Can we pin our hopes on a minimum wage?
IT WAS very comforting when President Zuma, while delivering his State of the Nation address early this year, in passing, mentioned that the government will “consider the national minimum wage”. Unfortunately that is all he could say, as usual leaving the whole country hanging and yearning for more.
I agree with the view that the national minimum wage seeks to compensate the employees fairly. Interestingly this “fair” remuneration is what the government and labour unions have deemed to be “fair”. This then leads one to ask, what is fair remuneration? My biggest concern is, how will this national minimum wage deal with the scourge of income inequality in the land?
Our beloved country is one of the most unequal societies in the world. The disparities in income levels that currently exists between the haves and have-nots are so great to be tolerated any longer.
The majority of the people in South Africa live in abject poverty, have been drastically forced to be beggars in their own land whilst stripped-off their dignity, again I say, we can no longer perpetuate this sad state of affairs.
Concept of freedom
Sadly we divorced the ideal of “economic freedom” during negotiations with the previous regime and rather opted for “political freedom”. You can never fill the empty stomachs with political freedom alone. Neither can you provide shelter and other basic human needs, such as quality education and so forth with it. It is only the economic freedom that can close this gap, if properly implemented and geared solely towards addressing the plight of the poor.
The national minimum wage, in its superlative form must improve the income levels of other low paid workers. This effectively empowers the poor to feed, clothe and provide shelter for themselves and their families. It is natural to think that, had we equally prioritised economic freedom, we would not be dealing with the bread-and-butter issues we are dealing with today.
The social structure that exists in our country does not, in anyway support the objectives of our national liberation. The quadruple challenges, unemployment, poverty, inequality and corruption are dragging us backwards, away from the new tomorrow that speaks of change in a forward direction. It is only natural to think that the national minimum wage will play a helping hand in elevating the downtrodden from poverty ashes.
The living conditions of the people have worsened and are so unbearable. Many people are on the knife edge that any slight increase in the price of food and other basic goods pushes them to muchdeeper levels of poverty.
The people out there are just too poor to even afford food to feed their children and families. With the existing structure of economic participation in our country, the poor will remain poorer – less fortunate will get poorer – uneducated will be hit hard too.
The main economic problem facing South Africa is thus not merely a problem of how to allocate the “given” resources but rather how do we protect the wealth of the selected few.
This fundamental problem has grown character within corporate South Africa and is apparent in the blue-collar work environment, hence the need for equitable remuneration. The belief that this challenge has become less important implies the contention that income inequalities have also become less important.
However, we must recognise that we ourselves, the people of South Africa have not managed to pay special attention to the economic ills that are still facing the majority. This is further explained by the hostility that has been brewing amongst our people which subsequently came to life recently in the form of xenophobic attacks on foreign nationals.
In truth, I wish to warn the proponents of the national minimum wage that it can have devastating effects on the labour markets if not properly implemented. The national minimum wage is likely to cause unemployment since employers will suddenly demand less labour.
Shareholder value
This is strongly motivated by each company’s objective of profit maximisation and increase of shareholder value. I, therefore, foresee a situation in South Africa where the already stretched workers will opt to supply their own labour to the market at any rate that companies will be willing to pay.
Again, the increase in unemployment numbers that the national minimum wage is likely to bring will create a fertile ground for employers to exploit workers, who would have reached their unemployment and/ or poverty threshold and are willing to accept any available job at a given rate offered without any form of protest. Sadly, the unemployed will end up in a worse off position without any form of income or reduced income due to reduced working hours.
On the other hand, the national minimum wage will lead to a rise in inflation, increase in prices to put it bluntly. With the increase in input costs in the form of increased labour costs, companies are more likely to pass those additional costs on to consumers. With the already stretched consumer in the land, we must avoid this at all costs.
It is not enough to mention the above, the lukewarm relationship that exists between the private sector and labour unions is also likely to be dented further.
The ongoing conflicts between workers have reduced their collective bargaining strength as a class in the fight for better wages, improved living and working conditions. One of the primary objectives of the working class and trade unions in the economic conflict against employers is to ensure greater surplus for workers. As to what extent will this objective be achieved, remains an impossible dream.
Income inequality remains a major impediment that affects economic growth and social stability.
Furthermore, there is a strong need to sharpen our policy instruments with a view of having a direct impact in the fight against poverty, unemployment, inequality and corruption.
Yes, I am in favour of the national minimum wage as I believe this policy to be pro-poor and seeks to combat working class poverty and ultimately reduce income inequalities.
Having said that, I cannot be oblivious to the fact that, a country’s standard of living, including the wages of its workers, depends largely on the productivity of its labour force.
In a free market system, companies will bid competitively for the services of workers just as much as they will bid competitively for all other factors of production.
If companies start to pay wages that are above market levels, these higher costs will put businesses in a competitive disadvantage position and might force them out of business.
Companies do not lower wages because they are cruel nor raise wages because they are kind. Wages are therefore not determined by the employers’ impulse.
Wages are in essence prices that are paid for human labour and like all other prices in a free market system are determined by the law of supply and demand.
With the introduction of the national minimum wage, the rise in wage rates will be matched by the economic self-interest of employers which is to shorten the working hours. The employers will now need few workers as a result of curtailed production.
The universal law of a minimum wage is an increase in unemployment. Unemployment becomes an inevitable result of pushing for wages rates that are above market levels.
Unemployment becomes an inevitable result of pushing for wages rates that are above market levels.