NMW to cause economic havoc in rural areas and destroy SA job opportunities

29 March 2018
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NMW to cause economic havoc in rural areas and destroy SA job opportunities


Researchers exhorting the SA government to implement the NMW reported that they could find no studies showing high job losses from the institution of minimum wages. How did they not uncover the link between the 2007 decision to impose the US Fair Minimum Wage Act on the US dependencies of Puerto Rico, American Samosa and the Mariana Islands, areas with much lower per capita GDP’s than mainland USA and subsequent developments in those countries? By 2009 the GDP of American Samoa had dropped by nearly 10%, overall employment had declined by 30% and in the critically important tuna-canning industry by 58%. The governor of American Samoa, testified before the US Congress that the new minimum wage policy created “the real possibility that American Samoa could be left substantially without a private sector”.

Puerto Ricans found that the increased minimum wage was 75% of their median wage, unemployment increased rapidly, and GDP per capita declined by almost 7% between 2007 and 2013. In the Northern Mariana Islands, by the end of 2009, employment was down by 35% and real per capita GDP by 23%. The calamities occurred because of the implementation of the same minimum wage in the high GDP per capita US and in its low GDP per capita dependencies.

The SA researchers either did poor work or purposefully withheld the horrendous consequences experienced by the US territories. They then urged the SA government to adopt a national rather than a more nuanced minimum wage that would take account of per capita GDP differences between the various areas of the country. The reason given for preference for the NMW was that it would be “easier to implement and enforce”! They could as well have added, “and damn the consequences for the unemployed, the low-income people in the poorer areas who will lose their jobs, the small businesses that will be forced to close down and the households that will no longer be able to afford to pay domestic workers”.

Mass unemployment of 9,2 million people (almost 40% of the country’s potential workforce) is the direct result of South Africa’s already onerous labour and minimum wage laws. The National Minimum Wage is set to cause even greater unemployment, potentially increasing the total to 10 million jobless people.

This warning, and appeal on behalf of the unemployed, was taken to Parliament by FMF directors Temba Nolutshungu and Eustace Davie. They spoke of South Africa’s forgotten people, the 9.2 million who are unemployed because of the laws and regulations adopted to create a high level of job security for the people who already have jobs. Minimum wages, onerous, strict and complicated employment procedures, demanding administrative requirements, internal disciplinary hearings, and potential hearings before the CCMA and Labour Court, make employers, especially small business owners and households, reluctant to employ staff. Compliance costs, which could be as much as R2,000 per month per employee, drive up the total cost of labour and increase the barriers to entry into the labour market.

Given a more realistic regulatory dispensation, there would be a much lower level of unemployment. The government focus is always on the employer. How much more in regulatory requirements and wages can be extracted from the employer to improve the wages and job security of those who are already employed. Not a word is uttered about the effect of such policies on the unemployed. Nothing!

It is clear from the NMW Bill and its Socio-Economic Impact Assessment (SEIA) that no consideration was given to the impact of the proposed legislation on the unemployed and on low income workers whose jobs will be threatened by the imposition of a NMW. Employers have already stopped hiring low-wage staff and reducing staff earning low wages. Despite the Treasury estimate that the legislation could cause more than 700,000 job losses, and the different estimates of the researchers at Cape Town and Johannesburg universities predicting job losses of 204,977 and 897,068, the proponents of the NMW plough on regardless. Whatever the job losses may be, every individual who loses a job will be one job too many!

When added to the 9.2 million people already jobless, the figure could trend to above 10 million without jobs. Is it not shocking that the current number of unemployed people in the country exceeds the combined total populations of Cape Town (3.7 million and Johannesburg (4.4 million)? Yet there is no outcry!

Eustace Davie is a director of the Free Market Foundation, the author of Jobs for the Jobless and a contributing author to Jobs Jobs Jobs


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