Garth Rattray | Minimum wage increase ramifications

At the height of the 2025 general election, it was announced that the minimum wage will be increased incrementally with the intent to double it in five years. I felt a chill run through me because, although I am cognisant of the needs of the many, I realise that doubling the minimum wage in five years is going to have very serious ramifications. As Yogi Berra, that famous American Baseballer once said, for me it was “déjà vu all over again”.

I had a similar sensation when, during the general election of 2007, this same political party’s manifesto promised, “Unrestricted, universal access to health care”. Section 27.5 of the document read, “Free public hospital care: Abolish user charges at all health facilities including public hospitals.” They also promised a raft of healthcare upgrades. Considering the ailing public healthcare system and numerous shortfalls due to economic constraints, I saw it as a political decision taken to gain voter support.

Such political ploys never fail to amaze me. They are akin to someone telling people that, if WE win, YOU will receive a free gift. People don’t realise that (a) nothing is free, everything comes with or at a price, and (b) the cost of maintaining that free item is significant and long-lasting. If you are gifted a fancy, new, sports car, who will pay for the insurance, the motor vehicle license, the fitness, the upkeep and the repairs? You!

And so, on All Fool’s Day of 2008, the no-user fee healthcare system came into being. The administration had learnt that ‘only’ 11 percent of patients paid their clinic and hospital bills. I guess that they figured that 11 percent was not significant. Well, I checked with STATIN and learnt that that 11 per cent contributed 1.7 billion to the national budget annually (that’s just about three billion today).

The United Nations 2010 Report on the World Social Situation warned that the no-user-fee policy must ensure adequate income replacement before implementation … Jamaica did not. Consequently, as time went on, citizens suffered. I won’t go into the gory details but, suffice it to say, the Caribbean Policy Research Institute reported increased patient load coupled with a loss of financial resources (with all the imaginable negative effects). Research out of the University of Technology also discovered resultant negative effects to our public healthcare system.

And now, because of pandering to some of the voters during another political campaign, we can expect a doubling of the minimum wage from $16,000 to $32,000 (for a 40-hour work week) over the next five years. Whereas I totally agree that people need a [comfortable] living wage (which necessitates increasing the minimum wage), there are very serious consequences to doubling it in such a short time. The money needed to do this will not materialise out of thin air. Many of those who shouted in glee will suffer because of this.

A rapid acceleration in the minimum wage will lead to people being offered contract work for several days each week instead of full-time employment. People will become unemployed because of reduced hiring, job cuts and layoffs. There will likely be inflation as some businesspeople attempt to continue with ‘business as usual’ but will be forced to pass on the increased operating costs to the consumers (of utilities, goods and services). Some businesses will turn to automation or increase their automation.

Sadly, this steep rise in the minimum wage will impact small businesses disproportionately. Some small businesses will have to close. It will also affect entry level and low-skilled workers the most. There is an indeterminate number of businesses that keep the disenfranchised, the very young or the very old employed as a service to the community / country. They will no longer be able to afford such altruism. It is almost a certainty that some employers will break the law by offering wages below the minimum wage … but desperate employees will accept it.

The other aspect of increasing the minimum wage too quickly is that the higher paid workers will demand a commensurate increase in their salary. When that is transmitted all the way up the chain of employment, the increase in operating costs will be significant. No business can absorb such a financial demand.

I am no economist, but I expect less employment, job losses, therefore increased unemployment, reduced existing workforce (which will put pressure on the remaining workers), increased prices, resultant inflation, increased cases of white-collar, blue-collar and violent crime.

A large increase in the minimum wage needs more preparation like support measures for small businesses, and a much slower increase (in keeping with our economic environment). This rapid increase is not evolutionary, it is revolutionary, and the Jamaican economy cannot withstand it. As was the case of the no-user-fee system, we are not economically prepared for such a huge venture. The government should not put our money where its mouth is. Our businesspeople simply do not have the financial resources, or the monetary reserve to draw on to pay relevant employees double their salary in five short years.

The powers that be obviously have the wrong perception of our economic viability. It is true that, as a nation, we are doing very well macro-economically. The World Bank rates us as an upper middle economy nation. However, micro-economically, it’s a whole different reality. Many businesspeople are finding it extremely difficult to survive.

The much vaunted ‘prosperity’ is very far from being evenly distributed. The average businessperson will not have the financial wherewithal to adjust in five years.

Garth Rattray is a medical doctor with a family practice, and author of ‘The Long and Short of Thick and Thin’. Send feedback to columns@gleanerjm.com and garthrattray@gmail.com