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Local economist: Impacts of wage increase still unclear

By Michelle Sutherland

Local economist Phillip Castillo says that the upcoming minimum-wage increase will make certain persons better off, but could also result in unemployment, and it is still unclear which effect will outweigh the other.

Castillo shared that with so many grey areas, only time will tell whether a wage increase among a certain population will result in those persons spending more and whether that effect will be greater than persons losing their jobs as a result.

“What we do not know is the effects of the minimum wage increase on the labor force. Some organizations, including the BCCI [Belize Chamber of Commerce & Industry], were arguing for a phased increase,” said Castillo. “I would have suspected and expected that the BCCI’s position was based on polling their members, and what they presented as their position would have been based on that. That would then tell you that they really can’t afford the increase, and the effect of the minimum wage increase will result in a reduction in … So, there will be a few people who will be making minimum wage. They can demand a certain amount of goods, but then there will be people who have lost their jobs, and they can’t demand any at all,” explained Castillo.

As it relates to the inflationary impacts of the wage increase, Castillo explained that even though it has not yet taken effect, prices for goods and services have already started to increase. That much can be deducted from the latest SIB statistic taken in October, which showed an increase of 6.7%. That, however, according to Castillo, is a yearly occurrence around the Christmas season due to the demand and supply issue, which tends to increase around the Christmas holidays. This was also compounded by the recent shipping crisis as well as the impacts of the pandemic.

“Theoretically, we expect prices to go up a bit more because persons of a lower income level tend to spend all their income. In economics, we say that they have a very high marginal propensity to consume. So, if you give a poor man a wage increase, you expect that he would spend that entire increase. Now the effect of that will result in prices going up even further because now there will be this demand for existing goods, and then you will expect that the prices of goods and services will also increase. So yes, prices have been going up, and the theoretical effect of a wage increase is continued price level increase,” he summarized.

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