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National minimum wage increase not the answer, says Agri SA

22 Dec 2014

"It would be extremely short sighted, if not inhumane, not to acknowledge the desperate situation many fellow South Africans find themselves in," says Johannes Möller, President of Agri SA. We most certainly cannot as individuals and as a country turn a blind eye on absolute poverty, and worse even, people not having enough to eat, he added.

National minimum wage increase not the answer, says Agri SA

According to Möller, the solution put forward in various circles that a national minimum wage will cure all the ills in this regard is however devoid of substance, let alone realism, especially if it is set at levels drastically exceeding those currently prevailing in certain sectors like agriculture.

"The significant increase of 52% in the minimum wage in 2013 applicable to the agricultural sector reinforced the already observable downward trend of employment in the sector. Apart from other unintended consequences a national minimum wage that is set higher than the current minimum wage in the agricultural sector will further decrease the labour absorption capacity of the sector for especially unskilled labour violating against the noble aims of the National Development Plan for the sector to create one million jobs by 2030," says Möller.

It boils down to money illusion and no real gains

"What seems not to be recognised by proponents of a national minimum wage is that productivity sets the level of prosperity and not demand stimulation through merely setting wages at higher levels which boils down to just printing more money. Adjusting minimum wages or wages in general by decree will, if not accompanied by productivity improvements, merely aggravate existing structural deficiencies in the economy, i.e. lack of investment, balance of payment pressure, cost of doing business also for small businesses and the high levels of unemployment the economy is already facing," he added.

According to Möller, Brazil, which is often viewed as the epitome of labour relations, is ranked 57th in terms of competitiveness by the World Competitiveness report. In terms of labour market efficiency South Africa and Brazil are ranked in the top third of worst performing countries. "What we really need is a better skilled labour force, less rigid labour markets and a supply side approach to enhance economic competitiveness. Increased demand by effectively creating more money is at best likely in the very short term, eventually however it boils down to money illusion and no real gains," Möller said.

"It inadvertently makes me think of a 300 billion Zim dollar bank note I recently bought for R25 as memorabilia of what can happen if money creation is seen as the proverbial magic wand," Möller said.