10 July, 2017
Imminent national minimum wage risks devastating SA's rural areas - FMF
- 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
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
President Cyril Ramaphosa releases the report of the Panel of Advisors
appointed to advise NEDLAC on the level at which South Africa's National
Minimum Wage should be set, 20 Nov 2016.
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?
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".
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
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.
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.
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.
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.
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
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.