Anguish over low wages but no pity for the 9 million who earn zero

08 March 2017
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The proponents of the compulsory National Minimum Wage (NMW) admit that some people at the lowest level of the income scale will lose their jobs. They do not say how many or mention that, for the nine million currently unemployed people, raising the minimum wage will make finding a job even more difficult. Are they prone to Stalin’s cynical logic of “One death is a tragedy; one million is a statistic”? Change “death” to “job loss” and you have “One job lost is a tragedy; nine million unemployed is a statistic”.

If government introduced legislation that made it a criminal act for any person to work for less than R20 per hour or R3,500 per month, such legislation would be revealed as being thoroughly evil. Yet legislation is to be adopted that will make it a criminal act for an employer to pay workers less than R20 per hour or R3,500 per month. The same outcome but under this scenario the employer becomes the potential criminal. No less evil but those responsible for the inevitable job losses can pass themselves off as caring and compassionate.

They searched world-wide for instances of job losses caused by the imposition of a national minimum wage, claim the pro-NMW agitators, and found no evidence of any major instances of serious negative consequences. Their research was either very shoddy or they are lying. How could they have missed 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. This imposition when there was a huge difference between the per capita GDP in the territories and mainland USA. The calamity that hit those territories provides a classic 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.

In an article entitled Minimum-wage activists should look to Puerto Rico for clues to the future published in National Review Online, authors Paul H Kupiec and Ryan Nabil describe the extent of the devastation. 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.

Posturing as heroes, the proponents of a compulsory NMW have persuaded the government that imposing a NMW on South Africa’s employers will be an act of compassion towards low income workers. It will, in fact, be an act of unbounded and callous cruelty to the low-income people who will lose their jobs and the thousands of currently unemployed who will be denied jobs! Some people will lose their jobs as a consequence of the introduction of the NMW, others who would have got jobs but for its introduction, will remain jobless.

Heated discussions on the NMW tend to feature only three major groupings. The government - which is being urged to use force to make employers pay wages that are higher than the wages agreed upon between them and their workers, using force that was intended for the protection of citizens and not for aggression against them. The employers - who are employing workers who would possibly otherwise be unemployed and now face the threat of government force being used against them to compel them to pay wages that have not been agreed upon between them and their employees. The low-wage workers - who should be the ones making the decisions in this matter, individually and not collectively, in consultation with their employers. They have not been consulted in a matter that will cost many of them their jobs.

A fourth and vitally important group has been left out of the discussions. The unemployed – who have not been able to find jobs at the current prevailing wage rates for unskilled workers and will find it even more difficult to do so in the face of the NMW. The already jobless have been neglected because the focus has been on increasing the wages of the already-employed. Minor concern has been voiced about potential new job losses caused directly by the introduction of the NMW, but, what does not get mentioned at all, is that the introduction of the NMW will create a formidable new barrier to entry into the job market and make it even more difficult for the currently unemployed to get jobs. This negative consequence for the already-unemployed is so grave that, as a separate issue, it provides a powerful argument as to why the NMW should not be introduced.

Critics of the NMW are portrayed as being uncaring of the lot of lower paid workers. They are characterised as being agents of employers, opposing the NMW to make it possible for businesses to pay wages at an “unacceptable level” and make higher profits at the expense of their employees. In this pro-NMW narrative there is an assumption that employees working for low wages are incapable of making their own decisions about their own lives; that they have not scoured the options and have accepted, for the moment, the best they could find. Many of the intelligentsia, if you are one of the people who work, or are prepared to work, for less than R20 per hour or R3,500 per month, view you as someone who is not acting in your own best interests. To put it bluntly, that you are stupid, and that they need to come to your assistance by persuading the government to use the force of legislation to stop you from acting stupidly. They convince you that your employer is a bad person, that s/he is underpaying you. But what if they have to let you go because they cannot pay the minimum? These caring ‘helpers” will merely shrug their shoulders and accuse your ex-employer of being mean and uncaring!

Author Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.


Comments on Anguish over low wages but no pity for the 9 million who earn zero

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24 Mar 2017, 22:13 Rory Short Government should provide a Basic Income across the board for everybody. Government would recoup it in taxes from the better off and drastically simplify the administration of social grants by removing the need for them. It would also remove the need to impose a minimum wage on employers who would then be free to negotiate employee pay with their employees.