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The basic principle that underlies the minimal wage is that workers should be treated fairly and compensated for their contribution to the businesses that they work in. Usually, workers are compensated based on their productivity which, in turn, depends on their level of education, knowledge and work ethic. This is why in each business, the level of compensation that each worker receives is commensurate with his or her level of productivity. Workers' compensation is also influenced by the different skill set requirements, the supply and demand for labor, the overall profitability of a business and the monopolistic status of a business.
The more productive any business is, the more money it makes. In most countries, business earnings are directly related to the state of the economy, and thus, there is a direct relationship between business earnings and GDP. Business earnings are a manifestation of the total productivity of the business and GDP, as the name implies, is the sum of the productivity of all businesses in a country. As a general rule, the growth in earnings in any business cannot outpace the GDP growth rate.
Generally, the profits of each business entity are shared between business owners (shareholders), the management, the workers and the government (in the form of taxes). The question is, in any given year, to what extent should the workers share in the profits of a business. This is sometimes referred to as the balance between capital (owners) and labor (workers). Ideally, workers should be compensated based on their contribution to the overall productivity of a business. However, in most countries over any period of time, this balance can fluctuate in favor of either capital or labor.
In the U.S., there has been a large disparity between the compensation of management and workers to the point where, in some cases, management compensation is 300 times that of the average worker. There has been much debate as to whether this level of management compensation is fair or an example of gross inequality and greed. Really, the only way to justify such a disparity would be to estimate the productivity of any given CEO, compared to an average worker.
Although some people may be envious of the profits made by business owners during good economic times, there is no reciprocating sympathy for owners during hard times when they may actually lose money. Owners take the risk to start a business and, depending on the success or failure of the business, they either make or lose money. However, irrespective of economic conditions, the workers who have not taken any risk, expect and should be compensated for their contribution. One of the problems with the unions in The Bahamas is that often, when they are in negotiations concerning workers' compensation, they appear to be insensitive to prevailing economic conditions and the level of productivity of the workers.
On another level, there is always the question as to whether the government's share of business earnings, otherwise known as taxes, is fair or equitable. And this always leads to the age-old question as to whether businesses are paying their fair share of taxes or whether they are being over-taxed. I think it's probably fair to say that businesses in The Bahamas are under-taxed and somewhat inappropriately taxed by government as a percentage of their profits. But on balance, because of core inflation, their effective tax rate is exceedingly higher than their counterparts in the U.S.
Thus, there is an ongoing four-way struggle for the distribution of business earnings. However, at any point in time, there are a number of forces at play which ultimately determine business wealth distribution. The government determines the level of business taxes and, thus, its share of the distribution. Businesses that have a global presence have the option of moving their operations to another lower tax jurisdiction when faced with high levels of domestic taxation. But governments can also impact business wealth distribution through policy initiatives that favor industry over households, as is the case in China and Germany. In these countries, the distribution of wealth is very much in favor of industry over households, and thus employees' share of productivity is limited by government policy.
Over the past five years, in the U.S. there has been a tremendous amount of attention paid to management compensation of business/corporate executives, especially those in the financial services sector. The problem in this case is that the compensation of the executives is usually determined by the boards of directors of the companies, who are usually appointed by the CEO and are, often, personal friends. The problem is that shareholders have no say in the matter and thus the system has been abused. In Switzerland, however, laws have been passed that limit the compensation of CEOs to a certain multiple of the average worker.
In the case of the average worker, compensation is primarily determined by four factors: inherent productivity, government policy, inflation (consumer price inflation and core inflation) and the existence and strength of the unions. I have already discussed the impact of productivity and government on labor compensation, but the impact of the two types of inflation is equally important. For example, when the economy is going well and there are low levels of unemployment, workers have more leverage over owners and options. In this case, employers, usually, have to raise the wages of employees which, in turn, increases their buying power which leads to more demand in the economy (more consumption), which leads to an increase in prices, which leads to a higher cost of living, which then leads to workers demanding higher salaries. Of course, the opposite cascade occurs during an economic downturn, such as now is the case in The Bahamas.
Core or structural inflation has an even greater impact on the effective income of workers. For example, in The Bahamas, even though the consumer price index (CPI) has been reasonably moderate, running around two percent, the level of core inflation has been horrendously high. The primary causes of core inflation are the high cost of energy, the high cost of money (high interest rates), the high cost of real estate and real estate transaction costs, exchange control and the tax structure (import duties). Core inflation has essentially reduced the real incomes of all Bahamians and reduced our national productivity (GDP) and thus also our global competitiveness.
Another way of looking at this is to compare the average worker's income in The Bahamas, which is $16,500, to the GDP per capita which is $22,500. This disparity would imply that there is productivity gap in dollar terms of some $6,500 between the average income of workers and their productive input into the economy. Moreover, the living wage in The Bahamas is around $45,000 per person. The difference between this figure and the average worker's annual income of $16,500 is $29,500. This figure is representative of the impact of core inflation on the income of workers. This difference is also the reason why the average Bahamian is forced to beg, steal and borrow in order to sustain him or herself. Notice also that the primary reasons for core inflation were energy costs, the cost of capital, real estate exchange control and the tax structure. This would imply that every year in The Bahamas there is a massive transfer of wealth from both the workers and businesses to the oil wholesalers, the banks and the government. This, in turn, has significant economic consequences as both the oil and bank related wealth transfers are expatriated each year, which means that these funds are not available to grow the local economy and thus provide the opportunity for more employment. The wealth that accrues to government is seldom used in a productive manner that creates productive employment.
The third factor that helps to determine the income of workers are the unions. The unions' primary role is to negotiate on behalf of the workers to ensure that they are paid fair wages and receive all of the associated benefits. For the most part, Bahamian trade unions have done a good job in negotiating on behalf of their memberships for salary increases and benefits. However, in some cases there has been no associated commensurate increase in the productivity of some workers with the increase in salaries and benefits, and this has had a stifling impact on certain businesses, especially the fast food industry. In aggregate, union leaders could have better improved the standard of living of their membership had they pressed government to implement policies that could have reduced core inflation.
Over the past several weeks, most of the discussion about the minimum wage has been primarily focused on the two opposing traditional, but somewhat one-dimensional views, on the impact of changes of the minimum wage level on the economy. Those (government and the unions) in favor of an increase, argue that increasing the minimum wage will improve the standard of living of workers. This view is supported by the thought that the marginal propensity to spend money is far greater for low income workers compared to higher income workers. This will, in turn, increase overall consumption in the economy and thus all businesses will be better off with a corresponding increase in GDP. Those who hold this view are not wrong about the economic consequences, but like President Obama they often confuse the minimum wage with a living wage, and as described above the two are quite different.
The opposing argument is that, with the introduction of VAT, and potentially, a new healthcare tax and a mandatory pension scheme, businesses will be unable to bear the added burden of these expenses. They further posit that with an increase in the minimum wage, owners will be under pressure to increase the salaries of existing employees, and as a result, will be inclined to release some of their current employees and will potentially hire fewer future employees. If the later two outcomes were to occur, this would result in less future consumption and thus a decrease in GDP. Moreover, they speculate that during an economic recession, there are many people who might be willing to work for a lower wage, but because the employers cannot by law pay this lower wage they cannot be employed.
The overall impact of these opposing economic views depends of course on what percentage of the work force is impacted by any change in the minimum wage level, the state of the economy and the level of unemployment. Estimates vary as to how many employees would be impacted by the increase in the minimum wage level, but the consensus of opinions is that there are about 40,000 people who are currently earning less than the proposed $7 per hour. I would guesstimate that most of these individuals work in the food services (restaurants and fast food establishments), housekeeping and groundsmen services, or as gas station attendants or in the underground economy. If one assumes that each of these persons is working 40 hours per week, and the minimum wage is increased by $3.0 ( $4.0 to $7.0) then the collective annual payroll of businesses would be increased by approximately $250 million. The impact of a mandatory increase in payroll of this magnitude, especially during the current economic recession, could be the death toll for many of the aforementioned businesses. None of these businesses have the advantage of being a part of a monopoly or oligopoly, and thus cannot increase their prices to offset the increase in expenses associated with the increase in the minimum wage. Furthermore, in many instances like the gas stations and the fast food industries profit margins are very thin and any increase in expenses would certainly result in closure and a further increase in unemployment. The underground economy would not be impacted, because being out of the formal system, underground owners would not have to comply with the new policy. Paradoxically, there might be an increase in the supply of labor available to the underground economy because there could be so many persons desperate for work who might not be employed because of the increase in the minimum wage level, many who are prepared to work at the present minimal wage but cannot find jobs in the formal economy and those who will be released from the formal economy because of the increase in the minimal wage. The net effect of this would be to drive down wages even further in the underground economy.
Not the desired impact
Thus any increase in the minimum wage given the current set of circumstances would not have the desired impact of increasing the incomes of workers, but would lead to an increase in unemployment levels and a decrease in the aggregate (collective) income of workers. The increase in unemployment would result in more welfare payments, fewer National Insurance contributions (payments) and more crime. This, in turn, would result in lower levels of national consumption, a decrease in GDP and an increase in the debt; GDP and the negative economic cascade associated with this.
However, if the government were to focus on reducing core inflation then there would be a transfer of wealth from the banks, the oil wholesalers and the government to households and businesses. This would result in a positive economic cascade because there would be an increase in the real income of workers at all levels, all businesses and government. Moreover, there would then be more consumption, investments and new businesses resulting in an increase in GDP and a reduction in the debt to GDP ratio.
There are many factors that determine the wages and incomes of all of the stakeholders in any economy. When any change is contemplated, those contemplating the change must carefully review the possible intentional and unintentional consequences of such change on the overall economy. To a large extent it's a balancing act between what is fair and equitable and what is economically feasible.The question is will government implement the increase in the minimum wage without seeking any local advice on all of the possible economic consequences? If it's management of VAT and the numbers industry is any indicator, then I would assume that they will consult with at least three foreign economic consulting groups, two multinational entities, and some $2 million later in expenses, come to the conclusion that this is not the most opportune time to take such action. But, true to form, having put the proverbial political foot in their mouth, government leaders will still proceed forward with their plan and consequently further increase the number of business and home foreclosures, raise unemployment levels and further increase the debt to GDP!
o Dr. Jonathan Rodgers is a Bahamian opthalmologist, businessman, and author of two books on the Bahamian economy, "The Bahamian Dream" and "Is it really better in The Bahamas for Bahamians?"
By NEIL HARTNELL
Tribune Business Editor
A RULING by Chief Justice Sir Michael Barnett might deter Bahamian workers with "marginal claims" from pursuing employment cases in the Supreme Court, rather than the Industrial Tribunal, a leading law firm arguing that it dramatically reduces the 'costs' leverage they can exert.
Higgs & Johnson, in its latest client bulletin dealing with the award of legal costs in employment actions, said a March 2010 ruling by Sir Michael could "remove a tool from the arsenal of the vexatious litigant" seeking to pressure a company into settlement, as he declined to award legal costs to a wrongfully dismissed employee who one their case. ...
Kingston, Jamaica; Jamaica and the Jamaica Jazz and Blues Festival will once again receive another boost as Flow leverages its broadband technology and partnership with international content provider HBO to help create multiple avenues for exposure.
With the partnership with HBO, viewers across the Caribbean and Latin America will be treated to another Special feature showcasing Jamaica and the 2012 Jamaica Jazz and Blues Festival, a repeat of the highly successful initiative that was such a key element of the previous year's festival.
Flow's technology will also facilitate live streaming to various countries across the globe, OnDemand programmes on its Flow OnDemand platform, and a local feature on Flow TV...
Blagojevich gets 14 years in prison for corruption.
CHICAGO (AP) -- Rod Blagojevich, the ousted Illinois governor whose three-year battle against criminal charges became a national spectacle, was sentenced to 14 years in prison Wednesday, one of the stiffest penalties imposed for corruption in a state with a history of crooked politics.
Blagojevich's 18 convictions included allegations of trying to leverage his power to appoint someone to President Barack Obama's vacated Senate seat to raise campaign cash or land a high-paying job.
Transfer Solutions Providers Ltd. (TSP), operators of the Mango card, will use a $150,000 grant from the Multilateral Investment Fund (MIF) to expand its microcredit facility for its customers.
Yesterday, TSP executives, along with representatives from the Inter-American Development Bank (IDB) and the MIF signed a technical cooperation agreement for $150,000 for a 20-month project that will support microfinance services through technology. In addition to the $150,000 grant, TSP is investing an additional $153,000.
"This project will help to expand an innovative microcredit product. It will benefit approximately 2,500 including 1,000 new loan clients as well as Mango card members. The indirect beneficiaries will be 9,500 existing Mango customers," according to Astrid Wynter, the country's IDB representative.
"We are committed to supporting the private sector through an institution that will reduce the gap between the financing needs of the population and the supply of financial products and services specifically as it relates to credit services for low-income people in The Bahamas."
The project will include an in-depth study with focus groups of the credit population that will be used to develop credit risk methodology.
Harvey Morris, TSP's chief financial officer, said that he recognized his company was challenged to qualify its clients before administering funds. It's an issue that this project seeks to address.
"We recognized that in one of the areas that we are looking, microcredit, we were having a problem with how to qualify our clients before we administer funds. We aren't just looking at the regular small credit that is given to people. We are looking for something that can actually help the self-employed persons," he explained.
Wayne Beecher, a senior specialist for MIF, noted that one of its objectives is to focus on administering small loans or microfinancing.
"It is in that vein that we are assisting Mango today, particularly using a solution that leverages technology to expand outreach of microfinance services. This is a challenge for The Bahamas because it doesn't have the required density in terms of the population, which allows for the efficient administration of micro financing. So using this platform which is very technology reliant, it should mitigate the risk and should overcome the efficiency gap," he added.
An online brokerage launched early last year is reporting more than 100,000 equity transactions each day, a figure that far exceeds all other Bahamian firms combined.
SureTrader.com, listed with the Securities Exchange of The Bahamas since January 2012, has increased its staff to eight Bahamians and filled out its 4,000-square-foot office at Elizabeth on Bay. The firm plans to hire up to 20 more people by the end of this year and currently seeks professional Bahamians amid expansion, according to its founder Guy Gentile.
The parent company, Swiss American Securities Limited, is also the founder of SpeedTrader.com, a U.S. online trading broker with around $20 million in annual revenue.
Gentile told Guardian Business that SureTrader.com is poised to earn $25 million in annual revenue in 2013.
"What gives us our edge is superior trading technology and a New York business approach," he said. "I operate a lean aggressive staff that has a strong desire to be the best. Not only the best in The Bahamas, but the best in the world."
Gentile added that SureTrader.com hopes to open 5,000 new accounts in 2013 after opening 2,000 in 2012. The firm wants to become the largest brokerage in The Bahamas by revenue in 2014.
"We have given ourselves an advantage by offering extended margin leverage of 6-1 compared to 3-1 in Canada and 4-1 in the U.S. We have the largest short list in the industry, we allow shorting in penny stocks, and you can fund an account easily with a credit card. There are no restrictions on day trading," he added.
Later this year, Swiss American plans to widen its project offerings through Canadian stock and options, Gentile said, and by connecting VISA debit cards to the accounts.
Following a staffing boost, the firm also wants to offer a customer service line and eventually go to 24 hours after adding European trading. The company has recently aligned itself with RBC Royal Bank, Interactive Brokers, ETC Clearing and DAS Trader.
Gentile, a U.S. investor, remains the largest tenant in the Elizabeth on Bay plaza, located on East Bay Street. He has invested approximately $400,000 into the new SureTrader.com office, with an additional $1.5 million or so in Sur Sushi.
The latter is expected to open in the coming weeks.
Back in December, Gentile reported that the restaurant has received more than 500 applications. Only 45 Bahamians will be hired for the trendy, new restaurant. Blu, formerly located across from the up-and-coming Sur Sushi, closed its doors late last year and put dozens of Bahamians out of work. Investors hope Gentile and his business ventures will help re-energize the plaza and East Bay Street.
Valued theologian-therapist Dr. Lazarus Castang's response to my article is a treasure (The unbridgeable moral divide between the Caribbean church and homosexuals). It represents a clarity that is both concise and thorough. I see a rare pastoral willingness to jump out of the closet of internal church talk into the burning bush of public discourse.
This attitude elaborates a thoughtful view of subjecting the chaos of human sexuality under the ideal of faith. By uncovering a powerful vernacular located within a broad and deep knowledge of the Caribbean Christian tradition, Castang does not assume his faith. He chooses to wrestle with the morality of homosexuality so that we can see an ancient truth through new lens. Four concerns rivet my attention.
First, Castang stays clear of religious polemics. Although he conveys that the Caribbean church is morally committed to a heterosexual norm, he demonstrates that the distinction between law and religious practice is not sufficient to encourage a humane culture within the Caribbean. I couldn't agree more. My judgment is that the insistence on the truth of doctrine going up against the majesty of individual choice and civil obligations will not automatically produce ethical restraint within a culture that resists an exclusive morality.
Second, his critique that I left uninvestigated the impact that homosexuals have had on the Caribbean state and church is fair. I could have more fully explored how the openness of homosexual lifestyle has invaded our rigid morality about the role and function of human sexuality, while expanding our culture to live with diversity through an anthropology of wholeness. Further, I could have underscored the possibility of advocacy for a more inclusive democratic civilization that homosexuality has evoked. These effects deserve finer articulation.
Third, he opines that homosexuals must be prepared to bear the moral burden of Caribbean culture that frowns on their sexual practices. This keen observation, however, does not erase the manifestations of mental, spiritual and psychological anguish the church inflicts on homosexuals in its sincere efforts to condemn the sin and affirm the sinner. The church's uncompromising moral stance has far-reaching consequences. It shapes and informs wider communal behavior toward homosexuals, which often breeds callous practices, all of which fall outside a Christian love ethic that screams for justice.
Therefore, the church cannot merely acknowledge this problem with deliberate speed. If it is going to pragmatically merge its spiritual intelligence with this social dilemma, a transformative attitude towards homosexuals within Caribbean societies should produce a more genuine Christian disposition as well as a more just society.
Fourth, Castang is fully aware of the focus to make sexual choices in our pluralistic society realizable but affirms that the Caribbean church must act in accordance with the discernible heterosexual order of creation that Genesis explains, even though our fallen nature has put us at odds with the ideal of human sexuality.
My question to Castang is this: What do we do with this moral schism that is too wide for any bridge? If this is the case, then the church would have to abandon its efforts to employ the power of God to deliver people from sexual behaviors that it condemns.
I understand that the Caribbean's conservative morality is on display in a churning progressive political culture, and that clashes around issues of personal liberty and equality will occur. Yet, I believe that the Caribbean church should construct an ethical bridge where private virtue and public conscience form the matrix for doing good, bearing witness to the truth, and eliminating stereotyping in order to preserve the common good.
If not, the church will find itself trapped in an irony where the qualms of social conscience arise in the most intimate of human relations but the principles of Christian love become ineffective to these challenges.
If any movement is to be made in this moral standoff, either the church admits defeat or takes some risks. These risks should both affirm the gospel of Jesus Christ and respect the efficacy of a diverse society and, consequently, the humanity of homosexuals.
It strengthens Christian beliefs in the Caribbean to know that a pastoral voice could leverage the tensions between faith and feelings with sensitivity.
Castang offers conscientious citizens enough room to breathe, albeit without a sigh of relief. As an act of redemptive love, this may be a time to combat every injustice that paralyzes human life from within the sacred space of the church.
Even if his voice does not reform society, Castang's view can become an agency of the Kingdom of God for preserving one's integrity. An honest enthusiasm for resolving these tensions is superior to a disconnected existence. Still, the tragic limitations or sublime beauty of sexual tolerance in the Caribbean is dismantling.
o Dr. Isaac Newton is an international leadership and change management consultant and political adviser who specializes in government and business relations, and sustainable development projects. Newton works extensively in West Africa, the Caribbean and Latin America, and is a graduate of Oakwood College, Harvard, Princeton and Columbia. He has published several books on personal development and written many articles on economics, leadership, political, social, and faith-based issues. Published with the permission of Caribbean News Now.
Nassau, Bahamas -- "Do the right thing" is the message that came through loud and clear during the Caribbean-wide "No Witness, No Justice" Youth Network Conference hosted by the United States Embassy in Bridgetown, Barbados from December 6 to 7 2012.
By NEIL HARTNELL
Tribune Business Editor
DeVry University is still exploring "how best to leverage" its Ross University medical school in Freeport as part of its overall international expansion strategy, it was revealed yesterday, the facility having hit another snag over financial aid for students.
Unveiling its half-year results for the period to December 31, 2010, yesterday, DeVry said the medical school its Ross University subsidiary had established in Freeport had won licensing approval from the Medical Board of California in November.
However, the US Department of Education had raised questions about the eligibility of students attending the Freeport, Grand Bahama, school to ...
Scotiabank (Bahamas) Limited plans to launch its Carmichael Road branch by next monday, part of a $8.2 million capital project expenditure for 2012.
The 4,100-square-foot bank, nestled in one of the capital's fastest-growing communities, will be consistent with the look and style of the Cable Beach branch. While an official grand opening is expected in January, Scotiabank (Bahamas) has scheduled the "soft launch" for this coming Monday.
Kevin Teslyk, managing director at Scotiabank (Bahamas), said that $1.3 million was invested into the new facility and it created 10 new jobs.
"It is very clear to me that it's a location we need to have, as the fastest-growing residential community. Clearly it is a place we want to be," he said yesterday.
The branch features extended banking hours and three new automated banking machines.
This level of capital expenditure should continue into 2013, according to the managing director. He envisioned a similar budget for next year and even further expansion to the bank's network.
The institution is considering another location in eastern New Providence, although executives have decided to wait for the right location.
In 2012, Scotiabank (Bahamas) invested considerably in large-scale real estate projects, such as foundational work on buildings beside Rawson Square. Investment in upgrades to existing infrastructure and signage is expected to continue into 2013.
Looking at 2012 from a bottom-line perspective, Teslyk told Guardian Business that commercial banking and wealth management should drive growth going forward. Other segments, such as retail banking, should remain "relatively flat". Scotiabank (Bahamas) expects a year-on-year improvement for 2012, which is mostly the result of high provisions in 2011 against the residential mortgage portfolio. Provisions decreased this year, but are still trending higher than prior to the financial crisis.
The global wealth management division has really been the hero for the financial institution. This segment, only in its third year of existence in the Bahamian market, saw an increase of around 20 percent year-on-year.
"We can sustain that or better, hitting perhaps north of 20 percent next year," he explained.
The bank is investing in new talent for this division and going after attractive clients. Teslyk noted that offshore banking is still "critically important", whether it be financing for a second home, or helping a client start an international business.
Part of the bank's strategy is to hold the line before what is believed to be a possible change in fortune by early 2015, coinciding with the opening of the $3.5 billion Baha Mar resort.
"The bulk of jobs will come online then and that will impact the general economy. It should be pretty significant. Getting there will be the next challenge," according to the managing director.
Another particular area of focus in 2013 is the "rebirth" of its Internet platform. While a new website should come online this week, the bank hopes to leverage the new platform go to after new business. The new look and feel is designed to perform differently depending on the device being used, adapting to tablets, smartphones or standard computers.
Further announcements are expected in 2013 on new programs for its commercial division as it relates to the Internet platform.
Bank of The Bahamas (BOB), for example, recently started an e-commerce program. Whether Scotiabank has similar ideas for The Bahamas remains to be seen.