Sunday, 30 September 2012

The Minimum Wage: To Increase It Or Not?



Over the last few days, a lot has been said and written about the issue of increasing the minimum wage in Malta. As an employee with various debts chained to my feet, my first reaction would be to give my full support to any initiative aimed at increasing the minimum wage as soon as possible. Yet, upon giving some more thought to the matter, measures that would surely affect the lives of thousands of people cannot be decided on the basis of an individual's whims. 

Whoever knows me well would be acquainted with my political beliefs. To those who do not know me, I am a fervent Socialist. I believe that a society is judged on the basis of how it cares for its weakest members. I believe that hard-working, successful individuals should be helped to contribute their skills to create a better world. Yet, I am against the notion of huge power imbalances in society since these could easily constitute a threat to democracy and to social harmony. I have diverted a little here to make it clear that my position regarding the minimum wage issue is linked to my political beliefs.

If one had to analyse the amount of money that is required in our times to live decently, there appears to be little doubt that anyone earning a minimum wage would have a fairly hard time trying to make ends meet, let alone living decently. As time goes by, the typical person requires more items to enjoy a decent standard of living. Compared to life several decades ago, having a mobile phone and Internet service could be said to be a must-have in the 21st century. Depending on the job one has, a number of things might be necessary to satisfy the company requirements. 

In order to bridge the gap between the amount of money being earned and the amount of money that is necessary to live decently, it is possible to list two options. Increase one's income (by, for instance, increasing the minimum wage) or reduce the price of a number of essential commodities such as electricity, water, and gas. The reduction in price of such commodities could, of course, be carried out by means of State intervention. More specifically, government subsidies could be utilised to ease the burden of the thousands of people who are on the verge of falling into the pit of full-blown poverty. In principle, I would prefer to opt for the second option, especially when we are living in times characterised by a huge economic crisis affecting several countries.

As far as Malta is concerned, many businesses are fairly small (employing less than 30 employees). Furthermore, numerous businesses are family-owned and a handful of non-family members are usually employed to help provide a service or sell certain products. Compared to a number of other nations, Malta cannot boast of having corporations whereby hundreds of thousands of Euros are paid as bonuses on a yearly basis to a group of individuals. There are the factories and the i-gaming firms, but these do not represent anything close to the full picture of the Maltese economy.       

Given the specific characteristics of the Maltese economic landscape, simply increasing the minimum wage could mean the loss of a certain number of jobs. This applies particularly to family-run businesses whereby the families already have to deal with the increase in price of several services or items. If they are forced to choose between their own survival or that of their employees, it is quite likely that they will opt for the former and let their employees go. Do we want to witness a drastic increase in the unemployment rate in our country?

In the case of those companies that are doing well enough to be able to absorb an increase in their expenditure without firing any of their employees, it is plausible to think that the directors would not just sit there and see their income plummet. They would probably want to recover the income lost due to the increased expenditure. And one way of doing that is by increasing the prices of their products or services. They would argue that if people are earning more money, what harm would there be in increasing the prices? Such a situation would probably lead to a vicious cycle whereby the minimum wage would have to be increased very regularly to keep up with the increased prices. In all likelihood, given such a scenario, the country would witness a spectacular rise in inflation. And how would lives become easier if the increases in the minimum wage are matched by inflated prices?  

I would like to conclude with an observation about many of the organisations that are campaigning in favour of an immediate increase in the minimum wage. I have noticed that some of the most vocal organisations demanding an immediate increase have very little contact with local businesses to understand the full impact of an upward adjustment of the minimum wage anytime soon. One specific organisation seems to be making a great deal of noise in order to attract some votes in the next general election. The sad thing is that the representatives of this organisation fail to state that they barely have any funds to run a political party and that they do not have a team of individuals working on a full-time basis to meet both employees as well as business-owners to obtain a more realistic understanding of the many facets relating to the minimum wage issue. Many fancy words might be noticed in their press statements, but no studies of their own are published. No concrete plans are advanced to substantiate their positions. 

It is all too easy to say that one has to either choose to support the workers or the business owners. In the real world in which an economy consists mainly of private companies, any rash measures that ignore the circumstances of the business owners could lead to the loss of countless jobs. And if that happens, how would all the press statements and the nice words be of any help to the unemployed individuals who do not know where the next meal is going to come from?


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