Minimum wages as a cure to labour woes adds to dilemma of high unemployment

Our minimum wage laws, along with a raft of other rules, makes employing people unattractive, writes the author. Picture: Ian Landsberg/ Independent Newspapers

Our minimum wage laws, along with a raft of other rules, makes employing people unattractive, writes the author. Picture: Ian Landsberg/ Independent Newspapers

Published Apr 8, 2024


By Donald MacKay

When policy is formulated, it’s important to ask how success will be measured. The American economist Thomas Sowell said: “There are no solutions. Only trade-offs.”

With each policy formulated in South Africa, we need to ask what the trade-off is, rather than assume there is none. I read the piece by Zingiswa Losi, the president of Cosatu, in the Sunday Times, and this really was brought home to me.

I watch the unions closely, partly because my dad was a trade unionist and this is the water I swam in growing up, and partly because we have a horrific unemployment problem.

Much of the unemployment problem is directly down to the policies extolled in the article by Losi, which are all well-intentioned. Most trade union leaders I’ve met are trying to make society better, but as the economist Milton Friedman said: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”

Only the outcomes matter and our labour laws have destroyed jobs and made creating new jobs very difficult, but this is not a political correct thing to say. After all, what apartheid did to worker rights was unconscionable, but that doesn’t mean the cure has not been as bad as the disease as far as employment is concerned.

Ann Bernstein writes: “The brutal reality is that the number of people employed in South Africa has grown by 2.3 million since 2008, while the number of working-age South Africans has increased by 9.5 million. Speaking broadly, the economy has generated less than one new job for every four entrants to the labour market in the past 15 years.”

There is no way for us to resolve our unemployment problem if we don’t address our labour laws in an open, respectful and honest way.

Losi notes: “A national minimum wage has raised the wages of six million impoverished workers. Workers need to be paid a minimum wage so that they have the money to get to work, as well as the wherewithal to buy food to give their bodies the energy they need to do their jobs.”

Yet this misses the effect this minimum wage has on the unemployed, a constituency who don’t pay union dues. A minimum wage is a barrier to entry to a job and unions don’t create jobs. Only competitive, profitable businesses create jobs. Our minimum wage is one of the few in the world that is higher than our median wage, with important implications for employment.

Our minimum wage also consistently rises faster than inflation, which makes it increasingly difficult to absorb young, inexperienced workers into the workplace.

Our minimum wage laws, along with a raft of other rules, which make employing people unattractive, while well-intended, appears to be keeping people out of work. You can argue that people are entitled to a living wage (they are), but this doesn’t mean their labour is worth more than the minimum wage and for as long as it lingers below that level they will remain unemployed.

Price, or what we call a wage when it relates to people, is an outcome of the interplay between demand and supply.

Chief executives of mines earn galling amounts of money because they are in global demand and this demand exists because they have that very rare skill of being able to create wealth out of rocks in the ground. You may argue that this is built on the back of exploited labour and you would be right in many cases, but unfortunately there are very few people in the world able to find a mineral, dig a hole in the ground to fetch it, and sell it at a profit.

Lest you doubt this, I’d remind you that South Africa has always had the world’s largest platinum, chrome and manganese deposits, but without the know-how to convert this into something of value, they remain just rocks in the ground.

Mining is a very high-risk business and unfortunately the exploited labourer in the mine is unable to create that value. Some can of course and they will rise through the ranks, because that is a very valuable skill indeed. Unskilled people earn much less because they are in very large supply and there is no matching demand.

When Brexit happened and suddenly there were no labourers to harvest the crops in the UK, farmers quickly flew in Eastern Europe workers to do the job. The moment the supply and demand equation altered (demand constant, but supply of labour down), the value of their labour rightly shot up.

We can’t fix our unemployment problem by making it hard to employ people. Our myriad labour laws might regulate employment in the workplace, but no law written can force companies to employ people.

Our high levels of inequality are not because chief executives earn too much, it’s because you have so many people living on nothing more than social relief of distress grant. Let’s fix this by getting them to work, rather than paying them a paltry sum to stay out of the labour market.

Donald MacKay is the founder and chief executive of XA Global Trade Advisors. He has been advising both local and foreign companies on global trade issues for over two decades. X handle: XA_advisors; email: [email protected]; website: