“But the discussion on minimum wages has to start right at the beginning — why, in an open market economy, does the government have to intervene to legislate the distribution of economic gains? Why are some participants crying foul over a system that is assumed to be efficient in sharing the spoils? Elementary as the question may be, it has important implications for what answer will be arrived at.
SA is applauded for many features of a model market economy. Our monetary and fiscal authorities are well-respected. Our judicial system is a trusted arbiter between market players. Our financial system and its regulators are well respected, with the stock exchange regarded as among the most efficient and effective in the world. Corporate governance rules are lauded as highly as our constitutional framework. So what is the problem?”
Embrace nuance in minimum wage debate: Xhanti Payi today in BDlive published by Business Day.
Economic research and literature on minimum wages and their effects is vast. It tells both sides of the story, although with varying weight. It is not possible here to review the literature in any detail. What is important to note is that the discussion shows varying results across space and time. A minimum wage may lead to job losses, or it may not.
What analysts and policy makers must do is move beyond empirical outcomes to the contextual nuance. Where minimum wages have not led to job losses, we have to interrogate the contextual nuances and even interventions. Where there have been job losses, what has been the sequence of events leading to that result?
Do owners of capital reduce labour or working hours to sustain the bottom line, or do businesses actually collapse under the effort to comply? What other phenomena have been observed relating to these outcomes? For example, wages and incomes have increased since 1994, despite the significance and legitimacy of these increases being questioned. Various sectors have grown or added economic value, despite shedding the use of labour in production. What does this say about labour and economic activity and output over time?
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As the discussions gain momentum, parties involved have to hark back to the base of the question, including our historically cheap labour paradigm. All these considerations are important, so that “knowledge” drawn from research is not bereft of the often incalculable and almost impossible-to-accommodate factors outside economic modelling.