NMW will have a neg­a­tive ef­fect

The Star Late Edition - - INSIDE - JASSON URBACH Jasson Urbach is di­rec­tor of the Free Mar­ket Foun­da­tion

AF­TER sign­ing an agree­ment to in­tro­duce a 2018 na­tional min­i­mum wage (NMW) of R20/hour, Deputy Pres­i­dent Cyril Ramaphosa stated: “(The NMW) could have been lifted to any num­ber you choose, but this would have had dire con­se­quences with a huge loss of jobs.”

Ramaphosa is con­tent to see some job losses, but just not “huge” job losses. That he is con­tent to see some job losses but not a “huge” amount must be of lit­tle con­so­la­tion for those who will be af­fected and forced to join the ranks of the more than 9 mil­lion cur­rently un­em­ployed.

In a shock­ingly ironic twist, the par­ties at the Na­tional Eco­nomic Devel­op­ment and Labour Coun­cil, have been tasked with, among other things, de­cid­ing whether gov­ern­ment em­ploy­ees em­ployed un­der the Ex­panded Pub­lic Works Pro­gramme (EPWP) should be in­cluded in the NMW agree­ment.

De­vout com­mu­nist and Deputy Min­is­ter of Pub­lic Works, Jeremy Cronin states: “Presently they (EPWP em­ploy­ees) are paid R83 a day. If we (the gov­ern­ment) in­crease that to R20 an hour, 310 000 (peo­ple) will be out of work op­por­tu­ni­ties in a year… If we pay R20 an hour, the gov­ern­ment will have to find an ex­tra R10 bil­lion. In the cur­rent (eco­nomic) sit­u­a­tion, that is not go­ing to hap­pen.”

What’s good for the goose is ap­par­ently not good for the gan­der.

The most ar­dent sup­port­ers of min­i­mum wages are those who al­ready have jobs, politi­cians seek­ing to win votes, and trade unions that stand to gain when their mem­bers’ wages in­crease. Whether or not these groups un­der­stand it, the NMW is a mas­sive bar­rier to en­try, pro­tect­ing those lucky enough to have a job. NMW cham­pi­ons claim it will re­duce in­equal­ity. It will not, and claim­ing it will, cru­elly mocks the mil­lions – es­pe­cially the un­skilled and in­ex­pe­ri­enced – who might have had jobs were they not priced out of the labour mar­ket.

Forc­ing up the wages of the work­ing poor will not per­ma­nently solve the prob­lem of, for ex­am­ple, South Africa’s failed ed­u­ca­tion sys­tem. There are ap­prox­i­mately 36 mil­lion peo­ple in South Africa of work­ing age, but more than 60% have ed­u­ca­tion lev­els of less than ma­tric. Typ­i­cally, higher lev­els of ed­u­ca­tion at­tain­ment are as­so­ci­ated with im­proved labour force par­tic­i­pa­tion rates and higher labour ab­sorp­tion and con­se­quently lower rates of un­em­ploy­ment.

A costly ad­di­tional layer of reg­u­la­tion will only serve to worsen the un­em­ploy­ment prob­lem. A leg­is­lated na­tional min­i­mum wage will have a dis­parately neg­a­tive ef­fect on the em­ploy­ment prospects of most new en­trants into the labour mar­ket and the un­em­ployed – who are typ­i­cally young black peo­ple.

Last year, Labour Min­is­ter Mil­dred Oliphant ex­pressed con­cern about the num­ber of re­trench­ments that might fol­low af­ter the im­ple­men­ta­tion of the NMW. She is right to be con­cerned. The Na­tional Trea­sury has warned that a min­i­mum wage of over R3 000 per month would re­sult in over 700 000 jobs losses. Af­ter all, em­ploy­ers re­spond ra­tio­nally and pre­dictably to a rise in labour costs – they ei­ther mech­a­nise and em­ploy fewer peo­ple, re­duce the hours of ex­ist­ing em­ploy­ees, or do a com­bi­na­tion of both. Some em­ploy­ers may choose to forgo prof­its but this will stall in­vest­ment in their busi­nesses, which will halt any ex­pan­sion – so they won’t take on any ad­di­tional work­ers and ex­ist­ing work­ers’ wages will stag­nate. To cover the in­creased wage pay­ments, em­ploy­ers will have no choice but to raise the price of their goods and ser­vices. But it’s not rich peo­ple who will suf­fer, they can eas­ily af­ford to pay a few ex­tra rands. It’s the poor who will suf­fer the most be­cause they are far more sen­si­tive to even mi­nor changes in prices.

We can also ex­pect to see more peo­ple forced into the in­for­mal and un­der­ground sec­tors of the econ­omy, which will have the per­verse ef­fect of re­duc­ing the amount of pro­tec­tion for the poor­est and most marginalised mem­bers of so­ci­ety.

The most prin­ci­pled case against a na­tional min­i­mum wage is that it is morally wrong. Even one per­son made un­em­ploy­able, is suf­fi­cient rea­son to op­pose such a pol­icy. No mat­ter how well-in­tended, a na­tional min­i­mum wage will harm the very peo­ple it pre­tends to as­sist and ex­ac­er­bate poverty and in­equal­ity in this coun­try.

At the cur­rent pro­jected lev­els of eco­nomic growth (1.3%), in­comes will dou­ble roughly every 55 years, which is clearly too long a pe­riod to sub­stan­tially ad­dress South Africa’s un­ac­cept­ably high lev­els of poverty. In con­trast, at a higher level of eco­nomic growth, say 5%, which is the level tar­geted in the Na­tional Devel­op­ment Plan; in­comes will dou­ble every 14 years. If the South African gov­ern­ment re­ally cares about the poor, it will adopt poli­cies that are known to foster eco­nomic growth. Forc­ing up wages by gov­ern­ment de­cree does noth­ing to boost eco­nomic growth and pro­duc­tiv­ity and fails to ad­dress why peo­ple are poor.

Fur­ther­more, ex­empt­ing gov­ern­ment pro­grammes from the NMW will bloat the pub­lic sec­tor at the ex­pense of the pri­vate sec­tor. When these poli­cies take hold, get ready for many more years of eco­nomic stag­na­tion and ris­ing poverty.

Most prin­ci­pled case is… it is morally wrong

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