Minimum wage will tackle cost of living crisis, says Government
The Government’s position paper on the minimum wage makes it clear that the debate on minimum wages has moved from whether Bermuda should have a “wage floor“ at all to “how much” it should be and “when” will it be implemented.
The position paper answers both of those questions.
As of June 1 next year, the Government intends to implement a minimum hourly wage of at least $16.
For workers whose income is a combination of fixed pay and gratuities, the minimum wage will be $12, or three quarters of the statutory minimum.
It also argues that it is required now more than ever.
It says: “Over the last several years, the global economy has felt unprecedented pressures from factors including the health pandemic, war and devastation related to climate change.
“These variables have resulted in labour shortages, increased strain on global supply chains and ultimately have negatively impacted the price consumers pay for many basic goods and services. ”
It adds: “The Government must remain agile and responsive to these changes as they impact our local economy. Therefore, not dissimilar to the responses in other jurisdictions, it is crucial now more than ever to establish a minimum wage to ensure that all segments of our society have access to their basic needs.”
The statutory minimum, which is intended to be a wage floor for all full-time workers, is designed to be 50 per cent of the median wage in Bermuda.
This was $15.75 in 2021, when the commission appointed to examine implementation of the minimum wage was put into effect.
When inflation for 2021 and 2022 is factored in, the wage could rise to as high as $16.40. In fact, that might not account for all of 2022’s inflation - the annual increase is capped at 2.5 per cent, which annual price increases may well exceed - given that inflation in May was 3.7 per cent.
That cap is presumably designed to give employers some assurance that the minimum wage will not run away from them.
In the 2020 report, employers were said to have reported that a $15 minimum wage would be tolerable, but an $18 minimum would “have potential negative impacts on the targeted workforce, as employers may reduce workers, reduce hours, or close altogether”.
The Government concedes in the paper that a balance has to be struck between a minimum wage that is too low and one that is too high: “Setting an adequate minimum wage level is thus a balancing act between the needs of workers and their families on the one hand, and economic factors on the other.
“When minimum wages are set too low in relation to economic factors and the level of productivity in a country, they may fail to reduce wage inequality and may also fail to provide workers and their families with a decent standard of living.
“In contrast, rates that are too high in relation to the prevailing economic factors and labour productivity may lead to widespread non-compliance and/or reduce the demand for formal employment, pushing workers into the informal economy, with potentially negative impacts on income equality and poverty.”
The report also concedes there is a risk that some beneficiaries of the minimum wage may come from wealthier households and not actually need help.
This could include young new entrants to the workforce who still receive family support.
On the other hand, the position paper argues that a minimum wage will help those who receive financial assistance from the Government.
It said: “Low income earners in our society that are in receipt of financial assistance, notwithstanding their household composition, are assessed and adjudged by the Department of Financial Assistance to not be earning enough to cover the net income expenditure related to their household.
“Setting appropriate statutory minimum wage rates will not only benefit these low income earners but will also assist in reducing inequality that the current wage gap has created.”
Unsaid is that this may also reduce Government expenditures as it shifts income support from the taxpayer to the employer.
The paper also admits that Bermuda’s proposed rate would be higher than any member of the Organisation for Economic Cooperation and Development group of the world’s most advanced economies, but says Bermuda’s world-leading cost of living justifies this.
It said: “Luxembourg, Australia, New Zealand, the UK and Germany pay some of the highest national hourly minimum wage rates with Luxembourg currently being the highest at $15.87 for skilled workers over the age of 18 years, according to the most recent World Economic Forum reports.
“However, it should be noted that further to the Commission’s recommendations and the current cost of living in Bermuda, Bermuda will require a higher minimum wage rate than these OECD (“Organisation for Economic Co-operation and Development”) countries.“
The paper states that many countries have minimum wages which vary based on job sector and age.
Many OECD countries set much lower wages for people under the age of 21 and apprentices.
Bermuda has not set an age difference, but does differentiate between people who earned a fixed wage and those who are paid based on wages and gratuities.
Despite some of the risks inherent in the minimum wage and allowing for the fact that the Government still intends to determine what a living wage looks like, the paper argues that the overall benefits of a minimum wage will be positive.
It said: “Many jurisdictions view (a minimum wage) as a vehicle to take the lowest paid out of poverty.
“Others view it as a wage floor, below which employers are not permitted to pay. Regardless of the approach, this will improve the lives of many workers, especially those within occupations with traditionally low levels of remuneration.”
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