Minimum Wage Advisory Committee Press Conference, Thursday 9th April, 2015

Minimum Wage Advisory Committee
Membership
As per Section 21 of the Labour Law (2011 Revision) Cabinet established the Minimum Wage Advisory Committee (MWAC) to carry out the necessary research and recommend a minimum wage or wages for the Cayman Islands. The MWAC is made up of 12 members with equal representation of employers, employees and independent members and is supported by ex-officio members from the Civil Service.

Independent Representatives:
Mr. Lemuel Hurlston – Chair
Mr. Nicolas Joseph – Deputy Chair – Caymanian Bar Association
Mr. Adolphus Laidlow – Senior Economist, Economics and Statistics Office
Ms. Annette Murphy – University College of the Cayman Islands
Employee Representatives:
Mrs. Andrea Williams – Business and Professional Women’s Club
Mr. Stephen Tatum – Cayman Brac and Little Cayman Representative
Ms. Lauren Langlois – Female Youth Representative
Mr. Pierre Connolly – Male Youth Representative
Employer Representatives:
Mr. Ian Pairaudeau – Cayman Contractor’s Association
Mr. Woody Foster – Cayman Islands Chamber of Commerce
Ms. Ahisha Bodden – Cayman Islands Society of Human Resources Professionals
Mrs. Danielle Wolfe – Cayman Islands Tourism Association
Ex-Officio Members
Mr. Mario Ebanks – Director, Department of Labour and Pensions, or his designate
Ms. Linda Evans – Chief Immigration Officer, Immigration Department, or her designate Mr. Bruce Smith, Deputy Chief Immigration Officer
Mr. Philip Scott, Senior Policy Advisor Human Capital Development, MEE&GA
Ms. Tammy Ebanks, Acting Deputy Chief Officer/Senior Policy Officer (Gender Affairs), MEE&GA (Ministry Liaison)
Mrs. Kimberly Kirkconnell – Policy Analyst, MEE&GA (Secretary)
MWAC’s Final Report

Chair of the MWAC, Mr. Lemuel Hurlston’s Speaking Notes
Main Recommendations of the MWAC’s Report

THE PROCESS AND PUBLIC CONSULTATION

 During this exercise, the Committee received technical guidance from the International Labour Organization and engaged in a robust and holistic public consultation process to gather data and opinions which contributed to the recommendations in its final report.
The Committee was supported by a technical consultant, Mr. Reynold Simons, from the International Labour Organization (ILO) Decent Work Team and Office for the Caribbean, who was their Senior Specialist for Employment and Labour Market Policies.
The technical guidance from the ILO assisted the Committee greatly in understanding the necessary issues to consider when determining a minimum wage; the limitations of the data which we had to work with; and possible methods in which to derive at a figure for the minimum wage.
Mr. Simons has extensive knowledge of minimum wage setting and implementation and produced a report entitled Statistical Aspects to Setting the Minimum Wage in the Cayman Islands which is Annex 1 of the Minimum Wage Advisory Committee’s report. Mr. Simons’ report provided a comprehensive review of available statistical sources and data, and options for the Committee to consider when setting the minimum wage.
Much of Mr. Simons’ report was used in developing the Minimum Wage Advisory Committee’s report and many of the recommendations proposed by Mr. Simons in his report were supported by the Committee and form part of the recommendations outline in the report.
In addition to receiving technical guidance provided by the ILO, another key element of the process of this exercise was the holistic public consultation conducted by the Minimum Wage Advisory Committee.
 [As Minister Rivers indicated] the Minimum Wage Advisory Committee had a very expansive Terms of Reference that it was asked to fulfil for this project. One of the items of the Terms of Reference was to hold discourse with the people of the Cayman Islands and to use a variety of multi-media tools in order to gather relevant information from stakeholders.
 The public consultation process involved different activities at various stages of the exercise.
The following provides a broad overview of the types of consultation conducted by the Minimum Wage Advisory Committee:

1. Meetings with key stakeholders were held with organisations such as the Chamber of Commerce and their guest from the International Labour Organization (ILO) Ms. Anne Knowles, Senior Specialist Employers Activities; the Department of
Children and Family Services and the Needs Assessment Unit; the Cayman Islands
Tourism Association; Cayman Contractors Association and others.
2. Focus Group Meetings were held in Cayman Brac & Grand Cayman to collect qualitative data and to explore people’s beliefs, attitudes and opinions on the subject of a minimum wage. The focus groups targeted: Household and Business Employers; Household and Business Employees; Unemployed Caymanians; and the Youth.
3. District Town Hall Meetings were held in Cayman Brac and all districts in Grand
Cayman.
4. Written submissions were invited by the general public and non-governmental organisations.
5. Five surveys were designed to solicit opinions on the topic of minimum wage, ask about probable behaviours in relation to the implementation of a minimum wage, and collect personal data such as income for employees and pay rates used by employers; the surveys targeted Business Employers, Business Employees, Household Employers, Household Employees, and the General Public including Unemployed Caymanians. The surveys were administered online through Survey Monkey, printed copies where in all district libraries including Cayman Brac and the Little Cayman Post Office and\ administered in the field to randomly selected individuals or businesses by trained enumerators contracted through the assistance of the Economics and Statistics Office.

A total of 568* people took part in the online surveys, and a total of 2,097* surveys were administered by representatives of the Economics and Statistics Office. These numbers reflect the amount of fully and partially completed surveys. In total, the Committee received feedback or representation from 2,792 people and organisations.
From the public consultation process, the Committee received clear support for the establishment of a minimum wage in the Cayman Islands with 89.0% stating “Yes”, 5.4% stating “No” and 5.6% saying “Don’t Know or Not Sure”.
 While the general public has indicated clear support for establishing a minimum wage, it would seem that based on public feedback and opinions provided to the Minimum Wage Advisory Committee during this process that the public is however thinking in terms of a “living wage” as opposed to a “minimum wage” and there is distinct difference between the two.
 A “minimum wage” as defined by the ILO is: a sum payable to a worker for work performed or services rendered, within a given period or collective agreement, which is guaranteed by law and which may be fixed in such a way as to cover the minimum needs of the worker and his or her family, in the light of national economic and social conditions.
 A “living wage” is based on the basic cost of living in a country or area in a country, is not enforceable by law and there is no universally accepted definition of a living wage or agreement on how to calculate it.
 Out of the 2,097 respondents of the MWAC field surveys 80.2% identified “cost of living” as the most important factor in determining a minimum wage for the Cayman Islands and age was identified as the least important factor with only 10.2% indicating it was the most important factor. Based on the importance of the cost of living placed by those who participated in the public consultation process, it is anticipated that some persons will not be satisfied with the Committee’s recommended figure.
 While the Minimum Wage Advisory Committee wants to ensure that all people in the Cayman Islands have a decent standard of living, the Committee did not focus on a “living wage” but followed the terms of reference of this project which was to identify a minimum wage that would fulfil one of the objectives of this exercise which was to “address exploitation and provide real relief to the lowest paid workers”.
 It is important to note that the minimum wage should take into account the balance between the needs of the individual and his or her family (the employee) and the needs of the economy and the affordability to pay (the employer). Therefore setting the minimum wage requires a balancing act to ensure there is economic stability but at the same time allowing people to meet their basic needs.

IDENTIFICATION OF LOW WAGE EMPLOYEES

 The ILO Consultant, Mr. Simons identified in his report that employees earning very low wages and low wages make up 29% of the all employees in the Cayman Islands. Of that 29%, very low wages made up 7% and were defined as employees in the Labour Force Survey who earned less than CI$4.61per hour, and low wages constituted 22% and were defined as employees who earned between CI$4.62 and CI$9.23 per hour.

There are 2.6 times more non-Caymanian workers than Caymanians in the very low and low wage segments, and the four industries that employ 72.3% of all very low wage earners are:
1. Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles;
2. Restaurants and Mobile Food Services Activities;
3. Administration and Support Service Activities (which includes security guards);
4. Activities of Households as Employers (which includes domestic helpers and other elementary occupations).
 The five industries that employ 70.3% of all low wage earners are:
1. Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles;
2. Restaurants and Mobile Food Services Activities;
3. Administration and Support Service Activities;
4. Activities of Households as Employers;
5. Construction.

 It is important to note that a third of the very low and low wage earners are in industries outside of these five industries identified. Therefore if a minimum wage was set only for the five “very low and/or low wage industries”, this would exclude this third of very low and low wage earners, amongst which many are Caymanian.
 2,683 Caymanians are classified as very low or low wage employees (655 as very low and 2,028 as low paid employees). Therefore Caymanians make up 27.6% of this very low or low wage segment of the labour market.

The MWAC unanimously agreed to recommend that the minimum wage should be a national minimum wage that is applied across the board to all sectors of employment in the Cayman Islands in order to ensure that no low income earning Caymanians in sectors outside the five identified low wage sectors would be excluded and as many low paid employees are covered as possible.

RECOMMENDED MINIMUM WAGE REGIME

Based on the analysis of the data provided from the MWAC’s public consultation exercise and various other national data sources, the MWAC recommends CI$6.00 gross per hour as an acceptable introductory minimum wage rate that would achieve the objective of addressing exploitation and providing real relief to the lowest paid workers.

 The suggested application of this national minimum wage rate applies as follows:
o An ‘across the board’ rate applicable to all employees as defined in the Labour Law (including employees in the household/domestic sector and employees of non- profit/charitable organisations);
o Applies equally to Caymanians and non-Caymanians;
o No age distinctions: the minimum wage rate applies equally to persons of all ages who are legally defined as employees in the Labour Law;
o Does not apply to self-employed persons;
o Applies to every hour worked either within the standard work week or standard work day as defined in the Labour Law.

The Committee also recommends that special provisions are given to employers in relation to gratuities and commissions and for household employers who employ ‘live in’ employees. The special provisions are as follows:

o No more than 25% of the CI$6.00 minimum wage gross rate (i.e. CI$1.50) may be paid by gratuities or commissions therefore at least 75% of the minimum wage rate must come directly from the Employer. This exception is only applicable to businesses that have a scheme in accordance with the Gratuities Regulations which is in good standing and has been approved in writing by the Director of Labour and Pensions in accordance with the current Labour Law and Regulations.

o Recognising that the Household as Employer industry will be the most affected by the introduction of a Minimum Wage Regime, a maximum of 25% (i.e. CI$1.50) of an in- kind credit for accommodations and utilities only may be applied to the CI$6.00 per hour (gross) minimum wage rate but only for Household Employers with ‘live in’ Employees.

The MWAC also recommends that gratuities and commissioned based employers are required to provide at the very least the minimum wage rate when calculating an employee’s vacation, sick, maternity and paternity leave, etc.
 The Committee considers this Minimum Wage Regime as a simple and easily understood system for enforcement to begin with and it considers the recommended CI$6.00 per hour gross rate to be a fair, conservative wage that would be affordable to employers and beneficial to very low wage employees.
 The MWAC also recommends that the first Minimum Wage Regime ‘errs on the side of caution’ by starting at a conservative rate, as it is easier to increase an existing minimum wage rate than lower one.
 The recommended minimum wage rate is only valid for one (1) year after the submission of this report (February 2016), and the MWAC also recommends a 6 month period from the
date the minimum wage is established in the Labour Law to the date which it is enforceable.
An annual review of the minimum wage for effectiveness by technical experts and quadrennial review by future Minimum Wage Advisory Committees for fixing procedures and criteria is also recommended

LEGISLATIVE AMENDMENTS AND OTHER RECOMMENDATIONS

In order to implement the suggested Minimum Wage Regime, the Committee also made suggestions for various legislative amendments to be made to the current version of the Labour Law. Additionally the Committee made suggestions for other legislative changes that do not exist currently within legislation.

These suggestions apply to the Labour Law Regulations, Labour Law, and the Immigration Law and include the following recommendations:
o Provide a template for information returns to the Department of Labour and Pensions
o Introduction of administrative fines regime
o Introduction of whistle-blower provisions
o Ensure that a contract of employment is accompanied with all work permit applications
o Employer Accreditation System

 Additionally, the Committee provided recommendations for synergies to be developed and other recommendations that would be necessary to support a strong Minimum Wage Regime, including the additional human resources necessary for enforcement. These suggestions included actions to address the following issues:
o Improve current data collection methods
o Consider new data collection methods
o Further analysis/research of unemployed with high school and university education and the long term unemployed
o Review government policies (i.e. Temporary Poor Relief Policy and Immigration Department policies) that will influence the effectiveness of a Minimum Wage Regime
o Increase information sharing among Government entities
o Identify methods to leverage other institutional capabilities and relationships within government
o Increase attention, public awareness and/or public education efforts on the 3 key issues identified from focus group data which were 1) high levels of exploitation and contractual breaches among low paid workers; 2) address stereotyping of Caymanians as ‘lazy’ or ‘not good workers’ and 3) address young persons’ attitudes of not wanting to work in certain types of industries.

CALCULATING THE MINIMUM WAGE AND THE ECONOMIC IMPACT

In order to decide on a minimum wage, there must be an established and nationally recognised poverty line or vulnerability threshold that is agreed that no one in the country should earn below. However, given that the Cayman Islands does not have a formally recognised poverty line, the MWAC had to determine what it would use as its “floor rate”.

 The Committee agreed that the minimum wage should be set above any kind of suggested poverty or vulnerability threshold for the Cayman Islands. Therefore, the Committee established the Cayman Islands – Economic Vulnerability Threshold (CI-EVT). The CI-EVT rate is the minimum amount that a worker needs to earn in order not to slip below the poverty line, and this was determined to be CI$5.22 per hour, per Income Earner. This hourly rate equates to CI$905.00 per month or CI$10,859 per year.

 Having agreed upon the CI-EVT as the established ‘poverty threshold’, the MWAC also analysed the wages currently paid to employees through the ESO’s Labour Force Surveys and the MWAC’s Minimum Wage Surveys administered to business and household employers. In order to avoid driving wage distribution upwards, thereby impacting negatively on macro-economic stability and employment levels, the MWAC analysed the low Value Added industries’ ability to pay a minimum wage that was greater than the CI-EVT figure of CI$5.22 per hour.

 This data analysis assisted the MWAC in determining its recommended figure, which it believes does decrease the exploitation of labour and provide relief to the lowest paid workers and low paying industries have the capacity to pay.

Data from the Economics and Statistics Office’s Labour Force Survey 2013 shows that 2,367 employees were earning less than CI$4.61 per hour. In other words, approximately 6.5% of the workforce was earning less than the CI-EVT of CI$5.22 per hour.

The CI$6.00 per hour proposed minimum wage will directly benefit an estimated 5,962 employed persons (15.8% of the entire employed labour force of the Cayman Islands).
o 3,362 are business employees
o 2,600 are household employees
o 1,524 (25.6%) are Caymanians
o 4,438 (74.4%) are Non-Caymanians

 Household Employees (Domestic Workers) will benefit the greatest with an estimated wage increase of CI$1.86 per employee per hour.
o 169 Caymanians (6.5%)
o 2,431 non-Caymanians (93.5%)

Employees in the following occupations would receive the following estimated wage increases per hour:
o Administrative and Support Services activities (includes security guards, janitorial, cleaning services, car rentals): CI$1.00
o Accommodation establishments: CI$0.54
o Restaurants and Mobile Food Services: CI$1.11

 The overall direct cost of the proposed minimum wage is CI$17.6 million in annual terms.
o Businesses paying CI$7.54 million
o Households paying CI$10.06 million

 Of the CI$7.54 million that it will cost the business sector, the benefits to employees who work for businesses will be:
o CI$3.88 million for Caymanians
o CI$3.65 million for Non-Caymanians.

Small business (firms with less than 5 employees) will be the most impacted with payments to approximately 1,233 employees. These businesses account for 36.7% of all employees of businesses who are earning less than the proposed minimum wage.

 Business with 50 or more employees will see higher payments to 691 (20.6%) employees.

 Of the CI$10.06 million that it will cost households, the benefits to employees who work for households as employers will be:
o Caymanians: CI$0.4 million (4%)
o Non-Caymanians: CI$9.66 million (96%)

 The estimated overall jobs lost as a result of the proposed minimum wage can range from 545 to 600 or 1.4% to 1.6% of the total employed (plus or minus 5%). This would be an estimated 190 household employees and an estimated 382 business employees.

 It is assumed that these job losses will exclusively affect work permit holders, rather than Caymanians and Permanent Residents although of course the employers of persons losing jobs will be (in many cases) Caymanians or Permanent Residents.

The following two assumptions or scenarios outline the estimated impact on the average consumer price index (CPI) inflation:

1. If the entire (100%) additional cost to businesses (excluding the cost to household employers) is passed-through to consumers in the form of higher prices of goods and services, it is estimated that a 0.85% increase will occur in the CPI.
o The strongest impact is expected in an increase in housing and utilities of 0.28%
and a 0.13% increase miscellaneous goods and services.

2. If 50% of the business employers’ additional costs are passed-through by price increases: the average CPI inflation is estimated at 0.58%, with housing and utilities contributing approximately 0.19%.

 In relation to the impact of implementing this minimum wage rate on GDP growth, the following are two of the more important and most likely scenarios that were considered:

o If businesses can only pass-on 50% of the additional cost to customers, coupled with Caymanians spending 100% of the additional income in the local economy, while non- Caymanians spend 50%, then GDP growth is anticipated to increase by 0.74% while inflation-adjusted GDP growth is expected at 0.16%.

o If 572 of the estimated layoffs are non-Caymanian and the remaining non-Caymanians retain their jobs and spend 50% of the additional income and employed Caymanians continue to spend 100% of the additional income, then the expected result is zero (0) current GDP growth.

 The most favourable impact on economic growth would be if all additional earnings are spent locally with no employee lay-offs. Economic growth would then be expected to be enhanced by 1.19%, while economic growth adjusted for inflation caused by higher prices from cost pass- through, will be an additional 0.33%.

END

The following is a small excerpt from the 221 page:

“Report on Establishing a Minimum Wage Regime in the Cayman Islands”

The Terms of Reference required the MWAC to conduct an exercise that would determine 1) a minimum wage that would address exploitation and provide real relief to the lowest paid worker (Objective #1) and 2) a minimum wage that would improve employment opportunities to Caymanians in relation to decreasing the demand for imported workers (Objective #2). Given the MWAC’s recommendation that Objective #2 is dropped from the minimum wage policy framework and addressed through other alternatives (see Section 8.1.6), the MWAC has not established a minimum wage rate for this second objective.

However, based on the analysis of the data provided from the MWAC’s public consultation exercise and various other national data sources, the MWAC recommends CI$6.00 gross per hour as an acceptable introductory minimum wage rate that would achieve Objective #1 of addressing exploitation and provide real relief to the lowest paid workers. The MWAC considers this to be a fair, conservative wage that would be affordable to employers and beneficial to very low wage employees. The Committee is also of the opinion that it is important for the first minimum wage regime to ‘err on the side of caution’ by starting at a conservative rate as it is easier to increase an existing minimum wage rate instead of lowering one.

It was agreed that the hourly rate would be the appropriate pay component on which to base a minimum wage regime because suggesting a minimum wage rate in weekly or monthly terms could potentially increase the cost of hiring part time workers, thereby making these employees vulnerable to losing their jobs, having hours decreased or decreasing part time opportunities in the labour market. All calculations conducted in the exercise were based on a 40 hour work week, as the data analysis indicated that this was the average amount of time worked by employees. Therefore, the minimum wage figure of $6.00 per hour was calculated using the average
40 hour work week, and the MWAC recommends this minimum wage rate would be applicable to all regular hours worked within a standard work week or work day as currently defined by the Labour Law. This would mean that the minimum wage rate would be applicable to every hour worked within the standard work week (currently up to 45 hours) or the standard work day (currently up to 9 hours). However, after these time frames, employers would (where applicable) be required to pay their employees overtime as defined in the Labour Law.

Gratuities, Commissions, and In-Kind Credits
For employers that have a gratuity structure (e.g. hotels, condos, restaurants) and employers that offer a commission structure, the MWAC recommends that no more than 25% of the CI$6.00 minimum wage per hour (gross) rate (i.e. CI$1.50) may be paid by gratuities or commissions (i.e. at least 75% of the minimum wage rate must come directly from the employer). The ‘gratuities exception’ is however only applicable to businesses who have a scheme in accordance with the Gratuities Regulations which is in good standing and has been approved in writing by the Director of Labour and Pensions in accordance with the current Labour Law and Regulations. This is to prevent any unintended loopholes that may result in an increase in establishments entering into gratuity based compensation, which would result in further enforcement pressures on the Department of Labour and Pensions.

Given that gratuities are not fully counted as stable remuneration by lending institutions, the MWAC has discussed that this could potentially be a factor which has created a barrier to the employment of some Caymanians in certain industries. Therefore, the Committee also recommends that employers are required to provide at the very least the minimum wage rate when calculating an employee’s vacation, sick, maternity and paternity leave, etc., and the issue of whether or not gratuities and commissions are also to be included in these monetary calculations of leave time should also be given consideration – subject to a legislative review. The rationale behind this recommendation is that raising the guarantees for the minimum level of remuneration may well assist in re-generating Caymanian interest in certain employment sectors.

Knowing that the household as employer industry will be the most affected by the introduction of the minimum wage regime, the MWAC recommends for household employers of ‘live in’ employees only, a maximum of 25% in-kind credit to be applied to the CI$6.00 per hour (gross) minimum wage rate (CI$1.50 per hour) for accommodations and utilities only. This recommendation is hoped to assist in decreasing the impact on household employers who do experience a cost associated with housing their domestic worker, while acknowledging the benefit to the employee of suitable accommodation.

The Committee cautions that this recommendation of the CI$6.00 minimum wage figure is only valid for one (1) year after the submission of this report (February 2016). In order to prepare for implementation, the Committee also recommends that once the minimum wage is established in legislation, the country is given 6 months from the date the Minimum Wage is established in law to the date that it becomes enforceable. Additionally, the MWAC recommends that review dates described in 8.2.1.2 are established in legislation. Should the Government decide to accept the MWAC’s recommendation of CI$6.00 per hour, the impact of this minimum wage rate to the economy is discussed in the following section.

Impact Assessment of the Recommended Minimum Wage

Overview
The following section outlines the estimated economic impact if the Government decides to implement the MWAC’s proposed CI$6.00 per hour minimum wage. It is reiterated that the limitations identified in section 1.5 were a finite period of time with a limited amount of human resources, and therefore there was not enough time to use additional methods to analyse the raw data. While the impact assessment recommendations provided in this section are reflective of the initial analysis of the proposed CI$6.00 minimum wage, the MWAC recommends that whatever minimum wage rate the Government decides to implement that further analysis of the economic impact is requested from the Economics and Statistics Office. The impact of a minimum wage on employment levels are based on the Labour Force Survey (LFS) 2014 estimates25. The total number of employed persons in the Cayman Islands stood at 37,723, comprised of 18,127 Caymanians and 19,596 Non-Caymanians (also called “migrant workers”).

The proposed minimum wage is most likely to affect employed persons within the lowest four income bands of the LFS 2014, therefore this impact analysis will focus on the employed persons within those bands. In 2014, total employed persons in the lowest four income bands of the LFS 201426 were 9,945, of which there were
3,030 (or 30.5 percent) Caymanians and 6,915 (or 69.5 percent) Non-Caymanians.

Five industries (also called “low wage sectors”) accounted for 68.8 percent of all persons employed in the lowest four income bands (see Table 8.13), that is, employed persons earning less than CI$19,200 annually or CI$9.23 per hour per week, based on a forty (40) hour work week.

The four lowest income bands are dominated by 3,518 Elementary Occupations, 3,496 Sales and Clerical Support Staff, 790 Craft and Related Trades Workers and 511 Clerical and Support Workers. These accounted for 83.6 percent or 8,315 of the lowest paid workers in 2014.

Effects on Employment and Income

Figure 8.2 Employed Persons Benefiting from a Minimum Wage

The proposed minimum wage of CI$6.00 per hour will benefit all employed persons earning within the first two bands and 90.5 percent of the employed persons earning a wage in the third band (see Table 8.13). Employed persons with earnings in the fourth income band will not benefit from the proposed minimum wage as their current earnings exceed the proposed minimum wage. Therefore, the minimum wage will directly benefit an estimated 5,962 employed persons, Caymanian beneficiaries are estimated at 1,524 (or 25.6 percent) and Non- Caymanians are estimated at 4,438 (or 74.4 percent). The total beneficiaries represent 15.8 percent of the entire employed labour force of the Cayman Islands. However, the number of employed persons will only benefit directly from the proposed minimum wage if employers maintain current staff levels.

Employed persons benefiting the most from the proposed minimum wage (see Figure 8.2) are employed in the Activities of Households as Employers industry. These beneficiaries are commonly called “domestic workers”. This category of employed persons will see an estimated 2,600 gaining higher income, (169 Caymanians and 2,431 Non- Caymanians). The second largest industry to benefit is the Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles (259 Caymanians and 489 Non-Caymanians), followed by Administrative and Support Services activities (149 Caymanians and 597 Non-Caymanians 597), then Restaurants and Mobile Food Services Activities (316 Caymanians and 218 Non-Caymanians).

Impact on Employment and Unemployment
Higher wages resulting from the introduction of a minimum wage normally attract more people in the labour market which is likely to increase competition for low-skilled jobs; hence unemployment can result, as firms may have a bigger pool of jobseekers from which to select workers. Also, unemployment should increase in the households as the employers sector is more dependent on affordability and the convenience of hiring “domestic workers” coupled with the available alternatives of outsourcing services for household activities.

Based on the MWAC’s minimum wage surveys 2014, on average 12.0 percent of Business Employers (excluding Household Employers) surveyed responded that some employees will be terminated if the minimum wage is set above their current wage levels. Specific industry responses in the surveys to employee lay-offs were as follows: construction sector 11.1 percent, wholesale and retail sector 8.2 percent, hotels and restaurants 18.0 percent, administrative and support services 9.1 percent, other service activities 10.7 percent and miscellaneous sectors
11.8 percent. Assuming the responses are directly proportional to the number of employee lay-offs, the approximate number of lay-offs is estimated at 382 employees. This is approximately 1.0 percent of the employed labour force, employed in firms. However, staff lay-offs are expected to be minimal as evidence from the minimum wage survey reveals that the average gross current market wage paid by business employers was CI$6.63 per hour and validated by the business employees as wages received averaged CI$6.57 per hour.

On the Household Employer Survey, 7.3 percent of households with employees responded that they will reduce employees – “domestic workers”- if the minimum wage procreated an increase of more than CI$1.00 to their current hourly rate. Assuming a one–to-one ratio of job loss based on households with employees’ survey response, 7.3 percent of employees losing their jobs will amount to approximately 190 employees. This figure can be larger as Household Employers can also withdraw from the labour market to undertake household activities (e.g. childcare, care-giving, housekeeping, cooking, gardening and landscaping and maintenance work etc.) if hiring a “domestic helper” is unfeasible.

The estimated overall jobs lost as a result the proposed minimum wage can range from 545 to 600, which comprises a loss of 190 employees for households and 382 employees for businesses (plus or minus 5 percent). This is approximately 1.4 to 1.6 percent of the Cayman Islands employed labour force in 2014. As with any such estimates, however, the actual losses could be smaller or larger; notwithstanding, there is a high chance that the effect would be very slight reductions in employment, as keeping a “domestic helper” appears to be a cultural norm for many Caymanian households. Supporting evidence from the minimum wage survey results show that the average gross current market wage paid by household employers was CI$6.01 per hour and corroborated by household employees as wages received averaged CI$6.24 per hour.

The Burden and Beneficiaries of the Minimum Wage
The proposed minimum wage annual cost is estimated at CI$17.6 million, the cost to firms is CI$7.54 million while households will pay an additional CI$10.06 million in annual terms. The outlay burden on firms will be spread across fifteen (15) industries. The magnitude of increased cost to each firm will depend on the ability to pass-on the increased cost to customers in the form of higher prices for goods and services. Estimated additional cost per employee per hour by industry is displayed in Figure 8.3.
This additional cost pay-out will be distributed as follows: CI$4.3 million to Caymanians and the more substantial share of CI$13.3 million will be paid to Non-Caymanians.

Tourism industries special mention: Gratuities allowance for tourism industries is proposed at twenty-five (25) percent. Businesses within these industries receiving gratuities are mainly Accommodation and Restaurants and Mobile Food Services Activities. The total cost to these two industries is CI$1.53 million which will be financed jointly between the industries providers and patrons, split 75 percent (or CI$1.15 million) and 25 percent (or CI$0.38 million) respectively. As per Figure 8.3, it is estimated that the Accommodation industry will pay an additional CI$0.54 per employees per hour to persons working for less than the proposed minimum wage. Similarly higher costs to the Restaurants and Mobile Food Services Activities industry will be CI$1.11 per employee per hour.

It is estimated that 262 employees from the Accommodations industry will benefit, which represents 12.7 percent of the employment in the sector. Similarly, 534 employees in the Restaurant and Mobile Food Services Activities industry will benefit, which is 26.5 percent of the sector’s employment.

Persons benefiting from the minimum wage should see additional income that ranges from CI$20.40 to CI$135 per employee per week. The Activities of Households as Employers industry will on average be burdened with an estimated increased cost of CI$74.50 per week per employee to “domestic workers” or an additional CI$1.86 per employee per hour on average. Employees in the Administrative and Support Services Activities industry, on average, (including occupations relating to security guards, janitorial services, cleaning services, car rentals etc.) will get an additional CI$1.00 per employee per hour.

Many more low-wage workers may see an increase in their earnings. Some employed persons earning slightly more than CI$6.00 per hour could also have higher earnings, as employers may be forced to increase the margin between the lowest paid (proposed minimum wage earners) and the group of employees ranked slightly higher than the minimum wage earners. This is known in academic literature as a “ripple effect” on other workers earning wages near the minimum wage threshold; it occurs when a raise in the minimum wage increases the wage received by workers earning slightly above the minimum wage. Based on this recognition, the number of workers potentially affected by a minimum wage policy using the “ripple effect” assumption that workers earning up to CI$1.00 above the minimum wage would see a wage increase from a higher minimum wage quantifies to approximately an additional 320 persons.

This is substantiated by the MWAC’s minimum wage survey 2014, as 8.1 percent of business employers responded that wages will be increased for the other employees who are currently earning above the minimum wage.

Impact on Small Businesses
Using the number of employees in a firm to gauge firm size, the LFS 2014 data showed that in the lowest four income bands, firms with five (5) or fewer employees dominated with 50.8 percent of all employed persons (see Table 8.14). Firms with fifty (50) or more employees were the second largest category with 13.9 percent, followed by medium size firms with number of employees ranging between six and ten (6 – 10) with 13.0 percent. Similarly, firms with between eleven and twenty-four (11 – 24) employees accounted for 8.9 percent of employed persons in the lowest four LFS 2014 income bands.

The proposed minimum wage is anticipated to impact firms and households with employees who are currently receiving income within the first and second income bands and up to 90.5 percent of the third band (see Table 8.14). The largest share of elementary occupations or otherwise called “domestic workers” dominate the small firms, that is, firms with five (5) or less (also called “small business”) employees. This category “firm size” also includes households as employers, that is, households with “domestic helpers”. Similarly, the large firms, which are firms with fifty (50) or more employees, also include a large share of sales and service workers.

It is estimated that 5,962 persons will benefit directly from the proposed minimum wage, which consists of 3,362 employees of firms and 2,600 from households with employees. Figure 8.4 displays the distribution of firm size based on number of
employees. Firms with five (5) or fewer employees will be most impacted, with payments to approximately 1,233 employees; these firms accounts for 36.7 percent of all employees earning less than the proposed minimum wage. Firms with fifty (50) or more employees will see higher payments to 691 (20.6 percent) employees while firms with between six and ten (6 – 10) employees will have higher pay-outs to an estimated 577 employees.

The overall direct annual cost to businesses implementing the proposed minimum wage is estimated at $7.54 million.

Caymanians working in businesses will benefit with higher incomes of CI$3.88 million while Non-Caymanians will take home an additional CI$3.65 million in annual terms.

Table 8.15 shows firms with five (5) or fewer employees will bear the highest aggregate cost of CI$4.53 million (tantamount to an additional CI$1.77 per hour per employee). However, 55.1 percent of the cost to “small business” will be paid to Caymanian employees. Firms with between six (6) and ten (10) employees will finance an additional CI$0.93 million (equivalent to CI$0.78 per hour per employee). Firms (“large firms”) with fifty (50) or more employees will see an increase in annual wage bill of CI$0.76 million (identical to CI$0.53 per hour per employee).

Impact on private household employers
Private households will bear the largest burden of the proposed minimum wage, as some 2,600 employees stand to benefit, that is, if current staff levels remain. The proportion of Caymanian and Non-Caymanian are 6.5 percent and 93.5 percent respectively. The aggregate annual cost of households with employees is CI$10.1 million. Non-Caymanians will receive the vast majority, that is, 96.0 percent (or CI$9.66 million) while the other 4.0 percent (or CI$0.4 million) will be paid to Caymanians (Figure 8.5). In other words, households with “domestic workers” will pay higher wages on average, by CI$323 per month per employee which equates to an additional CI$1.86 per employee per hour.

Based on the minimum wage survey, 7.3 percent of households responded that staff levels will be reduced if wages are at least CI$1.00 above the current level, this quantifies to an estimated 190 job losses. If these job losses are realised, the aggregate annual wage bill will be reduced by approximately CI$0.5 million.

The proposed minimum wage is not anticipated to cause any significant withdrawal of Household Employees from the labour market. Firstly, based on the MWAC’s minimum wage survey, only a small proportion of Household Employers acknowledged a willingness to dismiss their “domestic helpers”. Secondly, households expressed on the minimum wage survey that on average current wages (i.e.CI$6.01) are just at the level of the proposed minimum wage and the respondents suggested that average minimum wage should be CI$8.34 per person per hour.

The twenty-five (25) percent in-kind payments (housing accommodation including utilities) extended to Household Employers, offered as part of the proposed minimum wage package, sought to give households with ‘live in employees’ some reprieve from the total burden. Based on the minimum wage survey, 30.5 percent of household employees responded that they are currently in receipt of in-kind benefits. Consequently, 30.5 percent (793 persons) of the 2,600 “domestic workers” beneficiaries will receive a minimum wage of CI$4.50 per hour.

The Potential Impact on Inflation
Inflation is a general rise in prices. Therefore inflation is not synonymous with a wide-spread increase in prices of goods and services; it just means on average, prices increase.

The proposed minimum wage can contribute to inflation in the Cayman Islands; however, this all depends on the extent to which demand for goods and services is
with existing competition within the industry. Firms facing a higher wage bill can pass on the cost to consumers in the form of higher prices, if demand for goods and services is not significantly affected. If firms are able to pass on the increased cost of wages in the form of higher prices, then inflation can result. Therefore, with the proposed minimum wage, firms that face higher costs would not maintain current profit levels simply by raising prices regardless of demand for their products.

The impact of the proposed minimum wage on consumer price index (CPI) inflation is evaluated with the assumption that the entire (100 percent) additional cost of firms (excluding cost to Household Employers) is passed through to consumers in the form of higher prices of goods and services. This assumption is foreseen to cause a 0.85 percent increase in average CPI inflation. The strongest impact is expected to be on housing and utilities (0.28 percent), miscellaneous goods and services (0.13 percent), transport (0.09 percent), food and non-alcoholic beverages (0.08 percent) and communication (0.06 percent). (see Figure 8.6).

With the alternative assumption of 50 percent of employers’ additional cost pass-through to price increases, average CPI inflation is estimated to be 0.58 percent, with housing and utilities contributing approximately 0.19 percent.

Impact of economic growth
Economic theory postulates that higher earnings for minimum wage workers would enhance their consumer spending thereby generating additional demand for goods and services. This could be offset by any reduction in demand from those who are likely to be unemployed because of the proposed minimum wage. Similarly, higher cost of minimum wage on employers can also reduce expenditure on new investments.

Research has shown that raising the minimum wage boosts consumer spending, increasing the demand for goods and services that drives economic growth. While the increase of the minimum wage may increase demand for those products purchased by low-income earners, it will not yield an equal increase in demand for all products.

Despite economic theories pointing to increases in aggregate demands as spending power ameliorate due to higher income, empirical studies on the whole revealed conflicting results. Therefore, the economic growth impact on the Cayman Islands will be best evaluated using scenario analysis27, while focusing on the low income industries.

The Cayman Islands’ economic growth is a change in total Value Added of all industries from one year to another which in not disaggregated to reflect immigration status. Therefore economic growth, labour productivity, private consumption is not collected and/or compiled based on immigration status.

4 SCENARIOS PUT FORWARD (NOT SHOWN HERE)

Under the aforementioned inflation pass-through assumption, scenario 1 was more favourable to both the GDP growth and inflation-adjusted GDP growth. This was followed by scenario 3, whereby it is assumed that Caymanians spend 100 percent
of the additional income while 572 Non-Caymanians are made redundant with the remaining Non-Caymanians repatriate 50 percent of additional income. In this scenario, GDP growth is anticipated at 0.74 percent while inflation-adjusted GDP is expected at 0.46 percent.

Government Resources Necessary and Cost Implications for Enforcement for a Minimum Wage Regime

A part of the MWAC’s Terms of Reference was to identify the appropriate Government entity(s), resources and mechanisms needed to enforce a Minimum Wage Regime and to identify the cost implications for enforcement of a Minimum Wage Regime. With the goal of having a Minimum Wage Regime that was easily policed, the NALC (Kairi Consultants Ltd. & the National Assessment Team of the Cayman Islands, 2008, Vol. I, p. 245) report listed in its recommendations that the Department of Employment Relations would be the recommended agency to ensure that the minimum wage was applied. The former Cayman Islands Department of Employment Relations is now represented by two entities – the Department of Labour and Pensions (DLP) and the National Workforce Development Agency (NWDA). The MWAC also recommends that the DLP is the most appropriate government entity to oversee the enforcement of a Minimum Wage Regime; however this report also recommends additional synergies to be developed between other government agencies which are discussed in section 8.1.6.

The function of the National Workforce Development Agency (NWDA) is to assist applicants with employment- related services necessary to secure and maintain acceptable employment. The NWDA consists of 4 units/functions: 1) Employment Services Unit 2) Training and Development Unit 3) Labour Market Information System Unit and 4) Scholarship Secretariat. The DLP consists of 3 units/functions: 1) Labour Investigations; 2) Pensions Investigations and Supervision; and 3) the Inspections Unit. It is imagined that the Inspections Unit, which was established in September 2013 in the Department’s current organisational structure, would be the section that would be responsible for minimum wage enforcement given that it currently is responsible for labour and pensions inspections, workplace safety and gratuities inspections. The Inspections Unit currently consists of the following four posts: (1) Head of Inspections; (1) Senior Labour and Pensions Inspector (Cayman Brac Office); (1) Labour and Pensions Inspector; and (1) Assistant Labour and Pensions Inspector. The Labour and Inspections Officers monitor gratuities distribution compliance, based on standardized reports from employers, but the DLP currently has no jurisdiction over wage disputes.

The Director of the Department of Labour and Pensions served as an Ex-Officio Member of the MWAC, and provided the Committee with recommendations as to how enforcement of a minimum wage regime would be carried out in relation to the current functions of the Department. The DLP originally estimated that minimum wage enforcement would encompass roughly 33 percent of the workforce, but now estimated that the recommended minimum wage proposed by MWAC could impact approximately 15.8 percent of the current work force that they currently oversee. Given the current landscape of the labour market, it is assumed that compensation data should be available for review by the DLP as the majority of the persons would be Work Permit Holders. Given the current staffing count at the DLP, it was recommended that the following additional human resources would be needed to effectively enforce a Minimum Wage Regime: (1) Labour and Pensions Officer/Analyst (Wages, and Pensions Arrears) as gratuities administration is shared by Labour Officers and (1) Labour and Pensions Inspector – to focus primarily on Inspections and data collections/reports relating to wages. The estimated cost of both of these posts are CI$100,000.

Legislative Measures Necessary for a Minimum Wage Regime

In her presentation to the MWAC, Anne Knowles, ILO Senior Specialist for Employers’ Activities (2014) made the following comments in regards to the importance of the enforcement of a minimum wage regime:

 the enforcement of the minimum wage is as important as the level of the minimum wage;
 lax enforcement mechanisms may mean a minimum wage has little affect;
 strict enforcement may encourage growth in the informal sector but it also may be an indication of more deep-seated problems such as the minimum wage being too high or tacit support for the informal economy.

In the same spirit of striking a balance with a fair figure for the minimum wage, it is also extremely important to strike a balance with the enforcement measures of a Minimum Wage Regime. Table 8.18 provides a general summary of the relevant legislative measures that currently deal with relevant labour issues and the minimum wage and the MWAC’s recommendations for legislative reform that would be necessary for the proposed Minimum Wage Regime. The MWAC notes that the Ministry of Education, Employment and Gender Affairs is in the process of amending the Labour Law (2011 Revision) and the National Pensions Law (2012 Revision), and it trusts that the following table of suggested revisions would be useful to consider collectively with the enforcement of the proposed Minimum Wage Regime.