A few weeks ago, we published a piece from a BizNewz reader on how the imposition of a series of labour laws has made it impossible for South African companies to hire unskilled workers. In response, another reader argued that this piece was only a part of the picture and suggested that the argument be explored in more detail. The piece below looks at how labour laws, and especially minimum wage laws, can affect the job prospects of those at the bottom of the ladder. – FD
Biznewz Staffer
Minimum wage laws are an interesting thing. Essentially, they set a floor to the price of labour, or at least, they set a floor for the formal price of labour, since informal enterprises often ignore such laws, especially in an economy like South Africa’s. The intention behind such laws is often noble; minimum wage law proponents want to ensure that all the people in a given country earn a living wage that provides enough to support themselves and their families. Such proponents are often supported by trade unions, who are motivated both by a desire to see living wages and by a desire to bring more people into the formal labour market.
However, opponents of such laws argue that minimum wage laws create an artificial floor price on labour, and that the result is that people who are worth less than the minimum wage, that is, whose productivity value is lower than the minimum wage, are priced out of the labour market entirely. In other words, let’s say that the minimum wage is R15 an hour, and that a particular unskilled worker is only able to do work worth R10 an hour. The minimum wage law ensures that this fellow won’t be hired, because no employer is going to hire someone who loses them R5 an hour. Thus, while minimum wage laws may do some good for people who are worth close to the minimum, for the unskilled they can be a barrier to entering the world of paid work.
It’s an interesting problem, which economist Milton Friedmann addresses eloquently in the video below. How do we balance the desire to ensure a certain minimum standard of living among citizens with the imperative to avoid further disadvantaging those who are already less likely to find work? What do you think?
