The proposed National Minimum Wage (NMW), due
to come into force on May 1,
2018, is a quick fix to a systemic problem that will artificially increase
salaries for those who already have a job, rather than create more jobs.
Deputy President Cyril Ramaphosa, who enjoys the
political backing of trade union federation and Tripartite Alliance partner,
COSATU, has championed the cause of the NMW. The Congress of South African
Trade Unions (Cosatu) is useful for shoring up support for Ramaphosa ahead of
the ANC’s elective congress in December, so the NMW is widely seen as a sop to
the unions, and a political tool in the ANC’s internal succession battle.
In February 2017, an advisory panel set up by Ramaphosa
to investigate wage inequality submitted its recommendations for the imposition
of a NMW of R20 per hour or R3 500 per month. Although many have celebrated the
impending NMW as a blow against poverty, it will only worsen the fate of the
9 million people (26.5 percent of the workforce) are jobless and 37.1 percent
of youth (aged 15-34) are without work. Many of these young people will never
experience formal employment, and the longer they remain unemployed, the less
likely they are to get a job.
A number of likely side effects from the NMW will hit the
poor hard.
Higher prices
Bloated wage bills will be passed on to consumers in the
form of higher prices and will reduce the real value of higher wages in the
market. South Africa’s recent credit rating downgrade and currency weakness
already means the cost of basic goods will go up in the medium term. Consumers
cannot afford more price increases, even marginal ones.
The NMW will drive up labour costs and discourage firms
from hiring additional personnel – resulting in fewer staff being paid higher
wages. Many people, who would otherwise have been eligible for jobs, will be
consigned to unemployment.
Small businesses will be squeezed, as they will not be
able to afford the costs of compliance. This will benefit dominant companies
who will exploit their market power at the expense of emerging small and medium
enterprises.
The introduction of a minimum wage will push
labour-intensive industries toward greater automation of their systems, further
exacerbating unemployment. Labour absorbing sectors, such as mining and
agriculture (already suffering from low commodity prices and increased labour
regulation), will find automation irresistible. Low-skilled workers will be
negatively affected by this.
Read also: Recommended national minimum wage set at R20 per hour
Advocates of the NMW argue that higher wages will
stimulate aggregate demand in the economy and that the effect on unemployment
will be “ statistically
insignificant.” However, these proponents ignore the importance of
supply-side factors for economic growth, such as labour productivity.
South Africa’s economic history shows that, in the 1970s,
when wages increased during a period of prolonged economic stagnation, upward
pressure was exerted on labour costs per unit of output produced which made the
country uncompetitive as an exporter.
South Africa requires higher use of its existing
productive capacity before it can guarantee wage minimums. For this to happen,
the quality of the labour force must improve as productivity growth has not
kept pace with ever increasing wage demands. Other countries that have a
minimum wage, enjoy much higher levels of productivity than South Africa.
Because of a historically dysfunctional education system,
many workers are ill-equipped to operate in an increasingly services-based
economy. To compete globally, South African workers need to keep pace with
changes in skills which will require access to advanced vocational training.
Employers, though, may cut back on expensive skills development programmes if
their labour costs are inflated because of the NMW.
Skilling up
Having a job, even a low paying job, not only provides
people with a source of income, but also enables them to benefit from lateral
skills transfer and gives them self-worth. A low-paying job is often a
temporary first step on the career ladder.
Karl Marx wrote that workers are alienated from the means
of production, but a jobless person is arguably more alienated and prone to
anti-social behaviour if they cannot see a future for themselves as a
productive member of society.
Fundamentally, the NMW will infringe on the right of
workers to freely contract their labour by making it illegal for them to work
for less than the government-mandated wage, even if they consented to do so.
This constitutes an unjustified, state imposed limitation on an individual’s
right to work.
The NMW is intended to address South Africa’s high level
of wage inequality, but the real effect will be to privilege insiders and
exclude outsiders. Inequality is not the enemy. Unemployment and poverty are.
David Ansara is an
independent consultant and policy advisor. The views expressed in
the article are the author’s and are not necessarily shared by the members of
the Free Market Foundation, nor of Independent Media.
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