This article was first published by City Press on 16 April 2023
The Iniquity of the “Slave Labour” Slur
Whenever anyone with real concern for the millions of unemployed South Africans speaks out and suggests that the unemployed should have the right to be in full control of their own working lives, including the right to accept any job offers they wish, at any wage or under any working conditions acceptable to them, the derogatory slur “slave labour” is thrown at them. The use of such a term is cruel in its effect and consequences for unemployed people. Plans by individuals, companies, political parties, and organisations, to provide support to the unemployed, appear to wither when that slur is aimed at a potential support-giver.
According to the International Labour Organisation (ILO) South Africa has the highest unemployment rate in the world! Yet when unemployed people claim that they should have the right to decide not to be bound by the minimum wage and should also have the right to decide for themselves what wage they will accept from an employer -- the chorus of the phrase “slave labour” goes up.
Economic havoc and job losses are inevitable when a national minimum wage (NMW) is imposed by legislation on an entire country, especially when there is an annual increase that ignores the state of the economy and the prevailing level of unemployment. When the National Minimum Wage Commission (NMWC) applies the same compulsory minimum wage level over economic areas with widely differing per capita incomes, such as between large cities and small towns and villages in rural areas, the rate of unemployment will inevitably be higher in the rural environment.
The unemployed figure from Stats SA for Q4 (31 December 2022) was 7.8 million people, 32.7% of the potential workforce. Shockingly, 18.3% of those unemployed people had been unemployed for a year or longer. According to the Stats report the majority of the long-term unemployed were women and people with a lower level of employabilty.
Large job losses occur in the rural areas, as the same minimum wage is imposed by the NMWC on rural areas as on cities. This happens even though average wages and GDP per capita are much lower in rural areas than in the cities. Evidence that such job losses should have been expected in SA’s rural areas can be found in the experience of 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 (40% increase) by 2009. This imposition had a devastating effect due to the stark difference between the per capita GDP in the territories and that in mainland USA. The calamity that hit those territories provides a classic example of the devastation the NMW has caused in areas of South Africa, where the average GDP per capita is significantly lower than in the more affluent areas of the country.
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 a per capita GDP that was 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.
In Japan, 81% of all employment is in SMEs (small and medium enterprises), where the average enterprise employs nine staff members as opposed to four in the EU. In OECD (Organisation for Economic Co-operation and Development) countries, SMEs represent over 95% of enterprises in most countries and generate over half of private sector employment.
In developing countries: a significant section of SMEs remains in traditional activities. These enterprises have low levels of productivity and serve small, localised markets. There is little or no technological dynamism in this group, and few ‘graduates’ into large or modern technologies. In many poor countries, there is also a large underclass of (formal and informal) micro enterprises that eke out a bare survival.
Free up small businesses to encourage them to employ more people
The World Bank report indicates very clearly that a significant percentage of jobs in advanced economies are in small businesses. To re-emphasise the figures set out previously, SMEs make up 99% of EU businesses, and in Japan these enterprises constitute 81% of all employment.
Small businesses will obviously need to play a significant role in unemployment reduction in South Africa. Businesses are not the enemies of the unemployed and should not be treated as if they are. A concerted effort must be initiated to free small firms from red tape and costly compliance requirements to allow the people working in them to spend their time on productive work and not on complying with regulations. Regulations, taxes, and reporting requirements should be reduced to a minimum.
An unfortunate aspect of the imposition of suffocating regulations on small firms is that the government officials who devise the regulations often have little or no knowledge of how small firms function. Another factor is that if regulations devised for large firms with efficient administrations are imposed on small firms, they would consume a disproportionate amount of the management time of the small firms. Freedom for the employees and the employers will reduce unemployment more rapidly than any government planning could do!