COSATU economist, Neil Coleman, in a presentation to the Annual Labour Law Conference in August this year said that “a National Minimum Wage (NMW) creates a basic wage floor, below which no-one can fall, regardless of region or sector”.   He is wrong.   As economist Thomas Sowell explained, “Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labour force.   Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed”.

 Eustace Davie’s article Minimum Wage Laws: Compassion or disguised cruelty? was first published by the Free Market Foundation (FMF) on 2 October 2014. He is a director of the Free Market Foundation but his views are his own.

What happens if employers, under current difficult economic conditions, are not able to pay whatever higher minimum wage is mandated?   Do the proponents of a national minimum wage shut their minds to the most probable consequences?   A stroke of a government pen, no matter how magnanimous, cannot create wealth or jobs.   A malign pen, on the other hand, can destroy wealth and endanger jobs.

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The 8.3 million people who, according to Stats SA’s latest quarterly report, are unemployed and looking for work, or are disillusioned work seekers, will soon discover that any national minimum wage will make finding a job even more difficult, if not impossible.

Are the proponents of a national minimum wage sincerely intending to be compassionate or are they engaged in disguised cruelty?   They never mention the people who are unemployed.   They never spell out to them what effect measures such as minimum wages and greater compulsory benefits for the employed will have on their chances of ever getting a job.   They never help the unemployed by putting forward proposals that will increase the demand for labour – a development that is absolutely essential if the mass of unemployed are to be absorbed into the workforce.   What they do is portray the firms that provide jobs as the bad guys, while they hold themselves out to be good guys supposedly looking after the interests of the unemployed.

If you are truly compassionate, and have a real concern for unemployed job seekers, think carefully about the minimum wage and the harm it does to the most vulnerable people in the country.   Heed the warning of the great economist Thomas Sowell when he says that the true minimum wage is always zero.

The tragedy of the situation is that the intended beneficiaries (victims) probably don’t know how a minimum wage can spell bad news for them.   If they are unskilled, have no job experience, have been unemployed for a long time, are young, old, or living in a rural area, the minimum wage will bar their way to ever finding a job.   Even if the minimum wage were to be set at a low level of, say, R1,000 per month, it will deprive some unfortunate people, who have limited capabilities, of jobs.   As the minimum wage level rises, for instance to the R4,500 mentioned by COSATU, it will exclude an increasing percentage of the potential workforce.

In his presentation, Neil Coleman pointed out that “well over half of South African workers earn below the estimated Minimum Living Level (around R4,500)”, that “50% of all workers earned below R3,033”   in 2013, that “50% of ‘African’ workers earned below R2,600 in 2013”, and that “in 2013, 35% of all workers…earned less than R2,020”.

Coleman used Brazil as an example of a country that reduced unemployment by half between 2003 and 2011 while steadily ratcheting up the minimum wage from about Brazilian reals 200 in January 1992 to 678 in 2013.   At the current exchange rate of about R4.60 to the real, the 2013 Brazilian minimum wage converts to R3,115.   Considering that this figure was reached in small increases over a period of 21 years, it is clear that the Brazilian government followed a carefully determined policy.

Coleman said, “if raising income in Brazil, wasn’t combined with (an) increase in domestic productive capacity, that income would not have driven the creation of large scale formal employment.”   This statement correctly captures, perhaps unintentionally, the fact that the minimum wage in Brazil was raised only after higher production and an increased demand for labour had raised wage rates to the point where the minimum wage would cause the least amount of harm to employment.   In other words, the government was careful to ensure that it set the minimum wage rate at a lower level than was being paid to low level wage earners in the labour market.   What occurred in Brazil is not an example of the “devil take the hindmost”   policy that COSATU is currently proposing.

If the South African government intends to introduce a national minimum wage despite the disadvantages it will incur for low income people, and wishes to follow the Brazilian example of not causing harm, even a minimum wage that is well below R2,020 will put the jobs of at least 35% of all workers at risk.   This, however, is not the gist of Neil Coleman’s presentation or that of other COSATU spokespersons.   The Brazilians obviously take economic realities into account while pro-national-minimum-wage South African commentators do not.

In the current debate, we have government, labour unions, high-wage workers and members of the public talking about the importance of a “decent wage”.   In all these discussions, no mention is ever made of employment being based on voluntary contracts agreed between willing parties.   There is an unjustifiable assumption that outside parties have a right to intervene and use compulsion to force, or attempt to force, wage rates and conditions of employment upon an unwilling employer.   More importantly, it also unjustifiably assumes the right to deprive job seekers of their right to decide for themselves what level of wages or conditions of employment they would find acceptable.

Job seekers, when they number 8.3 million and constitute the most destitute people in the country, deserve to have their rights treated with the greatest respect.   If government insists on instituting a national minimum wage, supposedly intended for the benefit of people seeking employment, the legislation and regulations should provide a clause that gives the unemployed the right, after counselling, to formally opt out of the minimum wage dictate and work for a lower wage if they so choose.