Abundance of unskilled labour in SA could be an opportunity for growth without the National Minimum Wage

30 November 2017
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Released just before the Christmas break, the National Minimum Wage (NMW) Bill is open for public comment for a period of just 13 days, an unacceptably short time period. This is paying lip service to public participation and is bad faith by government.

The national minimum wage, set to artificially raise (some) wages, is not the answer to the crisis of unemployment in South Africa. The abundance of relatively cheap labour should instead be seen, in the short term, as a competitive advantage for South African businesses. In a less heavily regulated and more flexible labour market, business could be encouraged to hire unskilled workers especially at the entry level. Over time, these unskilled workers would move into more skilled positions and earn higher wages. Individuals, businesses and the economy would all gain over time. This is according to Prof Brian Kantor in his occasional paper, The market for jobs in South Africa – why it performs so poorly and what can be done to improve it http://bit.ly/2zA9Pvm.

Kantor says that, “Faster economic growth, a larger economy, with a more profitable business sector that would accompany a more flexible labour market, would bring further advantages to all, especially those least well-endowed with skills and education.” It would encourage a larger flow of savings and a larger stock of capital as profits are re-invested in expanding businesses. More capital per worker will help raise the value of even the least skilled labour. There can be little doubt that given the encouragement to employ labour on more favourable terms, the owners of profit seeking businesses would seize more of the opportunity presented.

With 9.3 million mainly young people unemployed, South Africa’s labour market is dysfunctional and benefitting only a few in skilled jobs – it calls out for more labour intensive innovation. Fixing the labour market is critical as the supply of workers vastly exceeds existing demand to hire them. Yet real wages for those in the formal sector have risen consistently over the years, despite the abundance of work seekers. South Africa needs growth to create more jobs and absorb the ever-increasing pool of unskilled labour.

The growth opportunity for SA is to utilise more fully and productively its potential labour force. Business should look to expand profitably by absorbing large numbers of relatively unskilled workers into more productive employment.

Market related entry level wages, wages attractive to employers, can help open the door to improved earnings over time. Experience and skills gained on the job, and on the job training, add to the productivity of workers. Access to regular employment opens the opportunity for young workers to improve their qualifications and build a reputation for reliability and hard work, advantages that would make them more valuable to their employers. The unemployed or underemployed are currently being denied opportunities, which can add materially to incomes over a lifetime of work. Under current labour market practice, they are not judged to be worth their hire

The long-term solution is for increased spending on education and training that will provide the entrant to the labour force with the skills that command good pay. Furthermore, being helped by a much more flexible labour market, the economy can grow fast enough to cause a shortage of unskilled labour relative to the availability of skilled labour, capital and natural resources. Kantor maintains that the “competition for unskilled workers will then help to provide decent jobs for all.” It can be much faster than trickle down – more like a torrent of real wage growth should the economy grow faster. It is certainly capable of doing this with encouragement from a much more functional and flexible labour market.

Chris Hattingh is a researcher at the Free Market Foundation

 

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