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When it comes to the planned minimum wage increases in the Cayman Islands being studied by the Minimum Wage Advisory Committee, some speculate that employers and employees may react differently to a minimum wage increase depending on whether a small or large business is concerned. Some of these differences relate to employee turnover rates, prices of products and services, and unemployment.
Staff turnover
In the case of employees’ loyalty to a business, for example, it may be the case that, for small businesses, if low-wage employees get a salary boost following a minimum wage increase, they may remain with the small business. Staying put may also be attributed to improved worker morale following the wage increase.
Some larger businesses, however, already pay employees far above the statutory minimum wage of $6 per hour in the Cayman Islands. If, after an increase in the minimum wage, the wage rates paid by those employers remain above the new statutory minimum wage rate, then employees in those large businesses may see no reason to leave the companies for reasons related to wages.
Product prices
Regarding product price adjustments following minimum wage increases, a March 2023 study by the University of California, Berkeley, states, “Small firms have less bargaining power in both the product and the labor market, reducing their adjustment options.”
The limited adjustment options may be seen in the case of small businesses like convenience stores and mom-and-pop shops that earn low-profit margins. Suppose they absorb the minimum wage increase in their operational expenses. In that case, this may reduce the already low profits that small business owners take home.
If small business owners attempt to pass the minimum wage increase onto their customers by way of an increase in the prices of their goods and services, the risk is that some customers may go elsewhere. Depending on the number of customers lost, some small businesses could be forced to close down.
On the other hand, some larger businesses that are making huge profits may be able to absorb the cost of minimum wage increases for their lowest-wage workers without having to resort to increasing the prices of their goods and services. Theoretically.
Unemployment
When it comes to the effect of a minimum wage increase on employment, a May 2023 article in Forbes suggests that “Small businesses may be forced to cut back on hiring or reduce hours for existing workers in order to offset the increased labor costs of a higher minimum wage, potentially leading to fewer job opportunities.”
Some small businesses may face this challenge if they can’t afford to pass the minimum wage increase to their customers (since they risk losing business following price increases).
Some large businesses may also have to confront this issue if they have a large portion of their staff who are paid statutory minimum wage rates.
Summary
Overall, the reaction by small or large businesses to an increase in the statutory minimum wage may depend on the number of employees currently paid the lowest statutory minimum wage.
Those with a high proportion of workers earning the lowest statutory minimum wage may reduce worker hours or lay off staff, as mentioned above, to reduce the cost of operations and maintain profit margins.
Bearing this in mind, perhaps the Minimum Wage Advisory Committee may consider (if they haven’t already done so) analyzing which companies or industries have a large proportion of workers currently earning the statutory minimum wage. This would be helpful in understanding the scope of the impact of increases in the statutory minimum wage.
This analysis may also influence how the new minimum wage may be structured, i.e., based on the business size, category of business, or industry sector. Some companies might also be rewarded for paying employees above statutory minimum wage levels by reducing licensing fees and other red tape.
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