R.Antoine (2004): “Labour Market Regulation and Employment in the Caribbean” in J.J. Heckman and C. Pages (eds) Law and Employment: Lessons from Latin America and the Caribbean (Chicago, Chicago University Press), pp 517-551.

Dufflo E. (2000): “Empirical Methods” (Department of Economics, Massachusetts Institute of Technology, Cambridge, USA).

Eyraud F. and Saget C. (2005): The Fundamentals of Minimum Wage Fixing (Geneva, International Labour Organization).

Goolsarran S.J. (2005): Caribbean Labour Relations Systems: An Overview, 2nd edition (Port-of-Spain, International Labour Office - Caribbean).

Greaves D.(2006): “Employment and Labour Market Trends, Policies and Policy Impact in Barbados in the Period 1999 to 2004” (National Employment Report prepared for the Ministry of Labour and Civil Service, Bridgetown, Barbados).

Gunderson M. (2005): Minimum Wages in Canada: Theory, Evidence and Policy, ( prepared for the Federal Labour Standards Review Commission, Canada) Henry-Lee A. et al (2000): An Assessment of the Standard of Living and Coping

Strategies of Workers in Selected Occupations who earn a Minimum Wage (Working Paper no 4, Planning Institute of Jamaica, Kingston, Jamaica).

Inter-American Development Bank (1998): Poverty and Income Distribution in Barbados 1996-1997 (Washington, DC, October).

Lemos S. (2008) ‘A Survey of the Effects of the Minimum Wage on Prices’, Journal of Economic Surveys, vol.22, no.1, pp. 187-212

Lowe E. (1990): ‘Minimum Wages - The Barbados Experience’ (paper for Labour Economics course, UWI, Cave Hill).

Neumark D. and Wascher W. (2006): “Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research” (Working Paper 12663, National Bureau of Economic Research, Cambridge, Massachusetts, USA).

Spencer B. (1978): “Wage Determination in Antigua” in ILO: Wage Determination in English-Speaking Caribbean Countries (Labour-Management Relations Series, no 57, Geneva), pp 109-116.

52

Stock J.H. and M.W. Watson (2003): Introduction to Econometrics (Boston, Addison, Wesley).

Strobl E. and F. Walsh (2002): “Getting it Right: Employment Subsidy or Minimum Wages?” (Department of Economics, University College, Dublin, Ireland).

Strobl E. and F. Walsh (2003): “Minimum Wages and Compliance: The Case of Trinidad and Tobago”, Economic Development and Cultural Change, vol 51, no 2, January, pp 427-450.

Strobl E. and F. Walsh (2004): “The Impact of Minimum Wages on Hours and Employment Revised” (CORE, Discussion Paper, no 23, Universite Catholique de Louvraquin, Belgium).

World Bank (2006): Minimum Wages in Latin America and the Caribbean: The Impact on Employment, Inequality and Poverty (Washington, D.C., Human Development Management Unit, LAC Region).

53

Appendix 1 Marshall-Hicks ‘Laws’ of Derived Demand

Economic theory suggests four (4) factors which influence the own-price (wage) elasticity

of demand for labour known as Marshall-Hicks ‘laws’ of derived demand.

The wage elasticity of demand for labour depends on:

(i). the ease of substituting other inputs for labour in the production process, that is,

the elasticity of input substitution;

(ii). the elasticity of demand for final output;

(iii). the elasticity of supply of other inputs;

(iv). the importance or share of labour in total production costs;

The Marshall-Hicks laws indicate that:

1. the greater the elasticity of substitution in production, the greater the wage

elasticity of demand for labour;

2. the greater the elasticity of demand for final output, the greater the wage elasticity

of demand for labour;

3. the greater the share of labour in total production costs, the greater the value of the

wage elasticity of demand for labour;

4. the greater the elasticity of supply of other factors of production, the greater the

value of the wage elasticity of demand for labour.

54

Appendix 2 Minimum Wage Effect on Labour Income and Poverty

The minimum wage is the lowest wage in a set of wages

Wm = min(W1, W2 ……Wk) (1)

The Wm is legally binding on market participants.

If the labour income (Y) is defined as the product of the nominal wage rate (W) and the

number of hours worked (H), that is,

Y = WH (2)

It can be shown that

dY ── = H* (1 + NHW) (3) dW

where dY is the change in labour income, dW is the change in the nominal wage rate, H*

is the standard number of hours worked and NHW is the wage elasticity of demand for

hours, which is negative. The effect of a wage rate on labour income depends on the wage

elasticity given a standard number of hours. If

(i). NHW = 0, then dY/dW greater than zero, a positive impact of wage rate increase on

income;

(ii). NHW = -1, then dY/dW is less than zero, that is, no change in income;

(iii). NHW < -1, then dY/dW is less than zero, that is a negative impact of the wage

increase on labour income.

If the labour income is just below the poverty line, then the impact of an increase in the

minimum wage on poverty (via labour income) depends on the value of the wage

elasticity of demand for labour hours.

55

Appendix 3 Modelling the Effects of a Minimum Wage on Selected Economic Variables

This appendix outlines an econometric model for analyzing the impact of a minimum

wage on selected economic variables.

Employment

There are alternative ways of capturing the employment effect of a minimum wage rate:

Model 1: ln E = a + b ln(MW/AW) + c lnq + R

where ln is natural logarithm, E is the number of persons employed, MW is the

minimum wage rate, AW is average wage rate, q is output, R is other variables.

Model 2: ln H = a + b ln (MW/AW) + c lnq + R

where H is hours worked

Prices:

Assuming an average cost pricing model, then the price equation is given as:

ln P = a + b lnPM + c ln MW + O

where P is the overall price index and PM is the imposed price index. O represents

other factors

Income Poverty

Defining labour income as

Y = w⋅H

where Y is income, w is the wage rate (average or minimum)

Hence ln Y = a + b ln MW + c ln H + W

56

Appendix 4 Towards a National Minimum Wage for Barbados

Shop assistants are the only workers currently subject to minimum wage legislation in

Barbados. The current minimum wage, set in December 2004, is Bds $5 per hour or Bds

$40 per day (for an eight hour working day). It was also noted from the survey of

employers that if a national minimum wage was introduced from January 2007, the most

frequently stated figure was $5 per hour or $40 per day, which is the current minimum

wage for shop assistants. Some respondents were however willing to pay up to $8 per

hour or $64 per day. A cluster analysis of the cumulative distribution of the responses to

the willingness to pay a given set of wage rates confirms that $8 per hour is an ‘optimal’

level.

In setting of a national minimum wage the distribution of wages in the economy must also

be considered. Data for the sugar industry indicate that in 2007 the hourly wage for a

farm worker B was $6.94 and for a maid, it was $6.99. A gardener in a unionized

company obtained a wage rate ranging from $6.18 to $7.47 per hour in May 2007 [BWU

66th Annual Report, 2007, pp. 26-32]. In the case of non-unionised companies, domestics

and caregivers were paid $40 to $50 per day in 2007. In 2007, gas station attendants

obtained between $150 and $175 per week, while maids received $209 per week. In

government, the lowest paid category (maid/traffic warden/school meals workers) was

paid $19,043 ($366.22 per week) in 2005/6. The Ministry of Labour estimated that in

2003, the “threshold of economic comfort” for an adult was estimated at $35.70 per day or

$250 per week. The Ministry also indicated that the required daily wage rate was $68.84

($8.60 per day).

In terms of the tax system, the reverse tax credit introduced in 1997 was based on an

individual annual income threshold of $13,000 ($250 per week). This threshold was

increased to $15,000 ($288.46 per week) in 2007, with subsequent increases being

$16,580 ($317.31 per week) in 2008 and $18,000 ($346.15 per week) in 2009. The grant

which was originally $500 was raised to $800 in 2007, with subsequent increases being

$1100 in 2008 and $1300 in 2009.

57

These thresholds provide an idea of what the lowest paid worker should be receiving. It

was estimated that over 27,000 persons (21 percent of the employed) in the category of

shop attendants, maid, gas attendants, etc would benefit from the reverse tax credit

[Budget Speech, 2007]. Using the information on the current minimum wages for shop

assistants, the distribution of wages for selected low income occupations, the estimate of

the Ministry of Labour of the ‘threshold of economic comfort’, the income threshold used

for the reverse tax credit and the results from the survey of employers, then a national

minimum wage of Bds$300 per week or Bds$60 per day or Bds$7.50 per hour (based

on a 40 hour workweek or an 8 hour workday) seems a reasonable starting point.

In 2006, approximately 46,000 persons were classified as service/shop workers in

elementary occupations, representing 35 percent of the employed or 32 percent of the

labour force. It is expected that the implementation of a national minimum wage would

directly affect a significant proportion of these workers.

58

Appendix 5

Questionnaire

The Impact of Minimum Wage Legislation on the Economy of Barbados SECTION A Background Information

1. Name of company/establishment (optional):

…………………………………………………………………………………..

2. Sector

Tourism Manufacturing Wholesale/Retail

Financial Services Other

3 Principal Activities …………………………………………..

4. Number of years in operation ……… Years

5. Parish Location …………………………………….

6. Total Number of Employees …………………….. persons

SECTION B

Towards a National Wage Policy

1. Are you aware of any minimum wage legislation in Barbados?

Yes No

2. If ‘yes’, what is the extent of your awareness? ………………………………….

……………………………………………………………………………………

3 Do you think that Barbados should introduce a National Minimum Wage

Legislation?

Yes No (If no, go to #6)

4. If ‘yes’, would you recommend that the national minimum wage structure be

(i) A single wage for the overall economy Yes No

59

(ii) Occupational- based Yes No

(iii) Sectoral based Yes No

(iv) A combination of the above Yes No

5 Can you give three (3) reasons for your choice of structure?

1……………………………………………………………………………….

2……………………………………………………………………………….

3……………………………………………………………………………….

6. If ‘no’ to SECTION B #3, what are your main reasons?

1. ……………………………………………………………………………

2 ……………………………………………………………………………

3 ……………………………………………………………………………

7. What factors should be considered in formulating a national minimum wage policy

for Barbados?

1 ………………………………………………………………………………….

2 ………………………………………………………………………………….

3 ………………………………………………………………………………..

8 What factors should be considered in determining the level of the minimum

wage(s)?

1..………………………………………………………………………….

2.…………………………………………………………………………….

3……………………………………………………………………………….

9 How often should the minimum wage(s) be changed?

Annually Every two years Every five years

Other (specify) ………………………………..

60

SECTION C

Current Employment Profile

Please indicate the current (May 2006) employment and compensation profiles of the

following occupations in your company/establishment (where applicable)? *Please answer Yes (Y) or No (N) to items in this section where

1: represents free transportation to work 2: free meals and uniforms 3: employer-provided health

and life insurance 4: other benefits

Average Hours

Worked

Basic Wage Paid Benefits Received

*

Occupational

Category

Number of

Employees

Per

Day

Per

Week

Per

Hour

Per

Day

Per

Week

1 2 3 4

Maid

Messenger/Driver

General Worker

Gardener/Handyman

Watchman

Porter

Shop Assistant

Cashier

Receptionist

General Clerk

Production worker

(entry level)

Waiter/Waitress

Bus Boy/Girl

Laundry Worker

Dishwasher

Beach Boy

Customer Service

Representative

Teller

Other (please

specify)

61

SECTION D

Impact of National Minimum Wage Legislation

1a If a minimum wage is set higher than the lowest wage in your

company/establishment, please indicate how your company/establishment would

respond: Issue Considerably

decreased

Slightly

decreased

No change Slightly

increased

Considerably

increased

Don’t

know

The number of applicable

employees

The number of working

hours of employees

Non-wage benefits

Wages of non-applicable

employees

Prices of goods/services

Profitability of Company

Competitiveness of

Company’s goods/services

Turnover of staff

Labour Cost

1b If a minimum wage is set lower than or equal to the lowest wage in your

company/establishment, please indicate how your company would respond

Issue Considerably

decreased

Slightly

decreased

No change Slightly

increased

Considerably

increased

Don’t

know

The number of applicable

employees

The number of working

hours of employees

Non-wage benefits

Wages of non-applicable

employees

Prices of goods/services

Profitability of Company

Competitiveness of

Company’s goods/services

Turnover of staff

Labour Cost

62

2. In your opinion a national minimum wage will result in the following:

Item Strongly

Disagree

Disagree Neither

Agree/Disagree

Agree Strongly Agree

1 Poverty Reduction

2 Enhancement Decent Work

3 Expansion of the Informal

Sector

4 Increase in Income Inequality

5 Increased Unemployment

6. Reduction in Wage/Salary

Differentials

7. Decreased Employment

8. Increase in the Average Level

of Real Wages

9. Increased Labour Productivity

10. Reduced Output

11. Increased Prices

12. Reduced Competitiveness

13. Increased Immigration

14. Improved Standard of Living

15. Greater Part-time Work

63

3 If a National Minimum Wage were introduced from January 2007, please indicate

your willingness either to pay or not to pay the following rates by placing an ‘x’ in the

appropriate column

National Minimum Wage The Company would

be willing to pay

The Company would NOT be

willing to pay

Per Hour Per Day Per Week

$5 $40 $200

$6 $48 $240

$7 $56 $280

$8 $64 $320

$9 $72 $360

$10 $80 $400

$11 $88 $440

$12 $96 $480

$13 $104 $520

$14 $112 $560

$15 $120 $600

$15+ 120+ $600+

4. Do you have any other views on the implementation of minimum wage legislation in

Barbados?

…………………………………………………………………………………………….

…………………………………………………………………………………………….

…………………………………………………………………………………………….

…………………………………………………………………………………………….