Will The Mooted Minimum Wage Be Good For The Economy and For You?

a4_bFor several years there has been considerable pressure put on government to institute a national minimum wage. The Deputy President has been heading a panel on this topic and in principle government, business and the trade unions have agreed to institute a minimum national wage – but there are many issues to still iron out.

Do minimum wages affect employment?

It is generally agreed that the greatest problem we have is our high unemployment and nothing should be done that would exacerbate this.

Findings from other countries have been mixed with some reporting more unemployment and others showing it had no effect on employment. The downside of this research is that nations most likely to see more unemployment are developing countries – a recent case is Brazil which instituted a national minimum wage and this is given as one of the contributors to Brazil’s recent economic misery.

This research shows that the lower-skilled workers are most vulnerable when a minimum wage is introduced as they lose their jobs as businesses compensate for losses they incur by cutting the least-needed employees. Currently, the biggest issue with unemployment is amongst the youth, where unemployment is above 50% and clearly the youth are most at risk if a minimum wage is introduced.

As South Africa shed 500,000 jobs in the first six months of 2016, the question has to be asked – can we afford a minimum wage?

In South Africa, proponents of a minimum wage point to the positive impact income grants had on the economy – 17 million people are now on grants like child grants, disability grants and age old pensions. They have given considerable impetus to the economy, particularly the retail sector. Opponents don’t deny this but say the grants were introduced when the country could afford them. Currently, the country’s budget deficit is stretched and letting it go out further will almost certainly attract a ratings downgrade.

Moreover, argue the opponents, many sectors have statutory minimum wages, so why overlay this with a national minimum wage?

The lost third  

Currently one third of our population are out of work. This, economists say, is the main reason why our economy is weak. Every effort should be made to find ways to remove obstructions which prevent the unemployed from participating in the economy.

This has led to many calls for labour, business and government to remove blockages in the economy rather than risk growing unemployment with a minimum wage.  Meanwhile, the debate around the pros and cons continues.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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