Void of unintended consequences
National minimum wage
The desire and opportu- nity to exploit labour increa-ses when there is a material surplus supply of labour, and severely restricted demand for labour, especially unskilled labour, as is the case in Namibia. A minimum wage policy can be beneficial if it mitigates the risk of exploitation, where an employer abuses the oversupply of labour to reduce wages to levels below those who are remunerated by profitable businesses, provided all other variables that determine demand and supply of labour and wages remain constant - which is never.
A minimum wage can be counterproductive if it is used as a blunt tool during an election year to gain political favour, as opposed to being based on what the market can afford.
This article answers three questions.
Firstly: what will be the implications and/or cost of the minimum wage compared to if the market decides what such wage(s) should be?
Secondly: at what cost will the minimum wage be implemented?
Thirdly: what evidence indicates that a minimum wage will reduce employer exploitation?
Intent
A 2014 report by the British Institute of Economic Affairs provides research on minimum wages.
The report indicated that the purpose of a minimum wage should be to curtail the exploitation of desperate workers. Another goal as per the terms of reference (TOR) is the achieving of a “decent standard of living for all”. The UK uses the concept of a ‘living wage.’
The concept, “decent standard of living” was not described in the TOR of the Wages and Salary Commission of Namibia.
The 1993 UN Human Development Report defined it as “the capability of living a healthy life, guaranteeing physical and social mobility, communicating and participating in the life of the community (including consumption)”, (Bourne & Shackleton, 2014).
Other definitions specifically include access to fresh water, food, shelter and healthcare.
Factors that can reduce the standard of living are poor access to, and standards of education, corruption, and an ailing economy in which the supply of labour far exceeds demand.
For most of these factors, it is government policy that is hampering a “decent standard of living for all”.
The minimum wage cannot result in a “decent living standard for all”.
Economic growth
In 2015, Namibia’s economic growth ranked 142nd of 195 countries, according to the World Competitiveness Index.
Pre-Covid 19, in 2019, Namibia became the 16th slowest growing economy on the index. Namibia’s unemployment rate is amongst the highest in the world.
The public service wage bill (rela- tive to gross domestic product or GDP) is among the most expensive in the world.
Namibia is amongst the highest taxed countries in the world (relative to GDP).
Namibia’s challenges are homegrown.
The Economic Policy Research Association (EPRA) in Namibia conducted a survey during 2020 to determine the impact of the minimum wage on business.
In the survey, 92.4% of businesses were of the view that government does not understand what is required to grow the private sector, and 83.8% believed that it is not an honest objective of government to create a conducive environment for private sector growth.
Consequences
In the agricultural sector, the minimum wage increased 300% during the previous three years.
From January 2025, it will increase from N$6 to N$10, in 2026 to N$14, then to N$18, in 2027, representing 67%, 40% and 22%, respectively.
Based on current suppressed meat and crop prices associated with the drought as a national emergency, a wage increase is most unlikely to match an increase in labour productivity, price increases of produce and an increase in input costs.
The minimum wage, which was not approached systemically, may reduce the current standard of living of the lowest-paid workers.
It will result in less demand for labour, and an increase in unemployment of the lowest skilled and lowest paid workers.
Any wage should correlate with an increase in labour productivity, an across the board increase in profit after tax, and an increase in GDP.
Exploitation
US economists, Thomas Sowell and Walter Williams, have executed international studies on the minimum wage.
They found that it increased exploitation of the lowest paid workers, including students. Nobel Prize winner Milton Friedman found that a minimum wage is disastrous to an economy because among other evils, it removes the freedom of the lowest paid workers to work.
These, including the youth (19-35 years), represent 71% of the Namibian population.
Synthesis
An ailing economy with severe unemployment will be hard-hit by the minimum wage set above the level dictated by market forces.
Countries that have introduced minimum wages, without causing substantial job losses, did so on the back of vibrant, large and growing economies.
In such economies the impact of a minimum wage can be absorbed, if accompanied by a positive correlation of an increase of productivity at the lower end of the labour compensation strata.
This is not the case in Namibia.
The road to hell is paved with good government intentions.
References:
Bourne, R., Shackleton, J.R. 2014. The minimum wage: Silver bullet or poisoned chalice? Briefing 14:01. United Kingdom. Page 4.
EPRA 2020 Survey & Report on the Minimum Wage 2022. Available @ https://ww.epra.cc
World Competitiveness Index, 2015.