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Exemptions may render national minimum wage harmless

Free Market Foundation says a national minimum wage will add to unemployment rate.

Should South Africa implement a national minimum wage, exemptions must be made for unemployed persons who want to earn something rather than nothing, says the Free Market Foundation.  

The organisation opposes the introduction of a national minimum wage, with its executive director Leon Louw labelling the concept “cruel, inhumane, discriminatory, oppressive and regressive”.

“It discriminates against maximally-vulnerable people: elderly, youth, disabled, rural, migrants, unskilled, uneducated, single parents. These are the people that are thrown from destitution into deeper, graver and more miserable destitution by the minimum wage,” Louw told reporters in Johannesburg.

Just as higher product prices reduce demand, higher labour costs would reduce staffing demands and add to the unemployment rate, he said.

In some cases, the introduction of a national minimum wage may see companies opt to re-sell imported products instead of making them in South Africa, while others are likely to replace employees with more efficient technology. 

“Don’t think business, industry or employers with capital are necessarily against it. Those that supply technology and machinery that compete with people for labour, they are absolutely in favour of it. Human beings at the margin and in elastic jobs are highly replaceable and easily replaceable by technology,” he said.

He also said that big business may benefit from a national minimum wage in that it could force their smaller, less-sophisticated competitors to close down.

The prevailing economic conditions coupled with South Africa’s enduring high unemployment rate – approximately nine million people are unemployed, the same number as those employed in the formal sector – makes talk of a national minimum wage irrational, he said.

Louw also criticised the academic work informing much of the debate around the concept.

According to the University of Cape Town’s Development Policy Research Unit, the benefits of a minimum wage of R2 447 per month could outweigh the costs, while that of R3 400 could risk greater job losses. Wits University’s National Minimum Wage Research Initiative has found that the job losses, which may arise from the implementation of a national minimum wage of R3 500 to R4 600 per month, would be “slight, negligible or statistically insignificant”. The University of KwaZulu-Natal affiliated Pietermaritzburg Agency for Community Social Action is in favour of a minimum wage of R8 000 per month.

“The fact that they have a number means they know that it causes unemployment, otherwise they would have a higher number. It is implicit in the proposals that high wages cause unemployment – they all know it, they admit. It’s a basic assumption they make. So, all that is in issue is how many people you want to throw out of work,” he said.

Louw said that regulated exemptions to a national minimum wage for vulnerable, unemployed job seekers would provide them with opportunities to earn something rather than nothing at all, thus rendering the policy harmless. Such exemptions may include prescribed periods and conditions of employment as well as allow for unskilled workers to be trained on the job.

Deputy President Cyril Ramaphosa recently appointed a National Economic Development and Labour Council (Nedlac) panel to determine the appropriate level of the proposed national minimum wage.

However, Louw said the panel should not be able to determine the national minimum wage without conducting a socio-economic impact assessment.

“We have had no assessment and no assessment is planned; although an assessment is required by a Cabinet resolution….The pretence that it (the introduction of a national minimum wage) has been decided, is in violation of the Cabinet resolution and in violation of the guidelines and the mandate by the Presidency,” he said.

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