FORMER Prime Minister Bruce Golding says Bank of Jamaica (BOJ) Governor Richard Byles’ comment that private sector wage hikes could throw the country’s inflation projection off target is simply “the uncompromising law of economics”, as the point the central bank boss was making was that higher salaries must be balanced by increased productivity.
“The focus, as the central bank governor sought to point out, must be on increasing labour productivity — and that is not the responsibility of the workers alone,” Golding said in a letter to the editor.
Here is the full text of that letter:
“The recent comments by the governor of the Bank of Jamaica ,for which he is being pilloried, is not an opinion he was expressing. It is the uncompromising law of economics.
Higher wages, just like higher oil prices, increase the cost of production unless it is counterbalanced by increased productivity that mitigates that higher cost of production and results in more goods and services being produced with the same inputs, in order to match that increased spend. It has little or nothing to do with the employer’s ability to pay.
The Government is the largest provider of services in the economy. In presenting the public sector wage restructuring package the finance minister stressed the importance of it being supported by improved efficiency and service delivery. If it isn’t, that too can have an adverse impact on prices and inflation. Even in high school, students of economics are taught that if more purchasing power is chasing the same quantity of goods and services the inescapable result is an increase in the price of those goods and services.
The focus, as the central bank governor sought to point out, must be on increasing labour productivity, and that is not the responsibility of the workers alone. Improved management, more effective use of technology and innovation, and greater investment by employers in training have a significant part to play in increasing labour productivity.
As with almost everything in life, we have choices. We can go for higher wages even if they are not backed by increased productivity. Not long after that the additional purchasing power of those wage increases will be wiped out by inflation and its twin brother, devaluation. Then we will demand more wage increases to compensate for that, and the vicious cycle picks up speed.
We’ve been there and done that! Painful lessons must be learned well and misjudgements not repeated. We have come too far, sacrificed too much and at last turning the corner for us to want to frolic in that painful past.”
