The need for a minimum wage

Minimum wage is back on the agenda since the government announced that new legislation could be brought before Cabinet and the Legislative Assembly by June.

According to the International Labour Organisation minimum wage legislation is an “almost universal policy instrument implemented by most countries in all regions, except the Middle East”.

Although the idea of introducing a limit to how little an employer can legally pay an employee per hour, per week or per month has been around for years in the Cayman Islands, it has until now not found its way into legislation.

Independent reports, such as the 2007 study by labour consultant Samuel J. Goolsarran that reviewed, among others, the Labour legislative framework of the Cayman Islands, recommended the establishment of a minimum wage.

The Goolsarran report noted that there is a statutory provision for the establishment of a Minimum Wage Advisory Committee to consider and recommend an appropriate minimum wage. This would be in line with similar committees in other Caribbean countries as well as the International Labour Organisation Convention No. 131, which is designed to protect against excessively low wages by national comparison.

It would also conform to the Universal Declaration of Human Rights, the report said, which stipulates that “… everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection”.

Goolsarran specifically pointed out in Cayman’s current situation “every effort should be made to avoid the perception of ‘importing and sustaining poverty’ by maintaining depressed wages in a first world country”.

He further asserted a majority of persons and agencies, consulted for the report, supported a national minimum wage in the form of “decent income befitting the dignity of citizens and residents, including migrant workers, to provide for their basic needs”.

This view was supported by the National Assessment of Living Conditions in the Cayman Islands, conducted in 2006 and released in 2008, which suggested the absence of minimum wage in an economy like the Cayman Islands creates a fertile ground for the exploitation of unskilled foreign workers, “who respond to the complementary push factors in their home country and the pull factor of the Caymanian economy”.

As such a minimum wage in the Cayman Islands would have the main function of protecting the most vulnerable and poorest in society and to increase their standard of living to a tolerable level.

Why it’s not been implemented yet

The previous PPM government, which commissioned the Goolsarran report, met with industry associations such as CITA and the Chamber of Commerce in 2007 to discuss the idea of a minimum wage, but encountered “no enthusiasm”, according to Alden McLaughlin, the Minister for Labour at the time.

He said although the associations were not against minimum wage, they raised certain issues such as how to deal with professions in the hospitality and catering industry that rely more strongly on gratuities than a basic salary.

But McLaughlin, now PPM leader, believes there are several reasons that make the introduction of a minimum wage necessary. Firstly, the low wages among predominantly migrant workers often lead to a situation, where many foreign workers are forced to share accommodation, at times with up to 10 people crammed into an area designed for only one or two.

This in turn has all kinds of other social ramifications, he says, not least the deterioration of certain areas, where these types of accommodation are common.

Certain extremely low wages are often significantly below the level the local Caymanian population is prepared to accept for gainful employment and as a result, a lot of the lower end jobs are unobtainable for Caymanians, says McLaughlin.

While he believes that there are also cultural reasons why these jobs are not accepted, the low wages are an important factor.

“I have come to the conclusion that we need a minimum wage,” McLaughlin says, who concedes that it is one of his “deepest regrets” that his government ultimately did not introduce the minimum wage. The looming economic crisis in 2008 meant the timing was wrong to burden business with such a measure.

While most businesses already pay well above a potential minimum wage, McLaughlin believes that there will be businesses, for example local bars, that will be affected by the introduction of a minimum wage. Another profession that will potentially be impacted are domestic helpers.

“Many domestic workers are treated abysmally,” he says.

Some Caymanians might no longer be able to afford the services of domestic helpers, if they had to pay $6 or $7 an hour, but McLaughlin insists that “we cannot treat migrant workers inequitably”.

North Side MLA Ezzard Millar picked up on the issue when he aimed to introduce a $5 per hour minimum wage in February.

Miller also named the exploitation of foreign workers in the Cayman Islands, which at the same time prices Caymanians out of the labour market, as reasons for the move.

However, Miller’s attempt to attach a $5 per hour minimum wage to the Labour Amendment Bill 2011 failed on the basis of a technicality, and the government refused to vote on the amendment.

Premier McKeeva Bush admitted the issue was politically sensitive. Bush said that the UDP was committed to introducing a minimum wage, but it had to be done in the right way. With many implementation issues to address first, the government did not want to be rushed with an amendment to another bill, he said.

According to Bush the issue of minimum wage has been debated by the UDP party caucus and new legislation could be brought before Cabinet and the Legislative Assembly by June. “The UDP and my government is committed to putting a minimum wage that is practical and reasonable and will work for the employer and the employee to their benefit and that hopefully will come before June or by June,” he said.

Bush admitted that some salaries in Cayman were “atrocious”, but further research would need to be done to decide on the level of the minimum wage. He emphasised that Minister for Labour Rolston Anglin would have to be given time.

Anglin in turn said he was not opposed to minimum wage, but he needed to ensure that the public understands what a minimum wage means. It would not mean for instance that every person, who receives minimum wage, will be able to live comfortably. In this understanding, earning minimum wage may elevate living standards, but it would not be sufficient to lift people out of poverty.

At the same time a minimum wage could have wider consequences for the economy, for example by driving up prices, Anglin argued. As a result the economy as a whole may well be worse off.

Another problem arises from the policing of minimum wages in a country that does not have direct taxation, as a new administration would have to be put in place to avoid abuse of the system. This will come at a cost, Anglin warned.

He also raised question marks over the large number of service employees in the Cayman Islands, who derive much of their income from tips, which may need to be exempted from a minimum wage requirement. Other details to be ironed out include for example how to factor in if an employer provides housing or food in addition to the wages?

Therefore although the will is there for implementation the issues are not straightforward.

The business position

The often repeated insistence, however, that business is against the minimum wage is not necessarily true. The Cayman Islands Chamber of Commerce members are not against the idea of a minimum wage per se, says Chamber CEO Wil Pineau, but he adds further evaluations need to be completed.

From internal polls and discussions, Pineau does not have the impression that members are opposed to minimum wage, but they are concerned over the implementation of it.

He named the structure of a minimum wage and possible exemptions as some of the factors that will need to be considered. The Chamber will then evaluate any draft bill that will be submitted.

“We need to understand how the law is going to impact businesses but also workers,” Pineau said.

How to set the 
minimum wage

A no doubt, critical element in the debate over the minimum wage would be the level at which it is set.

Economic textbooks suggest there is a danger that by setting the minimum wage too high, ie above the equilibrium of labour supply and demand, unemployment would be a direct result. In other words in cases where minimum wages exceed the value of the labour, it will lead to these jobs being lost.

This does not mean, however, that every minimum wage will be automatically set too high. In particular in the Cayman Islands, where a minimum wage would largely target the compensation of unskilled or lowly skilled migrant workers at rates that are generally too low to attract Caymanian workers, the danger of unemployment is comparatively low.

In fact, as unemployed migrant workers are typically forced to leave the country, even if such an effect existed, it would hardly register as unemployment locally.

The simplistic textbook view also ignores that cost increases, as a result of a new minimum wage, may be absorbed by reorganising production or passing on costs.

In Cayman the absence of a minimum wage may in fact be negative for the Cayman economy, the National Assessment of Living Conditions noted.

The report by the economists from Kairi group points to a high utilisation of labour, incentivised by the absence of a minimum wage. “The absence of minimum wages legislation, and the fact that a worker on a work-permit is required to work only with the person who contracted his services, creates conditions under which Caymanian employers would use low-level labour liberally, and would be less inclined to apply labour-saving technology,” the report said.

It also results in a social cost in the form of overcrowded housing accommodation for foreign workers, the report added.

Golsarran explains in his report the function of the minimum wage would be to counter unregulated, depressed wages which many workers are compelled by their circumstances to accept. The main objective of a minimum wage would be to protect workers from unscrupulous employers.

The national assessment of living conditions carried out by the Ministry of Health and Human Services would have a crucial role in providing the information need to determine “a fair national minimum wage, which will allow wage earners a minimum standard of decent living”, he said.

Despite the implementation issues, it would be astonishing if a developed economy like the Cayman Islands would not be able to implement measures that grant workers the basic right to a “decent” wage for their labour, especially one that will not eliminate poverty but only result in a minimum standard of living.

Meanwhile, the public in Cayman appears to be in favour of a minimum wage. 62.6 per cent of all respondents in a survey said they would favour the introduction of a minimum wage in the Cayman Islands with 17.2 per cent against such a move. 13.7 per cent in the poll believe the minimum wage should be restricted to certain jobs.