Bill may open the taps for natural gas
There is a recognition in SA that developed economy welfare benefits (basic income grants) are impossible without developed economy social security taxes
of the order of a 10%-15% salary sacrifice imposed on the formally employed.
However, higher taxes discourage growth by discouraging enterprise and encouraging the emigration of scarce skills and capital. Redistribution can also lead to slower growth by reducing the incentive to work, to be economically active.
The number of people in SA who are not economically active has been rising as disturbingly fast as the estimated unemployed. Many of those classified as unemployed are in fact not economically active. They say they would be willing to work when asked, but only for what are unrealistically high rewards for work that is not available, particularly in rural areas where unemployment is double that of urban areas.
It is striking how little income from work is earned by the poorest South Africans.
Of the 16.3-million in the lowest fifth of the income distribution in 2016 (31% of the population), only 15.9% were employed, the unemployment rate was more than 60%, and 53% were economically inactive. The average monthly wage was just R1,017, as reported by the panel that recommended a national minimum wage of R3,500 a month.
Among adults of the second poorest 20% (25% of the population), 42.2% were not economically active. Of the third quintile, the middle-income group, only 52.5% were then employed (33% were economically inactive) for an average monthly wage of just R2,651. The minimum wage is only exceeded by workers in the fourth and fifth quintiles of the income distribution (25% of the population).
Cash grants, subsidised housing and utilities, and free education and primary health care have all helped to relieve absolute poverty. They have allowed many of the poor to survive without work. It has also raised the wage that makes it sensible for many to work.
Unemployment of the order of 40% far higher for the youngest cohorts of potential workers cannot be explained by a lack of demand for labour, the result only of slow growth and the host of regulations, including the minimum wage, the influence of unions and the Commission for Conciliation, Mediation and Arbitration
(CCMA), which discourage demand for low-skilled labour.
Nor is it plausible to think regulations are strictly observed by informal hirers and suppliers of labour, which include the large number of immigrant workers employed informally who will not answer phone calls from Stats SA. Foreign workers undoubtedly depress wages for informal employment.
The relationship between GDP (growing slowly) and the numbers employed outside of agriculture has become much weaker since around 1990. Each percentage point of growth in GDP now results in fewer jobs. Much improved poverty relief helps explain this trend.
Yet the share of the economy received as wages and salaries has increased significantly in recent years, while the share of operating surpluses of the firms providing employment has shrunk. Worryingly so, given the importance of profits for growth-enhancing investments in equipment and people. Those with better-paid jobs are the favoured and well-protected insiders of the developed sector of the SA labour market. Nor has the observed unemployment affected the active competition for skilled, better-paid workers.
To describe this dual labour market as unintended would be inaccurate. SA has chosen to tackle poverty with welfare rather than with jobs. Further redistribution without growth is wishful thinking. It cannot solve the poverty problem and will exacerbate the employment problem.
Educating and training the many potential entrants to the labour force so that they could command the rewards that make it sensible for many more to work, and sensible to hire more productive workers, would raise incomes and employment. Privately and competitively supplied education and training, funded expensively as they are now by the taxpayer, would deliver both. But alas, this is also wishful thinking.