The Swiss Lesson: Higher Wages, Better Lives?

The current discussion about substantially increasing Aruba's minimum wage to a so-called bestaansminimum reminded me of something I experienced more than a decade ago in Switzerland.

In May 2014, Switzerland held a nationwide referendum on a proposal to introduce a statutory minimum wage of CHF 22 per hour, approximately CHF 4,000 per month. For an Aruban reader, at today's exchange rate that would be roughly Afl. 8,600 per month. At the time, the proposal would have created the highest national minimum wage in the world.

I arrived in Geneva about a week after the referendum. The vote and the discussion surrounding it were still fresh, and I remember being fascinated by the result.

The Swiss rejected the proposal by an overwhelming margin: 76.3% voted against it.

What struck me then, and what makes the example relevant today, is that opposition was not confined to employers, wealthy voters or those who would never benefit from a minimum wage. Post-referendum research showed that the proposal failed to obtain majority support even among lower-income groups, including people one might naturally have expected to support a substantial increase in the wage floor.

Why would someone vote against a measure that, at first sight, could put more money in his or her pocket?

That is where the Swiss experience becomes interesting.

Good intentions are only the beginning

The Swiss debate was not simply about whether workers deserved better wages. Of course workers want, and deserve, a decent standard of living.

The debate was also about consequences.

Opponents raised concerns about employment, particularly for lower-skilled workers and young people, as well as the ability of certain businesses and sectors to absorb such a significant wage increase. There were broader questions about what happens throughout an economy when the statutory cost of labor rises substantially.

The Swiss government itself opposed the proposal, warning particularly about the possible consequences for employment.

That does not prove that every substantial minimum wage increase will produce those consequences. Nor does the Swiss referendum prove that Aruba should not increase its minimum wage.

Switzerland is not Aruba.

But that is not the point.

The point is that another prosperous and highly developed society confronted a similar question and, after a vigorous national debate, more than three quarters of its voters decided that the proposed instrument carried risks they were unwilling to accept.

That experience deserves our attention.

Aruba deserves more than two camps

I appreciate the objective behind the call for a bestaansminimum. Wanting Aruban families to live better, to meet their obligations and to enjoy greater economic security is an objective around which there should be considerable agreement.

Where reasonable people can disagree is about how we get there.

Unfortunately, discussions like these can quickly become a battle for public opinion. One side presents experts explaining why the proposal is feasible, necessary and desirable. The other side presents experts identifying risks and questioning assumptions. Before long, the discussion becomes framed as those who care about workers against those who supposedly do not.

That would be unfortunate.

An economist who questions a substantial minimum wage increase is not necessarily against workers. An employer who warns about increased labor costs is not necessarily against decent wages. Likewise, someone advocating a higher minimum wage is not necessarily ignoring economic realities.

These are precisely the competing views that should be tested before major economic policy is adopted.

And we should be equally critical of expertise on both sides. Every side can find its experts. Every side can produce calculations based on assumptions favorable to its position. The responsibility of government is not simply to choose the study it likes best. It is to test the assumptions, challenge the conclusions and examine what happens if those assumptions prove wrong.

The right objective, but is it the right instrument?

There is an important distinction between income and purchasing power.

Ultimately, families do not live from the number printed on a payslip. They live from what that money allows them to buy.

If wages rise substantially but some of that increase is subsequently absorbed through higher prices, reduced employment opportunities, fewer working hours, increased business costs or other adjustments in the economy, the final result may be different from what policymakers intended.

How much of that would happen in Aruba?

That is precisely what we need to establish.

Perhaps the proposed increase is economically sustainable. Perhaps it should be introduced gradually. Perhaps different accompanying measures are necessary. Perhaps the better solution involves a combination of wages, taxation, social policy and measures addressing Aruba's cost of living. Or perhaps the available evidence ultimately supports the proposed bestaansminimum.

But those conclusions should follow the analysis. They should not precede it.

Learn before we leap

The lesson I took from Geneva in 2014 was not that higher minimum wages are inherently bad.

It was something more fundamental.

Even people who appear to stand to benefit from an economic measure may decide that the wider consequences matter more than the immediate benefit promised to them.

That should encourage some humility in our own discussion.

We should study experiences elsewhere. We should invite economists and other experts with genuinely different perspectives. We should examine the consequences for small businesses, employment, young workers, labor-intensive industries, government finances, inflation and purchasing power. And where there is legitimate uncertainty, saying that something requires further study is not obstruction. Sometimes it is simply responsible government.

Aruba should absolutely aspire to a society in which working families can live decently.

But good intentions do not relieve us of the responsibility to ask difficult questions.

The question before us should therefore not simply be:

Should people earn more?

Almost everyone will answer yes.

The more difficult and much more important question is:

Will this particular measure actually leave Aruban families better off?

Before we answer that question for an entire country, we should make sure we have done our homework.