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ADVISORY COLUMN: SMALL BUSINESS

Yaneek Page | Small businesses opportunities and risks: 44 per cent minimum wage increase

Published:Sunday | March 26, 2023 | 12:49 AM

The Government of Jamaica made headlines locally and internationally recently when it announced a 44 per cent increase in the country’s minimum wage effective June 1, 2023, from the current $9,000 per week to $13,000, giving rise to several...

The Government of Jamaica made headlines locally and internationally recently when it announced a 44 per cent increase in the country’s minimum wage effective June 1, 2023, from the current $9,000 per week to $13,000, giving rise to several potentially significant opportunities and risks for which small businesses should plan.

Here is why a 44 per cent increase is noteworthy:

Minimum wage increases are not extraordinary business events, and they are rarely considered newsworthy for the international press, however, the size of the increase and the global economic climate, which has seen every country battling periods of sustained high inflation, are important.

I must emphasise that this article is not addressing the issue of liveable wages, which is fundamental and impatient of debate, particularly if Jamaica is to advance the UN Sustainable Development Goals agenda, to which it is a signatory.

For context that will appropriately inform the strategic planning imperative for small businesses, we must examine the trajectory of minimum wages in Jamaica over the past decade:

● On September 3, 2012, the Government implemented an 11 per cent increase in Jamaica’s minimum wage per 40 hour-work week from $4,500 to $5,000;

● The subsequent increase took place on January 6, 2014, moving the minimum wage by 12 per cent from $5,000 to $5,600;

● On March 1, 2016, a 10.7 per cent increase in the minimum wage took effect, shifting the lowest income earners’ pay needle from $5,600 to $6,200; and

● Just over two years later, on August 1, 2018, the minimum wage was increased by 12.9 per cent to $7,000.

It is important to note that the 2018 adjustment would be the last increase in the statutory minimum pay for low-income earners for almost four consecutive years, encompassing the height of the global COVID-19 pandemic. During that nearly half of a decade, Jamaica experienced inflation of 3.74 per cent in 2018; 3.91 per cent in 2019; 5.23 per cent in 2020; and 5.9 per cent in 2021.

The argument put forward in support of the freeze was that businesses that were struggling to stay afloat during the pandemic could not manage an increase in labour costs.

After a long overdue increase and besieged by a high cost of living and skyrocketing food prices, which threatened rising poverty worldwide, the minimum wage was increased by 28.5 per cent, moving from $7, 000 per week to the current $9,000 weekly. Fourteen months later, Jamaica will implement the largest increase in decades that a worker can be paid for 40 hours of work: 44 per cent, from $9,000 to $13,000.

Business response

In light of the foregoing, the key consideration for small businesses is that there may be social and economic implications beyond the textbook projections for the risks and opportunities that present themselves when the lowest income earners in the society are paid more.

In theory, a significant increase in the minimum wage may reduce poverty, reduce income inequality, and boost economic growth. This would be good news for small businesses that are socially conscious and may also present opportunities to attract new customers and/or see an increase in customer spend, given that the lowest-income earners will now have more spending power.

Therefore, from a planning perspective, small businesses, depending on the industry, in which they operate and the elasticity of demand for their goods and services, may want to adjust their sales strategies, tweak their planned targets, and expand projections. In simple terms, there are goods and services that low-income earners will now buy more of, and possibly spend more on, current inflation notwithstanding. If there has ever been a time to look at the bright side, it may be now.

However, when it comes to the risks, the potential impact includes job losses, increased prices, decreased competitiveness, and increased inflation. Some economists have warned that increasing the minimum wage too fast and by too much (in one swoop) will result in increased poverty and hardship because of inflationary pressures and job losses. These are downside risks that we hope will not manifest themselves, but which small businesses still have a responsibility to anticipate, and consequently put in place a risk-management plan that will allow the operation to navigate potential adverse impacts.

This is the time to carefully assess the cost side of the budget and plan for any increases in wages and statutory payments, outsourced services such as accounting and cleaning, and any other significant inputs or overheads.

This is also the time to develop risk treatments for the likelihood of flat or reduced sales in the face of increased expenses that could affect profitability and viability.

Now is also the time for deep employee engagement and customer engagement to proactively anticipate how each group will be affected by, and intend to manage, the increase in the minimum wage.

An optimistic note on which to end is that there appears to be a positive outlook from some quarters of the business community regarding the upcoming minimum wage increase. Speaking on Television Jamaica’s ‘Smile Jamaica’ programme, President of the MSME Alliance Donovan Wignall disclosed that his members did not anticipate any significant fallout or challenges in their business operations as a result of the minimum wage management. However, other business leaders have expressed early concerns as they begin canvassing members to understand the levels of optimism and potential actions of their colleagues and constituents.

The good news is that effective business leadership is leveraging the capacity to chart a positive future by taking strategic and decisive actions in the present.

One love!

- Yaneek Page is the programme lead for Market Entry USA, and a certified trainer in entrepreneurship. yaneek.page@gmail.com