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JOHANNESBURG — With the rapid newsflow in South Africa, it’s easy to forget some other major issues at play. Something that could become a huge factor in the day-to-day running of South Africa is the new national minimum wage (NMW), which is expected to be implemented in May next year – just a few months away. It is the country’s first, more holistic attempt at ensuring that its employed earn a certain minimum. With the risk of further rand depreciation and subsequent inflation, the NMW of just R3500 is already viewed by many experts as being too little. However, there’s a converse viewpoint that South Africa is not ready for an NMW at this stage. In this piece, Eustace Davie of the Free Market Foundation argues that the implementation of an NMW risks dissuading local businesses from hiring more people, thus driving up much-needed employment. Eustace further ponders the impact that a national minimum wage will have on poorer, rural areas, where business people are even more stretched than their urban counterparts. – Gareth van Zyl
By Eustace Davie*
Is the government unconcerned about the devastation of employment in the rural areas that the National Minimum Wage (NMW) will cause? If government generally is unconcerned, perhaps Deputy President, Cyril Ramaphosa should give the matter some earnest thought because he will be blamed.
In circumstances of mass unemployment, it is inhuman for government to pretend that the jobless do not exist. It is even more inhuman to adopt legislation and regulations that have the effect of prohibiting the unemployed from working.
If government were to introduce legislation that made it illegal for any worker to work for less than R20 per hour or R3,500 per month, and threatened them with fines or imprisonment if they should do so, such legislation would be considered evil. Legislation that makes it illegal for an employer to pay workers less than R20 per hour or R3,500 per month has the same outcome, but under this scenario the employer is the transgressor. That law is no less evil but the legislators responsible regularly escape the blame.
Why are the unemployed South Africa’s forgotten people? Research is carried out and a furious debate occurs about increasing the wages of low-wage workers, but, for those who earn zero, there is silence. Does government consider the problem so difficult to solve that it has decided to wish away the unemployed and pretend they do not exist?
Constitutional rights of the unemployed
There is good reason to argue that the NMW will be unconstitutional in terms of some or all the sections 9(1) “equality before the law”, 9(2) “equality includes the full and equal enjoyment of all rights and freedoms”, 10 “the right to have their dignity respected and protected”, 12(1) “the right to freedom and security of the person”, 12(1)(a) “not to be deprived of freedom arbitrarily or without just cause”, 22 “every citizen has the right to choose their trade, occupation or profession freely”, and 23(1) “everyone has the right to fair labour practices”.
1/2 Deputy President Cyril Ramaphosa pushes for the national minimum wage. I'll only support him if the minimum wage is set at R25000/month.
— Phumlani M. Majozi (@PhumlaniMMajozi) June 24, 2017
The freedom denied the unemployed under the NMW is their freedom of contract; the right to take care of themselves and their families by working for employers under the best conditions and for the highest wages they can find. They are deprived of the right to make these important and critical decisions for themselves because their right to contract with employers is blocked by the labour law prohibitions imposed on employers.
The NMW, to be introduced by May 2018, will prohibit employers from paying employees less than R20 per hour or R3,500 per month. This prohibition will slam shut the jobs door in the faces of the young, the old, the inexperienced, and anyone else who, for some reason, is prepared to work for a low wage to gain work experience, to earn something rather than nothing, or, simply, to have something to eat.
Costly labour laws are barriers to employment
Dealing with the requirements of the Labour Relations Act and its ancillary legislation costs money. Every additional cost imposed on employers means less money available to pay existing staff or to take on more workers.
Ramaphosa says national minimum wage is a step towards a living wage. Next issue is comprehensive social security.#CosatuCC
— Ranjeni Munusamy (@RanjeniM) May 30, 2017
Large firms hire human resource specialists to deal with the legislative and regulatory demands of the laws. In small firms, much of the valuable time of owners and senior staff is absorbed by labour matters. When employers have factored these costs into their calculations, they are compelled to conclude that it makes economic sense to take on workers who will impose the least cash and management costs on the firm relative to their productive capacity.
Given the dynamics of business, and especially the care required in doing business in our current no-growth economy, firms are being super careful in the hiring of staff. Forcing firms to pay higher wages does not bode well for anyone at the bottom end of the jobs scale, let alone the 9.3 million who are already unemployed.
The National Minimum Wage will devastate the rural areas
The tragic consequences for the inhabitants of the US territories of Puerto Rico, American Samoa and the Northern Mariana Islands, who in 2007 were forced to fall in with the raising of the US national federal minimum wage from $5.15 an hour in 2006, to $7.25 by 2009 should act as a warning to the South African government. There was a huge difference between the per capita GP in the territories and that in mainland USA. The calamity that hit those territories provides a clear example of the devastation the NMW will cause in areas of South Africa where the average GDP per capita is significantly lower than in the more affluent areas of the country. Employers in small towns and rural areas of the country will not be able to afford the minimum.
The reason given for replacing the existing minimum wages that have been set based on “ability to pay” is that a national minimum wage will be “easier to police”. So, making life easier for officials means that employers in impoverished areas of the country will be compelled to pay the same minimum as employers in the country’s large cities. An idea that will have brutal consequences for low-income people, whether employers or employees.
In American Samoa, by 2009, with only 30% of the scheduled increases applied, overall employment was down 30%, with 58% job losses in the tuna-canning industry and real per capita GDP down 10% from 2006 levels. During the same period, the Northern Mariana Islands experienced 35% job losses and per capita GDP down by 23%. The compulsory increase resulted in a minimum wage that was 75% of the Puerto Rican median wage. Unemployment increased rapidly and GDP per capita declined by almost 7% between 2007 and 2013.
Young victims of legislative barriers
Stats SA reported in its most recent quarterly that, “Of the 433,000 people who joined the ranks of the unemployed, approximately 58% were young people aged 15-34 increasing the youth unemployment rate by 1,6 percentage points to 38,6%”. It is predictable that firms, in view of the current poor economic condition, will be wary of taking on new staff. Bias against hiring inexperienced and potentially less productive workers will be heightened by the looming NMW, which they will factor into their calculations.
The NMW already represents a huge barrier to the employment of recent and future school leavers and the already-unemployed. Many young people, trying to overcome years of deficient schooling, will be hit by the NMW regulatory barrier and consigned to the ranks of the “forgotten”, along with the other 9.3 million.
- Eustace Davie is a director of the Free Market Foundation.
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