Wile E. Coyote and the minimum wage

IGENUINELY FEEL for him. All the poor guy tries to do is feed himself, and it’s not like there are alternatives. After all, he lives in a desert, chasing the only food source that naturally sustains him. Decades have passed, yet Wile E. Coyote has never managed to catch the elusive Road Runner. I’ve often watched him come remarkably close, but somehow, that bird always escapes. Ironically, after these sorts of near misses, viewers are convinced the fault lies entirely with Wile E.

For some time, I have seen similarities between general policymaking and the motivations behind certain political statements with the actions of that coyote. Wile E. consistently buys the best contraptions but always misuses them in placement or intent. ACME, by all accounts, appears to be an excellent manufacturer of technology in that cartoon world. Similarly, policymaking tends to start with excellent ideas, yet these often end up misplaced, misappropriated, or, better yet, misinformed.

Given that this has been the norm for some time, it would be disingenuous of me merely to criticise. I have been like Wile E. Coyote quite often myself. However, in my view, there is one area where we continually shoot ourselves in the foot. Like our friend the coyote, there are no doctors around to patch us up, and we are worse off in the long run.

Creeping discontent

My concern centres on the minimum wage and the policymaking and public discussions surrounding it. It would be inaccurate and facetious to suggest this is the only critical issue facing Barbados. It certainly isn’t. Yet I cannot overlook the evidence of creeping discontent further destabilising our increasingly unstable social and demographic dynamics. On the surface, economies with ageing populations face productivity issues. Assuming no future impact of autonomous technologies, such as artificial intelligence and robotics, an ageing population cannot work as long, and with declining birth rates, pensions become less likely to be adequately funded.

These are clear issues, yet discussions around adjustments to the local minimum wage rarely take clear positions on this approaching reality.

This reality includes the possibility of quite a few 80-plus-year-olds working jobs that are not physically demanding - assuming lifespans and health trends continue as expected. For those struggling to see this scenario, a trip to any Walmart in the United States would offer a clear glimpse into a not-so-distant future. Seniors with sufficient savings might opt to emigrate, raising concerns since wealth tends to follow individuals wherever they go.

What I advocate here is ensuring that minimum wages help secure a pensionable future to some extent. This is particularly necessary if the country struggles to retain or produce enough youthful talent to fund future pension obligations. Unfortunately, many people mistakenly believe pension contributions sit waiting, with interest, for retirement. Sadly, this is not reality.

State pension funds seldom produce sufficient returns to beat market rates or outpace inflation.

Consequently, when you retire, your contributions and their returns will likely have significantly less purchasing power than when you initially invested. Although many people continue to live beyond their means well into retirement, I fear that an impending state pension crisis combined with the individualistic nature of modern and future Barbadian society will lead to severe hardship. At the very least, policymakers must ensure minimum wage discussions account for this stark future. Ignoring it is akin to running off a cliff behind the Road Runner, knowing full well only the bird comfortably hangs on.

My biggest gripe about minimum wage debates lies between data collection techniques (used to inform wage adjustments) and our understanding of the “Reservation Wage”. I’ll focus on the latter. The Reservation Wage is essentially the “theoretical” wage an individual expects that motivates them to work formally. Jobs offering below this wage are rejected in favour of living off non-work income such as welfare, rents, or interest. Informal earnings are treated as though they are formal from the context of the fact that they are earned through work. Crucially, this theory does not account explicitly for individuals entering the informal economy when wages offered are inadequate in the formal economy.

Clearly, in Barbados, theory aligns closely with this practical reality.

More females being born

Indirectly, the Reservation Wage theory touches on what some may now call “Sugar Daddy Money”. The Barbadian population isn’t just ageing – it increasingly skews towards more females being born. Despite a predominantly service-driven economy, women still face wage discrimination.

Consequently, minimum wage discussions must prioritise impacts on women and female-headed households. Women may be disproportionately compelled into informal economies or other nonwork income sources motivated by reasons also beyond the theory’s initial scope.

Relaxing the theory’s limitations, suppose the informal economy and other non-work income sources effectively match the Reservation Wage.

What then becomes of the formal economy? We continue to witness the consequences right now.

The Government, guided by the International Monetary Fund, long introduced measures limiting informal economic activity. However, a weakly enforced minimum wage coupled with growing anti-authoritarian sentiment among younger generations poses significant long-term challenges. The Government must improve policy designs that realistically reflect people’s actual Reservation Wage perceptions. All in the name of promoting greater formal participation and less of a drag on state welfare means.

I have ideas on achieving this, but sadly, I am not Wile E. Coyote. I’ve seen that ACME anvil one too many times before.

Jeremy Stephen is an economist/financial analyst with extensive experience in private equity and economic consulting in Barbados and the region.

Email: economistfeedback@gmail.com

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