By Frans Cronje
In common with many proponents of the new national minimum wage, the chairman of the advisory panel, Prof Imraan Valodia, writes as if SA has a normal labour market (Hourly minimum wage is likely to benefit employees and employers, March 1). In reality, our labour market demonstrates uniquely low rates of participation and absorption.
The participation rate measures what proportion of people of working age work or are looking for work. The absorption rate measures what proportion of people of working age are in fact working. The participation rate has risen from 48% in 1994 to 58% today. Yet, among males our participation rate lags a good 10percentage points behind those of other emerging markets. (Female participation rates are so skewed in countries that subjugate women that comparisons cannot be made.)
SA’s absorption rate is just more than 40%. This is about 20 percentage points below the Organisation for Economic Co-operation and Development average. Our rate of economic growth now by far what most other countries are able to achieve.
Many large corporations may have the capacity to absorb the minimum wage. The employed middle classes will be relatively unaffected. But new minimum wages will do nothing to improve the climate for investment, entrepreneurship and economic growth. Nor will they help to promote the absorption of unskilled workers. Cruelly, the minimum wage will further exclude poor people from the mainstream economy. Only higher levels of investment-driven growth will succeed in liberating them from poverty, but such investment and growth require liberalising reforms — not more regulation.
*Frans Cronje CEO, Institute of Race Relations - a think-tank that promotes political and economic freedom.
Read letter on Business Day here
