Wage is Just a Number

On Saturday Numsa (the National Union of Metalworkers of South Africa) rejected the governments suggestion of a R3 500 and proposed instead a R12 500 minimum wage. Now although this is an utterly ridiculous suggestion by people who understand nothing about economics, I thought I'd play with the idea a little bit.

Numsa apparently believes that all employers make enormous profits and that introducing a high minimum wage will just shift those profits from the greedy employers to the poor helpless employees. Unfortunately life doesn't work like that and many, even most employers work on tight profit margins. This means that a general wage increase of R8000 or R5000 or even R2000 to meet the minimum wage can be more than enough to drive the bottom from black to red. And that's when businesses start closing their doors.

When the government presented the proposed R3500 minimum wage they at least did so with reasonable economic argument. The sole reasons Numsa presented were: 1) that it was what they had been fighting for at Marikana; 2) they should use R12500 in honour of those killed at Marikana; and 3) that that is a decent living wage. All they are doing here is trying to play on our emotions, and to our own detriment, emotion almost always outweighs reason in society. Numsa now looks like a great defender of the rights of the poor for championing a high minimum wage, but if we were to implement it what would really happen? Do you have a domestic worker? Would you still have a domestic worker if you had to pay her R12500 a month? Probably not. Most people would say no. And all employers think the same! If someone only contributes R6000 to the bottom line and now they must pay them R12500, are they going to keep that worker at a R6500 loss? Not a chance! So anyone who's value in the work place is less than R12500 will suddenly find himself or herself out of a job, and I would argue that that is more than half the population.

But assume for a second that somehow employers manage to hold on to all their employees. The only way they can keep the doors of their business open is by raising prices, and the most affected by this will be farmers and food prices. So where as before I may have been earning R4000 a month, I now feel so much wealthier earning R12500 a month, but that feeling of wealth is superficial, because whereas before I was paying R10 for a loaf of bread, now I am paying R30. The fact of life is that the farmer and every other business owner still need to make a profit, so by the knock on effect everything becomes more expensive and everyone's wages go up and in the end R12500 and R4000 are exactly the same amount of money.

These are just a couple of reasons why a minimum wage, especially one as high as Numsa has suggested, won't  work. They are in very simple form, but I feel that is the best way present an argument, but I will no doubt go deeper on this issue at some point. So really this argument is completely irrelevant. The government will pay no attention to it, but for those who don't foresee the consequences, it makes Numsa look good, and that is exactly what they really want. Don't fall into the trap.