In an stimulating article that first appeared in the The Star today Temba Nolutshungu, a director of the Free Market Foundation, correctly points out that a national minimum wage would signal to black South Africans that unless they can produce sufficient value per hour to justify receiving the minimum hourly wage, they may not work for any employer anywhere in the formal sector.  He reminds us that this will be just a bad as during the apartheid era when black South Africans were told by the government of the day what jobs they could not do.

Read the full article Minimum wage, maximum unemployment now.

Extracts from the article

At the Nedlac summit on September 5, Deputy President Cyril Ramaphosa said: “The talking time for the (national) minimum wage is over.  We must move to how we deal with the modalities.”

They were talking about the introduction of a national minimum wage that will not be confined to certain sectors only but extend across the entire country.  Did any of them consider that such an act would mean that if a worker couldn’t produce for an employer value per hour that is at least equal to the national minimum wage, then that worker may not work in any job in the formal sector?

Often ignored is that worker productivity is the main determinant of what employers are willing to pay.  A legislated increase in the price of labour does not increase worker productivity.

According to fundamental economic logic, if a minimum wage of R4 000 a month is deemed necessary to improve conditions for workers, then one of R40 000 a month would improve conditions even more.

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Why would artificially increasing the wage of low-skilled workers have no effect?  Consider internships.  Employers are allowed to pay less than the minimum wage.  In fact they are not allowed to pay anything other than zero.  To make internships illegal because they don’t abide by the minimum wage would not increase the number of opportunities for young people to gain experience.  Similarly, forcing employers to pay an arbitrarily defined minimum instead of zero would also lessen their chances of obtaining experience or a job.

At the heart of the matter is the flawed, ideologically driven policy of “decent work”.  Who decides what is decent work? Surely you’d want to have the right to decide for yourself what constitutes decent work?

Professor Nicoli Nattrass of the University of Cape Town says: “Decent work for the few was achieved through rising capital intensity and job destruction.  This is tragic for the millions of unskilled, unemployed South Africans whose only hope of regular employment is a more labour-intensive growth path.

. . . .

Proponents of the minimum wage argue that because the school system is a failure, the government needs to help people who have been betrayed by the system.  A minimum wage is not how we should fix this.  It would just be another barrier making it harder for our least skilled workers to begin their careers.

Minimum wages reduce employment opportunities generally and especially for people with few skills.  They prevent people who typically would find jobs in small and micro enterprises from ever gaining work experience as their productivity is not high enough to justify the wages employers would be compelled to pay them.  They also make it impossible for a budding entrepreneur to grow their business by employing unskilled workers.  This leaves the low-skilled unemployed in an invidious position.  Without experience, they cannot find work, and without work, they cannot get experience.

At the low end of the market, unemployed people must be allowed to decide for themselves what jobs to take, and the laws that stop employers from employing them on mutually agreeable terms must be repealed.