Jobs, or a “decent wage”?

One of my favourite songs is Peter Gabriel’s “Don’t Give Up”, featuring Kate Bush, from the album So (1986).  The song is about isolation and despair – an excluded man cannot find work, and is considering killing himself.

In this proud land we grew up strong
We were wanted all along
I was taught to fight, taught to win
I never thought I could fail

No fight left or so it seems
I am a man whose dreams have all deserted
I've changed my face, I've changed my name
But no one wants you when you lose.

 Moved on to another town
Tried hard to settle down
For every job, so many men
So many men no-one needs.

Photographs by Dorothea Lange in the book In This Proud Land showing Depression-era Americans inspired Gabriel, an activist, to write the song about difficult economic conditions in Britain under Margaret Thatcher.  

During a period of prolonged unemployment in the mid-‘90s, I understood “I am a man whose dreams have all deserted”, and “For every job, so many men”. 

At the time I volunteered with an NGO working in impoverished communities in Cape Town and Western Cape rural towns.  I met poor people whose desperation was writ large.  I met people who had not eaten for days.  They had no jobs and little hope of finding one. 

They humbly accepted the assistance we offered.  Mostly, we went to show solidarity and that they had not been forgotten.  There were no angry outbursts of self-victimisation and martyrdom under alleged prejudice and injustice – “the brunt of racism or sexism or homophobia or religious bigotry” Wits lecturer Chris Thurman wrote about – that’s de rigueur these days.

Analysts, politicians and columnists glibly speak about South Africa’s unemployment, poverty and panoply of real – not virtual or manufactured problems that occupies social media – social problems like it’s something they’ve read in a book.  The majority probably have never experienced such hopelessness and despair.  That’s the difference between empathy and sympathy.  And even then their sympathy is false – there’s no urgency to their 20-year long discussions and plans about job creation. 

Unemployment is not the crisis it ought to be because the unemployed are largely invisible and voiceless.  Compare the attention given at the highest levels and throughout society to the violent students.  See how quickly government et al gives in to their demands, and finds tens of billions to fund the fees deficit – R16.3bn alone for 2016.  But all it and business can spare is R1.5bn for nebulous job creation proposals.

I wonder how among supposedly clever people there is a disjoint between reality and their thinking.  They have little experience of hardship the majority of the population live through daily.

Imagine the scenario: a gang boss needs 100 workers.  But 150 turn up, desperately hoping to be chosen.  Most have not worked in days or weeks.  They have families to feed. 

There is intense competition among them to persuade the boss to choose them.  They shall work for a lower wage or longer hours – essentially the same thing – than the next person.  All they have to offer is their labour.  The boss is an unsympathetic and pragmatic businessman, so we know who he will choose. 

In a village an hour from Cape Town, a woman we know had occasional char jobs that paid R20 a half day or, sometimes, household items her hard-up employers bartered with her. Her two sons work for their landlord in exchange for free shelter – no wages – and take odd jobs if they can find it.  (This family is representative of the true, invisible poor and oppressed, not the privileged and brattish students.)

People will work for “low” wages provided it’s not below what they deem exploitative, which is subjective depending on their circumstances, if it provided an opportunity for a little income, even for a short time.  In SA this is proven, ironically, by government’s expanded public works programme where there’s intense competition for jobs at wages below the proposed minimum wage. 

But what if, collectively, they stipulate a common wage for them all?  In that case either the boss employs fewer, for shorter hours, finds another source of (illegal) labour, mechanises, or a combination of these options.  Or, he may close operations.

This is what happened after the Western Cape farm workers strike in 2012 to 2013, and the regulated minimum wage was increased 52% from R69 to R105 a day.  Recent UCT Saldru research reports “the minimum wage increase caused a substantial loss among rural farm workers”.

So I don’t understand how the ANC, Cosatu and left-wing economists, academics and columnists – dilettantes – believe a minimum wage will have minimal economic effects for employers in particular and economy in general.  They point to mature, industrialised economies, mainly of the west, as the example that it works. 

But these countries have low rates of unemployment – near full employment.  South Africa’s real unemployment rate is 36%, and both official (27%) and expanded are at a 12-year high.  They mention Germany as a “minimum wage success story”.  But its unemployment is 6% – a record low.  It’s practically full employment if we discount labour churn.  They also forget these countries’ labour is far more productive than SA’s.

At full employment – or where demand matches supply – the minimum wage for a sector is virtually the market rate.  It’s similar to South Africa’s graduate labour market, which has about 4.5% unemployment.  This is why in SA professionals – black professionals in particular – are paid well, even overpaid.

If the gang boss needs 100 workers and 100 are available, give or take, there is equilibrium, ceteris paribus, including with the wage on offer.  Unless there was an exogenous shock or event that changed equilibrium conditions, neither the boss nor workers would need to renegotiate terms.

The first scenario is SA, and the second developed industrialised countries.  SA’s situation is complicated by the fact its small economy is an insignificant 0.64% of world GDP against advanced economies’ 42%, G7’s 31% and emerging and developing countries’ 58%.  SA’s BRICS partners are China at 17%, India 7%, Russia 3% and Brazil 3%. 

These countries are our trading partners and competitors.  Their larger and more productive economies and labour means with our labour rates set too high and productivity low – wage increases are outstripping productivity – our economy will struggle to compete in global markets.  Already SA’s exports have declined and imports risen, creating a balance of payments problem.

Cosatu used Brazil as their central argument a national minimum wage (R4500) will benefit SA.  But that country’s significant economic problems have brought it into doubt.  Brazil’s GDP growth is shrinking (-4.1% for 2016) and unemployment (11.8%) rising.  Productivity increases have not matched rising wages.  And because the minimum wage is linked to social benefits, pensions and unemployment benefits rose dramatically, escalating public debt, which in 2015 was 60% of GDP. 

For all that, the key differences between it and SA is its GDP per capita is still twice SA’s and unemployment rate less than half.  Brazil’s labour economics is closer to developed countries than it’s to SA.  And if its minimum wage has contributed to economic complications, how can the ANC et al use it as a model for SA?

In “ANC economics” I argued the left doesn’t understand the western economic system.  Now, they are insisting on minimum wages despite not understanding what it holds for a stagnant economy at near-0% growth that has consistently failed to meet even modest targets, or that it’s counter economic common sense for developing economies. 

Having been through the experience, I’m not advocating exploitation.  (I walked off a job when my first pay cheque was less than the agreed, already below-market rate.  I walked, not because we couldn’t reach agreement, but because the boss, who ironically, had links to the ANC, was unethical and exploited his employees.) 

I don’t know what a true, “decent” wage is – I doubt few really do.  But I dispute the left’s reductionist measure of either a decent wage, or no employment, because that’s what it amounts to.  And I dispute the supposition there can be a wage increase without an increase in productivity. Rather, they avoid pro-growth and job creation policies that show promise.  They know what to do, but choose not to.