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Raising the minimum wage: creating the problems we attempt to solve


A recent study by Caritas has suggested raising the minimum wage from the current €158 to €180 per week in an attempt to help people living in poverty. Though I understand the good intentions of Caritas, a Church NGO which works with people in need, I strongly believe that such a measure will create more problems than it attempts to solve, and that the worst hit will be particularly the people we are supposedly trying to help.

Every society will have a strata of unskilled workers. No matter how much we improve on our education, you'll always have 16-year olds who finish school without acquiring the necessary skills or qualifications for post-secondary education, the key to a higher-quality career. Though free vocational courses for such individuals are provided, you'll still have the ones who choose to immediately join the work-force. And in a free country, the choice is entirely theirs, as well as its consequences.

The problem is that the only jobs such individuals will be able to find are low-end jobs paid at the minimum wage. But this shouldn't seen this as their ultimate destiny. It should be seen as the lowest rung of the ladder of financial independence. A ladder which they are to be empowered to climb. And the key for empowerment is education and training, not removing these lower rungs or raising them further up.

What happens with such a government intervention that forces employers to pay higher wages is that some employers will find out that certain jobs are not worth it anymore, and they'd be better off without them. In other cases, employers will raise the prices of their products. More factories which depend on low-cost labour will move away to other more competitive countries. The end-result: higher inflation and more unemployment. And the irony would be that unemployment would hit more severely the unskilled labourers that our increase in the minimum wage should have helped. The irony would be that these unskilled labourers will be the ones who would find greater difficulty in finding a job, as the industries which used to cater for them will be gone. And the downward spiral would ensue: more people on social benefits, leading to higher taxation to pay up for it, leading to lower purchasing power for the rest of the population, leading to lower profits which force companies to more redundancies, ending up in a vicious cycle with no end. Of course, we'd then ask for another government intervention to make up for the ill-effects of the previous government intervention, which would once again probably cause more problems than solve.

Instead of raising the minimum wage, the unskilled labourers at the lower end of the economy should be helped in getting the necessary training to climb to the next rung of the ladder. In fact, in the Budget presented in November 2010, the government did something in this regard. It offered a €25 per week stipend to any minimum-wage earner who takes up one of the free training courses offered by ETC. You'd assume that people flocked to such a scheme. Raising your income to €183 (actually slightly more than what Caritas is proposing) in exchange for getting trained to be empowered to find a better job. What more can you really expect from the State?

But you know what? As far as I'm informed, between January and December 2011 only ONE person applied for this scheme! In such a scenario, I'm sorry to say, but your misery becomes self-inflicted. It becomes your choice. You can take a horse to the water but you can't force him to drink.

If Greece, Spain, Portugal and Italy are to teach us anything, it's that we cannot go on with unsustainable economies and unsustainable benefits any longer. We need a culture change: a shift from cash-based social benefits to empowerment benefits. Handing out cash to people is unsustainable and won't achieve anything if they're still not trained how to budget it properly, if they still don't want to take any initiative to better their own lives. Training and education, on the other hand, empower people for the rest of their lives. To use the same Chinese proverb I used in an earlier blog: don't give a hungry man a fish - that will only last for a day; give him a fishing rod - that will last him a lifetime.

I understand a 17-year old who is still unskilled and starts his first job on the minimum wage, but if he's now 30, hopes to build a family, and is still on a minimum wage job because in the thirteen years in between he did not choose to improve, learn a skill, and move forward, then frankly, it's him who needs to wake up and not wait for some government intervention to do it.

JF Kennedy once said: "Don't ask what your country can do for you...ask what you can do for your country." We're still light years away from that. We aren't even able to ask what we can do for ourselves, let alone for our country. And if there's one thing that our successive governments have failed at, is at changing this culture.

Comments

  1. Interesting to note this article which appeared in the Times: http://www.timesofmalta.com/articles/view/20120419/local/Call-for-flexible-wages.416074

    "Interestingly, the most advanced EU economies do not have a minimum wage. These include Germany, Sweden, Denmark, Finland and Austria."

    Of course, doing away with the minimum wage cannot be done on its own, but as part of a total overhaul of our socio-economic system. Something which I believe would benefit everyone.

    ReplyDelete

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