The notion of a minimum wage is not in step with reality

3 May 2018

The notion of a minimum wage may sound like an honourable way to uplift the poor, but it is not in step with reality.

Comprehensive research on minimum wages has been conducted all over the world, even by the World Bank, and it was found time and again that it is less damaging and more feasible to stimulate the economy so that it can grow, which will lead to increased job creation that will, in turn, result in higher wages.

In essence, the prerequisite for economic growth is increasing economic freedom. With greater market freedom comes less inequality.

The national minimum wage will have disastrous consequences and will not result in the sustainable upliftment of workers. In reality, the following may take place instead:

- It will lead to loss of jobs in the sectors there the poorest of the poor are employed, like mines and farms. Workers will be replaced by machines.

- It will exclude the unemployed from the labour market entirely as there will be fewer entry-level job opportunities.

- The positive impact of workers having a higher income will be offset by higher consumer prices as ultimately businesses will recover the additional expense from consumers.

- Some businesses will simply move to environments that are more accommodating. The national minimum wage coupled with expropriation without compensation will result in even more disinvestment.

In contrast to this, a free market system with lower tax rates will attract investments to our country. Companies will invest more and thus create more jobs. Unfortunately, the influential economist Mike Schussler is of the opinion that South Africa has already disappeared off the investment radar.

In 2017, the nett foreign investment was minus 30,9%. That means that South Africa invests more abroad than what foreign countries invest here. The South African ship is leaking investment capital and that destroys the potential for jobs and higher salaries. No minimum wage will be able to rectify that.

The 25 largest developing countries have an average nett foreign investment of 30%. If South Africa could achieve that, it could mean up to 3 million new job opportunities. That would lower unemployment and significantly decrease inequality. 

Salaries on all levels will grow as the middle class expands. Clearly the government is looking for viable solutions to the problem in the wrong places. Real solutions are not to be found in good intentions that cannot work in the real world.

The road to prosperity is well known. Implementing a minimum wage in an environment where disinvestment is taking place is unfortunately a radical departure from that road.

Issued by Anton Alberts, FF Plus chairperson and parliamentary spokesperson, Labour, 3 May 2018