“Haiti is open for business,” said recently the country’s Prime Minister Michele Pierre-Louis. “We’re coming out of the paradigm of humanitarian help and brotherly love and moving to the creation of wealth and business,” added the Haitian Minister of Tourism Patrick Delatour. The leaders’ encouragement came on the heels of a momentous investor conference held in Haiti in early October, organized by the Inter-American Development Bank, and promoted by the United Nations Special Envoy to Haiti, former U.S. President Bill Clinton. However, potential profit-driven investors have to confront a newly implemented rise in the country’s minimum wage.
Although there is not much agreement among economists about anything these days, there is wide consensus that minimum wage laws are unhelpful for low-skilled workers. With higher labor costs, companies (both local and international) have a disincentive to hire additional workers. Indeed, those companies willing to invest in Haiti (and looking to come out of the “paradigm of humanitarian help”) will give significant weight to the country’s labor costs, given its overall low global competitiveness. By raising the cost of labor, the Haitian policymakers have spoiled their country’s key comparative advantage. What’s more, because minimum wage workers tend to be young, these laws trigger a vicious circle in which young workers can’t learn new skills, thereby diminishing the future labor force’s skill level. Ultimately, as Paul Krugman put it in his famous essay “In Praise of Cheap Labor,” bad jobs are better than no jobs at all. Alas, in spite of Haitian politicians’ rhetoric, the country’s new openness to business remains uncertain.
Published Date: October 26, 2009