During the apartheid era, people in South Africa were told by government, “If you are black, you may not work at this job or that job”. Now, policymakers are preparing to tell the people of South Africa, “If you cannot produce for an employer value per hour that is at least equal to the minimum wage, you may not work at that job or for any employer anywhere in the formal sector”. That will be the message contained in a national minimum wage.
At the annual NEDLAC summit that took place in Johannesburg on 5 September, Deputy President Cyril Ramaphosa said, “The talking time for the [national] minimum wage is over. We must move to how we deal with the modalities”. They were talking about the introduction of a national minimum wage that will not be confined to certain sectors only but extend across the entire country. Did any one of them consider that such an act would mean that if a worker cannot produce for an employer value per hour that is at least equal to the national minimum wage, then that worker may not work in any job in the formal sector?
Often ignored is that worker productivity is the main determinant of what employers are willing to pay. A legislated increase in the price of labour does not increase worker productivity. According to fundamental economic logic, if a minimum wage of R4,000 per month is deemed necessary to improve conditions for workers, then one of R40,000 per month would improve conditions even more. What becomes obvious from this supposition is that a prescribed minimum of R40,000 would render many more people unemployable. Those who can clearly be seen to lose jobs are visible. Less noticeable are the people who will not get a job as a result of even the lesser amount being prescribed. These people are the unseen victims of minimum wage legislation.
Many who support the minimum wage argue that an artificial raise in wages will have no effect on employment. How can employers not respond to higher wages? Being forced to pay minimum wages is one of the main reasons why employers have resorted to increasing mechanisation in South Africa – replacing workers with machines.
Why would artificially increasing the wage of low-skilled workers have no effect? Consider the case of internships. Here, employers are allowed to pay less than the minimum wage. In fact they are not allowed to pay anything other than zero. To make internships illegal because they do not abide by the minimum wage would not increase the number of opportunities for young people to gain experience. Similarly, forcing employers to pay an arbitrarily defined minimum instead of zero would also lessen their chances of obtaining experience or a job.
At the heart of the matter is the flawed, ideologically driven policy of “decent work”. Who decides what is “decent work”? Despite all statistics, if you are unemployed, as far as you are concerned, the rate of unemployment is 100%. Surely, then, you would want to have the right to decide for yourself what does and does not constitute “decent work”?
Professor Nicoli Nattrass of the University of Cape Town states, “Decent work for the few was achieved through rising capital intensity and job destruction. This is tragic for the millions of unskilled, unemployed South Africans whose only hope of regular employment is a more labour-intensive growth path. Yet policy makers today regard this as undesirable, uncivilised even, hoping instead that industrial policy can somehow catapult us on to a high-wage, high-productivity growth path that will be sufficiently rapid as to be labour-demanding despite its capital-intensive nature.”
The results of the Quarterly Labour Force Survey (QLFS), recently published by Statistics South Africa, revealed some alarming labour market trends. Our unemployment rate increased from 25.2% (5.067 million) in the first quarter of 2014 to 25.5% (5.154 million) in the second quarter of 2014 – a loss of 87,000 jobs in three months according to the strict definition. A more realistic representation of what is actually happening on the ground is the expanded definition of unemployment which includes so-called discouraged work seekers. According to this definition, the unemployment rate in South Africa is 35.6% (8.332 million unemployed people). This paints a very bleak picture indeed.
Of the unemployed, 65.8% have been out of a job for longer than a year, and a staggering 65.1% of youth (between the ages of 15 to 24 years) are unemployed. If the low end of the labour market were allowed to function unhindered, young unskilled people would not have such a desperate struggle to get onto the first rung of the employment ladder. As the vast majority are young black people, a legislated national minimum wage will have a disparately negative impact on the employment prospects of blacks.
Proponents of the minimum wage argue that because the South African school system is a failure, government needs to help people who have been betrayed by the system. A minimum wage is not the way to fix this failure. At most, it would just be a band-aid. In reality, it will just be yet another barrier making it harder for our least-skilled workers to begin their careers.
Minimum wages reduce employment opportunities generally and especially for people with few skills. They prevent people who typically would find employment in small and micro enterprises from ever gaining work experience because their productivity is not high enough to justify the wages employers would be compelled to pay them. They also make it impossible for a budding entrepreneur to grow their business by employing unskilled workers. This leaves the low skilled unemployed in a most invidious position. Without experience they cannot find work and without work they cannot get experience. In a labour surplus economy like South Africa, where there are large numbers of semi-skilled and unskilled workers, there can be and is no other option. At the low end of the market, unemployed people must be allowed to decide for themselves what jobs to take, and the laws that stop employers from employing them on mutually agreeable terms must be repealed.
Author Temba A Nolutshungu, Director, Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.