Want to increase unemployment? Here’s how

I have a confession to make. I am not an economist and I have not read any of the studies that either promote or oppose a national minimum wage. But here is what I know for sure… a national minimum wage will hurt the poor.

Imagine a ladder leaning on a wall. Not a strong new aluminium ladder, but an old rickety wooden ladder. Each rung on the ladder represents a wage level. Picture the people on the lowest rung. Some are standing secure hoping to move up to the next rung. But some are hanging below that first rung; hanging by their fingernails, terrified of falling.

Picture the people, the 9 million unemployed, who are clustered at the foot of the ladder. Picture them gazing upwards at that bottom rung thinking: “Dear God, just give me one chance to jump and grab hold of that rung. Just one chance to start earning my first wage.”

Now picture the government removing the bottom rung… What do you see?

Here is what I see. Those who were standing secure on the bottom rung, maybe, just maybe, are now clinging by their fingernails to the next rung up. Maybe, just maybe, they are earning a better wage, hiding their fear of falling from their happy families. But those who were barely hanging on, have fallen off, have tumbled into destitution and desperation, have swelled the ranks of the 9 million unemployed.

And what of those 9 million unemployed? The now much higher bottom rung, the rung representing government’s mandated national minimum wage, is entirely out of their reach. Their chances of getting onto the ladder, of earning ANY wage, of gaining work experience, of regaining their dignity, have been drastically reduced.

The panel tasked by Nedlac with determining the national minimum wage amount, no matter how long they deliberated or how many studies they read, simply by setting a national minimum wage, will have increased unemployment. It’s not rocket science.

Everyone wants to see the jobless get jobs; everyone wants the poor to earn better wages. In the real world, higher wages without negative consequences derive from growth, growth, growth and only from growth, growth, growth.

Growth results from more economic freedom and less government intervention.

In 2000, South Africa ranked 42 out of 159 countries in the Economic Freedom of the World index; today we rank 105. We have plummeted 63 places in the rankings in just 15 years. The only countries that achieved larger declines during the same period were Argentina 121 (35 to 156) and Venezuela 65 (94 to 159).

Within the Sub-Saharan African sphere, South Africa now ranks BEHIND Seychelles (36), Rwanda (49), Uganda (54), Botswana (59), Liberia (65), Kenya (71), The Gambia (73), Zambia (78), Tanzania (93), Namibia (94), Swaziland (95), and Lesotho (102).

Economic Freedom of the World measures the degree to which the policies and institutions of countries support economic freedom. Studies have shown that there is a significant correlation between economic freedom, economic growth and human welfare.

People living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer lives. For example, countries in the top quartile of economic freedom have an average per-capita GDP of $41,228, compared to $5,471 for bottom quartile nations. The average income of the POOREST 10% in the freest countries is $11,283 compared to the OVERALL average income in the least free countries of $5,471.

If South Africa wants higher wages, it must choose less government intervention in the economy; it must choose more freedom not less.


Author Gail Day is executive manager at 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.





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