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WHAT MATTERS MOST: Salaries linked to economic growth

DR CLYDE MASCOLL, [email protected]

WHAT MATTERS MOST: Salaries linked to economic growth

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BARBADIAN WORKERS, especially those without fixed salaries in trade-related areas, have been under severe stress over the last five years. All Barbadians have felt the burden of higher indirect taxes, that is, taxes on their expenditure, and most have paid higher direct/income taxes.

The higher taxation has been accompanied by little or no increase in salaries. This is because the market for wage determination is influenced strongly by what is happening in the public sector and we all know the facts. What all of us do not know is that some workers not on fixed salaries have endured adjustments in their rates of pay, rather, hourly or per job, over the last few years.

The Government’s ability to pay increases in salary is largely dependent upon the way in which it manages the economy. In short, in the absence of introducing new taxes or raising the rates on existing taxes, the Government is able to raise additional revenue from growth in the economy, which becomes the basis for salary increases.

In the case of private enterprise, its capacity to increase wages and/or salaries is largely dependent upon profitability. In most cases, there is some correlation between profitability in the private sector and economic growth. Both have gone in the wrong direction.

Our national income can be measured in different ways. It is fundamentally driven by aggregate demand, that is, total demand for goods and services in the economy. For the first time in our economic history, there is evidence to show that such demand has declined over the course of several years.

In an environment where prices have not risen quickly by historical standards, the ability of private enterprise to increase revenue was compromised. This meant that in order to achieve profits in the first place, enterprises had to focus more on reducing or controlling costs. In the circumstances, they were only too happy to take the lead from the public sector with respect to little or no salary increases.

Some workers are paid a given rate per job and therefore their salaries are ultimately determined by the amount of jobs done in a particular time period. The amount of jobs is itself a function of demand in the economy and so over the last five years especially, these workers have suffered from unilateral adjustments to their rates of pay.

Further rate reduction

The lack of demand put the employers in a position to adjust costs. The worker not on a fixed salary is more exposed to changes in the demand for goods and services in the economy. As a result, a truck driver may be asked to take a reduction in rate pay rather than go home. If demand continues to fall, there is always the prospect of further rate reduction.

Prior to very recent times, the unions refused to put pressure on the Government with respect to the need for salary increases under the guise that job protection was paramount, yet 3 000 public sector workers still perished. The real protection was for the Government by ensuring that the timing of the decision to cut workers was right.

In the midst of no salary increases for public sector workers, the Government’s wage bill still increased especially in the statutory boards. Ironically, the Government was able to deliver the benefits from the “fatted calf”, even though the calf was getting smaller over time. In essence, the existing workers paid for the additions to the wage bill from their declining incomes.

Having admirably held strain for the last few years, private enterprises are confronting their own reality as the Government recently compounded their difficulties by introducing more burdensome tax measures that discourage investment. In the circumstances, the private sector ought to feel betrayed by a Government that asked and eventually praised it for holding strain.

In the real world, where there are workers, private enterprises and government, the eventual loser is always the workers in periods of decline. In such an environment, the rates of return on capital are never enough to cause investment for the sake of investing. On the other hand, governments are never willing to make the sacrifice and so it falls on the people.

Strangely enough, the current Government suppressed effective demand and impeded expansion of output and thus compounded the structural nature of unemployment for years to come in the Barbados economy.

As a result, previous approaches of public sector investment and private spending have now to be refined within the context of a new investment strategy for Barbados.

Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: [email protected]