Sat | Mar 23, 2019

Lauren Marsh | A living wage for Jamaica: prospects and pitfalls

Published:Sunday | February 3, 2019 | 10:16 AM
In a minimum wage study, representatives from both the Private Sector Organisation of Jamaica and Jamaica Employers’ Federation asserted that most of their membership are paying their lower-level employees between 15 and 30 per cent above the minimum wage.
In a minimum wage study, representatives from both the Private Sector Organisation of Jamaica and Jamaica Employers’ Federation asserted that most of their membership are paying their lower-level employees between 15 and 30 per cent above the minimum wage.

The living-wage model has gained prominence over the last two decades in several countries seeking to reduce poverty, taxation, and welfare expenditure.

A living wage is one that provides a culturally acceptable standard of living for an employed person (and his/her dependents) within normal working hours usually from one income source.

In Jamaica and the wider Caribbean, the living-wage concept, though accepted in principle, has not been considered a viable option to curb government spending and reduce the wage gap between upper- and lower-level workers.

However, in the United States, the United Kingdom, and some parts of the developing world (Cambodia, Sri Lanka, and Bangladesh), living wage procedures exist to reduce government expenditure and improve the earning power of lower-income earners.

The living wage and minimum wage should not be confused despite the possibility of them sharing a similar historical foundation, which, ultimately, is to prevent lower-level workers from falling into poverty.

The minimum wage is enforced by law and widely used as a wage floor to protect lower-level workers. The living wage, on the other hand, is generally not legislated and is usually paid to specific categories of workers in certain industries or sectors.

While the methods for calculation may vary, the standard usually involves working with members of the public to understand what items, goods, and services are required for a minimum acceptable standard of living.

WHY A LIVING WAGE FOR JAMAICA?

The economic burdens affecting Jamaica have negatively affected poverty levels over the last three decades. The living-wage concept is unpopular in Jamaica because it is assumed to create further unemployment challenges and divert much needed investment to boost economic growth. However, the success of living-wage models in developing countries such as Cambodia, Indonesia, and Sri Lanka proves that this approach (once appropriated to reflect the territories’ cultural and economic reality) is viable to boost employee morale and productivity.

Some social scientists and industrial relations practitioners will argue that the current economic situation in Jamaica requires wage led policies rather than ones that are profit driven.

The minimum wage provides a wage floor at which employers should compensate workers. However, it is often considered insufficient to meet the cost of living for low-wage earners.

Findings from a study previously conducted entitled ‘Minimum Wage in Jamaica: Perspectives from Public and Private Sector Management (Marsh and Roberts, 2014)’ revealed that while viewpoints differ in terms of the impact minimum wage has on the bargaining relationship, respondents from both the private sector and trade unions concurred that compensation given to minimum-wage earners is grossly inadequate to meet their daily needs.

The need for a living wage is also substantiated by the fact that lower-level workers who are minimum-wage earners may slip below the poverty line, causing additional pressure on government-funded welfare programmes.

CALCULATION OF THE LIVING WAGE

Studies conducted in countries with living-wage ordinances have proven that methodologies for calculation may vary depending on a combination of economic, social, and demographic factors. In most cases, it is calculated for a family of four (two adults and two children).

In high-income countries, calculating the living wage usually includes employment, income, and family expenses (for example, costs for food, clothing, childcare, education, shelter, taxation and healthcare) for a particular, city or territory. In Canada and the United States, living-wage ordinances are mainly developed at the city level. Methodologies for calculation utilise estimates used to determine family poverty.

There are three general methods used to calculate the living wage.

n One approach pegs the living wage against the poverty line. Therefore, increases in the national or state poverty line usually result in simultaneous increases in the living wage for these cities.

n Another procedure takes into account annual increases in the cost of living within a particular town or country.

n The third procedure speaks to the process of collective bargaining or negotiation among relevant parties (mainly employer, workers’ representatives, and government). The third process involves much deliberation among the parties, and, in some cases, the government occupies a mediatory role in the negotiating process.

CALCULATION FOR JAMAICA

Using data from the Jamaica Survey of Living Conditions (JSLC) 2012, a team of academics from the University of the West Indies (UWI) and the Planning Institute of Jamaica (PIOJ) were able to develop a methodology for computing the living wage for Jamaica that takes into account socioeconomic and demographic factors.

The living wage was calculated for Kingston Metropolitan Area (KMA) and rural towns.

The motivation for computing the living wage at the regional level was threefold:

n Firstly, poverty in Jamaica is computed at the regional, not national level.

n Secondly, it ensures that the living wage at least fits the needs of low income households in Jamaica.

n Thirdly, it gives added economic benefit to persons living in rural areas, since their poverty line is at a lower level (specific to the JSLC data utilised).

The methodology developed can be easily modified to meet a higher or lower level of consumption. We found that the living wage for KMA and rural areas was higher than the national minimum wage in 2012, with the KMA’s living wage being 27 per cent higher.

LIVING WAGE IN JAMAICA: CHALLENGES TO IMPLEMENTATION

One of the most pressing concerns with the living wage is the absence of a universal method or standard in calculation. In Jamaica, and some developing countries, an effective living wage model is also curtailed by the inadequacy of demographic data for individuals who may be categorised as the ‘working poor’.

Most critics of the living wage believe that its effectiveness in improving the economic well-being of lower-level workers is counterbalanced by its propensity to create unemployment and increase the price of goods and services. Their belief is that the living wage curtails economic growth because it fixes wages at a level that may be unappealing to investors.

Living wage models are usually absent within developing countries, where foreign investment is considered a key driver for economic development. Within these territories, governments and policymakers are more supportive of economic policies that tend to reduce private-sector expenditure.

For some employers and their representatives, the living wage is unnecessary because many businesses (especially medium size and large enterprises) are already paying employees above the minimum wage.

In the minimum wage study mentioned above, representatives from both the Private Sector Organisation of Jamaica (PSOJ) and the Jamaica Employers’ Federation (JEF) asserted that most of their membership are paying their lower-level employees between 15 and 30 per cent above the minimum wage. Such employers will, therefore, argue that they are already compensating lower-level workers a living wage because their net income exceeds the national minimum wage.

For more details on the completed version of both studies, please send an email to:lauren.marsh@dec.uwi.edu.

n Lauren Marsh is a Research Fellow at the University of the West Indies, Open Campus and an industrial relations specialist. Email feedback to columns@gleanerjm.com and lauren.marsh@dec.uwi.edu.