Severe, entrenched unemployment is arguably the most significant social and economic problem in South Africa. Its consequences include poverty and inequality. But articles like this
one and
this and supporters of the minimum wage (MW) concentrate on its purported benefits on already employed people. Once again, the unemployed are ignored and forgotten.
Supporters claim it spurs real and sustainable economic growth without saying how exactly. As example, they point to developing countries, like Brazil, where it was implemented but omit to say those economies are different to and far more efficient and productive than ours where MWs might painlessly be absorbed, utilised and create "spill over [economic] effects". In fact, Brazil with its current economic problems is not an economic poster child. The minimum wage-linked social, pension and unemployment benefits rose dramatically, increasing national debt, which was 60% GDP in 2015.
The MW might cause increased, temporary spending by beneficiaries (positive spill over effects?), but it will be on imported, consumer goods and essentials. Anyway, SA has surplus capacity that can easily absorb increased spending, which is why SA companies are expanding abroad and why they’re sitting on R700bn cash.
So how will MW reduce poverty and inequality when the unemployed (the expanded rate) will not be beneficiaries? They are a significant portion of the population, and include the 17 million drawing social grants. Supporters and article writers decline to say, or worse, don’t know. But ask any unemployed person, especially the long-term unemployed, if they will accept a below-market wage rate (however defined) for even temporary a job opportunity. Unequivocally, they will say yes, which are why there are so many takers for expanded public works programme (EPWP) jobs at R79/day, about half the MW. Oddly, government claims EPWP achieves similar benefits MW proponents claim, which partially disproves the latter’s arguments.
In other words, we - I put the question to Stellenbosch University economist Dieter von Fintel - don’t know what the outcome will be but we’re going to try anyway, like we’ve done with so many ineffective - and questionable even before they were implemented - strategies over the past 20 years. Why in SA are we always trying to reinvent the wheel when measures that will help create conditions for employment, growth and development - there’s sufficient literature on what they are and succeeding developing economies that prove their efficacy - are being ignored for ideological reasons or as inconvenient. I don’t understand.
How many workers are estimated to benefit from MW? I believe already companies pay the lowest grade of worker R3 500 or above, and government more. As research suggests, agriculture pays less. My point: will the total number of workers that will benefit from a marginal wage increase (to R3 500) be sufficient to reduce national inequality, especially (and I can’t emphasise this enough) when the 36% unemployment rate remains unchanged (because of uncorrected economic defects), and as in agriculture, there may be further job losses because of MW. (Perform economic modelling to predict possible outcomes.)
What’s more important - creating the conditions, and creating jobs for as many people as possible, or protecting the working elite, ie, those already included in the economy?
Back to my earlier question: why are the unemployed always forgotten? I’ll answer a question I asked: Why MW when proven economic strategies (including the National Development Plan) are ignored?
The minimum wage is an initiative of the unions (and they protect incumbent workers, not the unemployed and poor). In post-1994 SA, what initiatives have unions proposed that succeeded in creating the right conditions for growth, development and job creation? None - you see where this is going? MW shall be another of SA’s litany of failed economic strategies that cost billions but delivered little.
Like social grants, minimum wage will fail to reduce inequality
Even professional economists, with their resources, speculate about MW's benefits and outcomes - "
could potentially reduce inequality". Like many, they don't know, and even global examples where it was implemented are uneven. I suggest, given SA’s specific conditions and history, particularly its failures in economic strategic planning, education, etc, this will be racked up as another misstep. But that’s OK, let’s roll the dice on "don’t knows". Who cares if real poverty and unemployment remain unacceptably high just so long as we could prove our experiment worked, or not. Again. No-one takes responsibility for the failures, except the poor.
How many workers will benefit by MW? They don’t need to speculate, they can do the maths. What will the multiplier effect of a marginal increase in wage (for affected workers) be on the economy, less job losses, employers choosing not to employ because of MW and its related costs?
Let’s take a similar situation. Social grants are credited with reducing SA’s absolute poverty levels, which is still very high, by the way. SA spends over R120bn, incl old age. Beneficiaries use grants on essentials, services, airtime and funeral plans - what you may call "desirable consumers". Like MW, this R120bn goes back into the market/economy and should create a multiplier effect to create "spill over effects" and allegedly, spur the economy. (Will the marginal increase to MW match or exceed R120bn annually?)
But why hasn’t it done so? The economy is a moribund 0.1%-0.6% growth. Despite 17 million (2016: 13 million) - a third of SA’s population - receiving this amount each year, why is SA still one of the most consistently unequal countries in the world, if not the most unequal? I invite explanations, using price theory analogy or any other economic theory, if the marginal increase to MW for affected workers (how many?) shall (not should) improve inequality and poverty in SA where grants failed. And if not, why grants and MW are so dissimilar in objective (reducing inequality and/or poverty) a comparison between them cannot be made.
Adapted from my comments to the article South Africa's national minimum wage could hurt small firms and farmers in The Conversation.
The invisible unemployed
Severe, entrenched unemployment is arguably the most significant social and economic problem in South Africa. Its consequences include poverty and inequality. But articles like this one and this and supporters of the minimum wage (MW) concentrate on its purported benefits on already employed people. Once again, the unemployed are ignored and forgotten.Supporters claim it spurs real and sustainable economic growth without saying how exactly. As example, they point to developing countries, like Brazil, where it was implemented but omit to say those economies are different to and far more efficient and productive than ours where MWs might painlessly be absorbed, utilised and create "spill over [economic] effects". In fact, Brazil with its current economic problems is not an economic poster child. The minimum wage-linked social, pension and unemployment benefits rose dramatically, increasing national debt, which was 60% GDP in 2015.
The MW might cause increased, temporary spending by beneficiaries (positive spill over effects?), but it will be on imported, consumer goods and essentials. Anyway, SA has surplus capacity that can easily absorb increased spending, which is why SA companies are expanding abroad and why they’re sitting on R700bn cash.
So how will MW reduce poverty and inequality when the unemployed (the expanded rate) will not be beneficiaries? They are a significant portion of the population, and include the 17 million drawing social grants. Supporters and article writers decline to say, or worse, don’t know. But ask any unemployed person, especially the long-term unemployed, if they will accept a below-market wage rate (however defined) for even temporary a job opportunity. Unequivocally, they will say yes, which are why there are so many takers for expanded public works programme (EPWP) jobs at R79/day, about half the MW. Oddly, government claims EPWP achieves similar benefits MW proponents claim, which partially disproves the latter’s arguments.How many workers are estimated to benefit from MW? I believe already companies pay the lowest grade of worker R3 500 or above, and government more. As research suggests, agriculture pays less. My point: will the total number of workers that will benefit from a marginal wage increase (to R3 500) be sufficient to reduce national inequality, especially (and I can’t emphasise this enough) when the 36% unemployment rate remains unchanged (because of uncorrected economic defects), and as in agriculture, there may be further job losses because of MW. (Perform economic modelling to predict possible outcomes.)
What’s more important - creating the conditions, and creating jobs for as many people as possible, or protecting the working elite, ie, those already included in the economy?
Back to my earlier question: why are the unemployed always forgotten? I’ll answer a question I asked: Why MW when proven economic strategies (including the National Development Plan) are ignored?
The minimum wage is an initiative of the unions (and they protect incumbent workers, not the unemployed and poor). In post-1994 SA, what initiatives have unions proposed that succeeded in creating the right conditions for growth, development and job creation? None - you see where this is going? MW shall be another of SA’s litany of failed economic strategies that cost billions but delivered little.
Like social grants, minimum wage will fail to reduce inequality
How many workers will benefit by MW? They don’t need to speculate, they can do the maths. What will the multiplier effect of a marginal increase in wage (for affected workers) be on the economy, less job losses, employers choosing not to employ because of MW and its related costs?
Let’s take a similar situation. Social grants are credited with reducing SA’s absolute poverty levels, which is still very high, by the way. SA spends over R120bn, incl old age. Beneficiaries use grants on essentials, services, airtime and funeral plans - what you may call "desirable consumers". Like MW, this R120bn goes back into the market/economy and should create a multiplier effect to create "spill over effects" and allegedly, spur the economy. (Will the marginal increase to MW match or exceed R120bn annually?)
But why hasn’t it done so? The economy is a moribund 0.1%-0.6% growth. Despite 17 million (2016: 13 million) - a third of SA’s population - receiving this amount each year, why is SA still one of the most consistently unequal countries in the world, if not the most unequal? I invite explanations, using price theory analogy or any other economic theory, if the marginal increase to MW for affected workers (how many?) shall (not should) improve inequality and poverty in SA where grants failed. And if not, why grants and MW are so dissimilar in objective (reducing inequality and/or poverty) a comparison between them cannot be made.
Adapted from my comments to the article South Africa's national minimum wage could hurt small firms and farmers in The Conversation.