A lesson in economics on minimum wage
THE announcement of a R3 500 minimum wage made me sad, sad for the millions of unemployed who now have even less chances of gaining employment, and sad for many who are currently employed who will soon be losing their jobs.
Economics 101 teaches us about supply and demand. It is a fundamental law that has existed since the beginning of humankind.
To illustrate for those who may disagree, say we have a shop owner with 1 000 widgets, and he is having difficulty in selling them because of a low demand. If he puts the price up, fewer people will buy the widgets, so sales and turnover will fall. The only way to move them is to lower the price, which will stimulate demand and sales.
Similarly, unskilled or lowly skilled workers are plentiful. There are too many for all of them to get jobs, so bringing in a minimum wage will result in fewer job opportunities as producers would rather mechanise and/or get by with less labour.
The way out is to have no minimum wage. Producers pay a worker what they consider a fair wage for the productivity of that worker. If workers are unhappy, they can resign and their places taken by those who are prepared to work at that rate. But if the workers stay on and receive skills training, they can command a higher wage.
It is no coincidence that highly skilled employees are well paid. They are in short supply. Given the disastrous state of education, can we expect this to improve any time soon? If unemployed workers were given the choice to work for a low income or to remain unemployed with no income, surely they would choose the former. More jobs mean more productive output, more wages, spending, demand and more taxes – an upward trend as opposed to the current downward spiral.
Some might argue that R3 500 per month is not a living wage. I would say that it is surely easier to live on R3 500 than having R0, or trying to survive on the income grant. No wonder our crime rate is spiralling out of control.
We are entering a dangerous phase of our country’s history now, which is playing right into the hands of populists like comrade Malema. With this latest short-sighted move, the SA Titanic has just increased speed on course for disaster. Gavin Hillyard Somerset West