Politicians approve economically disastrous and unconstitutional NMW

06 June 2018
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The politicians who approved the National Minimum Wage (NMW) Bill appear to believe that they live in an Alice in Wonderland world in which they have been issued with “magic wands” that enable them to adopt legislation and regulations that do good without doing harm. In the real world of economic consequences, the NMW is set to harm a great many unfortunates who currently earn incomes that are well below the NMW. The NMW will cause many to lose their jobs and make it even more difficult for the 9.48 million unemployed to access jobs. 

Should low-income people earn higher wages? Absolutely! The problem is that research shows that higher wages cannot be brought about by force. That is what this legislation seeks to do. Attempting to force employers to pay higher wages causes people who have jobs to lose them. It also raises the barrier to entry into the jobs market, making it harder for jobless people to get jobs.

The real route to higher wages requires strategic thinking, such as the “positive non-intervention” policy applied in Hong Kong in 1945 at the end of Wold War II. More than a million Chinese residents who had been deported during the war, flooded back to Hong Kong at a rate of about 100,000 per month between 1945 and 1947, taking the population to its former level of about 1.8 million.

Nearly half a million immigrants surged in from China during the 1948/9 Chinese civil war. And, in the late 1970’s, about 65,000 refugees from Vietnam landed in Hong Kong under the British entry rules for refugees. This large influx caused enormous problems, including mass unemployment.

Hong Kong made a deliberate effort to remove government heavy-handedness from economic activity thus allowing entrepreneurs to innovate and employ their human and material resources to best advantage. Hong Kong resolved a greater unemployment problem than now faces South Africa (SA) and grew its economy at an astonishing rate. Per capita income increased from 28% of that of Britain in 1960 to 137% in 40 years. There was no minimum wage and no strict labour law. Hong Kong remains one of the freest economies in the world.

SA should study the history of Hong Kong and consider following its early policies, including its non-interference in the labour market. Hong Kong’s vigorous growth rapidly reduced unemployment and improved conditions for its citizens.

Due to SA’s strict labour laws and minimum wages, the first objective of employers is to stay out of trouble. This means not employing the very people who are pleading to be given a chance to prove themselves. Employers opt for people with track records of good working relationships and proven skills.

Sadly, the unwise implementation of the national minimum wage will have substantial negative consequences in the rural areas. Even the labour unions are aware of the lower wage levels in rural areas and in different sectors of the economy. Naturally, when the “magic wand” fails to work, the proponents of the NMW will blame everyone but themselves.

Evidence of unconstitutionality of the labour laws is revealed in the following sections of the Bill of Rights: Section 7(1) “enshrines the right of all people of our country and affirms the democratic values of human dignity, equality and freedom”. Section 7(2) requires the state to “respect, protect, promote and fulfil the rights in the Bill of Rights”. Section 9(3) provides that “the state may not unfairly discriminate directly or indirectly against anyone “on one or more grounds”. Section 10 states that “Everyone has the right to dignity and the right to have their dignity respected”. Is there anyone who would suggest that the rights of the unemployed, as described in the Bill of Rights, are being respected?

These strict labour laws, including minimum wages are the direct cause of mass unemployment in SA, rendering 9.48 million people unemployed. The compliance costs of applying the labour laws are a higher percentage of the wages of low-wage workers than high-wage workers. Employers therefore reduce per capita compliance costs by employing high-skilled, experienced workers rather than low-skilled, inexperienced workers.

The labour laws and regulations result in an impenetrable barrier, preventing the unemployed from accessing jobs. These same laws are impugning their human dignity, equality and freedom; and the respect, protection, promotion and fulfilment of their rights set out in the Bill of Rights. The state is unfairly discriminating against them in favour of the employed; and in the process, their right to dignity and to have their dignity respected, is not being fulfilled. The unemployed have a right to claim rectification from the state.

Eustace Davie is a director of the Free Market Foundation, the author of jobs for the jobless: job seekers exemption certificates for the unemployed, and a contributor to Jobs Jobs Jobs

 

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