Economist Marlene Attzs: 'Minimum wage increase comes with pros and cons'

Although increasing the minimum wage can reduce poverty, there is the potential for job losses and inflationary pressures.

In saying this, economist Dr Marlene Attzs reiterated that like with any other economic decision, increasing the basic minimum wage will come with pros and cons.

Her comments came after Oilfield Workers Trade Union (OWTU) president general Ancel Roget – in a hand-delivered letter to Finance Minister Colm Imbert – demanded on Monday that the $17.50 per hour minimum wage be increased to $30.

Attzs said the primary goal for increasing the minimum wage is to provide higher earnings for low-wage workers. This can help alleviate poverty, reduce income inequality and improve standards of living for those at the bottom of wage scale.

“By lifting the wages of low-income workers, increasing the minimum wage can potentially reduce poverty rates, especially among households that rely on minimum-wage jobs as their primary source of income,” she said.

She added that there will be instances of increased consumer spending since low-wage workers tend to spend their additional income on goods and services.This can ultimately lead to economic growth and benefit local businesses.

However, she also pointed out the negative aspects of such an increase, saying higher wages affects the bottomline of businesses.

“Employers, particularly small businesses, many of which may still be in a post-pandemic recovery mode, may face increased labour costs due to higher wages. These higher costs can impact their profitability, especially if they operate on narrow profit margins.

"Some businesses may respond by reducing employee hours, cutting jobs or increasing the price of their goods and services in order to compensate for the increased labour costs.”

Regarding inflation, she said businesses may have no choice but to pass on the increased labour costs to the consumer while will contribute to inflationary pressures in the economy.

Another scenario could be job losses as employers seek to "replace" the higher wage-earner with cheaper sources of labour especially if it's in a non-unionised work environment.

She said the impact will vary based several factors including the level of the wage increase, the prevailing economic conditions at the time of the increase and the structure of the labour market.

She advised that sound economic research, which provides realistic data showing the pros and cons of such an increase, be used if consideration is being given to this move.