What Good Is A Minimum Wage To The Unemployed?

South Africa unemployment rate via TradingEconomics.com

This week Deputy President Cyril Ramaphosa announced a suggested, magical, minimum wage number to the National Economic Development and Labour Council (NEDLAC) of R3,500 per month, or R20 per hour. This number was recommended by a panel of advisors and a timeline was suggested to enact this nationwide policy.

The Deputy President called on all South Africans in all spheres of society to debate the findings and suggestions of the report. It is within the spirit of robust discussion that this article is written.

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It is said that this proposal is aimed at addressing issues surrounding poverty and inequality. There is, however, a major issue that is missed when discussing the proposed national minimum wage.

Firstly, a minimum wage supposedly only results in more money in the pockets of those who are working and employed.

The South African unemployment rate is currently standing at 27.1% in recent estimations. That means that the minimum wage, which aims to reduce poverty, directly ignores a quarter of the South African workforce. Regardless of where you personally stand on the debate of the effects of a broad national minimum wage on unemployment, it is not difficult to see that the biggest issue facing our economy is not being adequately addressed. It seems that the government is unable to ensure a conducive environment where jobs are created, so now it tries a different avenue.

The biggest issue facing our country is the fact that we have one of the highest unemployment rates in the world. Our focus should rather be on how the economy can be grown and developed to create more jobs for the millions of active job seekers. Proponents of lowering or eliminating the minimum wage argue that the cost that a national minimum wage adds to businesses and firms, cannot be ignored.

With most studies varying on the effect of a minimum wage on the national employment rate, one thing remains clear: Changes in wages are a secondary factor to the national labour market, with demand being the single biggest and primary factor to consider. This is also clearly illustrated in a number of examples. In the 1920s in the United States, unemployment did not drop because of changes to the wages of Americans, it dropped because of a booming economy where more and more jobs were created. The Great Depression which followed was not a result of a higher or lower minimum wage, but because investment spending plunged.

What South Africa needs to look at is not how the government can solve our poverty crisis, but rather how job creation can. Yet, despite unemployment being our single biggest economic problem, the government is tip-toeing around the issue and avoiding it.

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The announcement of a proposed minimum wage, I argue, is purely politically-motivated as an effort to appease labour unions in South Africa after a significant loss of support that the ANC government faced in the 2016 local government election. This move by the ANC government is like treating the fibula fracture of a car crash victim without addressing the collapsed lungs of the patient.

South Africa’s primary economic problem is not low wages, but no wages.