Why raising the minimum wage doesn’t always mean more money in Belizeans’ pockets

Published by [email protected] at May 23, 2025

Posted: Friday, May 23, 2025. 7:09 am CST.

By Horace Palacio: The Government of Belize has reaffirmed its commitment to raising the minimum wage to $6 per hour as part of its Plan Belize 2.0 agenda. On the surface, that sounds like progress. More money per hour should mean better lives for workers — right?

But in economics, nominal gains often don’t translate into real gains. Raising the minimum wage doesn’t automatically mean workers will have more spending power, especially in an economy like Belize’s where inflation, market informality, and weak enforcement can wipe out the intended benefits before they reach the ground.

Let’s start with purchasing power. If the price of bread, bus fare, rent, or utilities goes up at the same pace — or faster — than wages, then workers aren’t better off. In fact, their real income may stay the same or even decline. A wage increase without a corresponding strategy to control inflation or improve productivity is simply a nominal adjustment — numbers go up, but quality of life remains stuck.

Then there’s the issue of employment elasticity. When wages are pushed up by mandate instead of productivity growth, small businesses — especially those already struggling — may respond by cutting hours, reducing staff, or increasing prices. This creates a ripple effect. The same worker who was earning $5/hour full-time might now make $6/hour part-time — with fewer hours and no real net gain.

And in a country where a large percentage of the labor force operates informally, a minimum wage hike means little to those earning under the table. The domestic worker who makes $100 for two days’ work or the youth doing gig labor on weekends aren’t automatically brought into the system just because the number went from 5 to 6. Without labor formalization, better wage laws won’t help the very people they’re designed to protect.

There’s also the marginal propensity to consume — a key concept in economics that refers to how much of an additional dollar earned is spent rather than saved. For low-income earners, this rate is usually high — they tend to spend most or all of what they make. However, if prices of essentials are rising faster than the wage itself, then even that extra dollar doesn’t circulate. It simply gets absorbed by higher utility bills or bus fares. In that case, the multiplier effect — the mechanism that helps wage increases stimulate economic growth — is effectively neutralized.

And we can’t ignore the compliance gap. Many employers may ignore or delay implementation, especially in industries where enforcement is weak. If we raise the minimum wage without boosting labor inspection capacity, dispute resolution mechanisms, or incentives for businesses to stay compliant, then the law becomes a paper victory. One that looks good in speeches but doesn’t show up on pay slips.

To be clear: Belizeans deserve better wages. No one should work full-time and still be unable to afford basic dignity. But wage increases alone — without structural economic reform — won’t deliver the transformation people expect. Raising the minimum wage must be paired with policies that support small businesses, improve labor enforcement, subsidize energy and transport costs, formalize the workforce, and drive productivity across industries.

Otherwise, we risk creating what economists call “wage illusion” — the sense of progress without the substance.

A higher minimum wage sounds like justice. But if it’s not designed for Belize’s actual economic reality, it won’t lead to justice — only frustration.

The views expressed in this article are those of the author, Horace Palacio, and do not necessarily reflect the views or editorial stance of Breaking Belize News.

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