EUSTACE DAVIE: Rights and wrongs that result in unwanted outcomes

Governments often introduce legislation because it “feels” right, yet it ends up causing untold misery. British colonial administrator Lord Alfred Milner wielded great power over SA’s citizens before and after the Anglo-Boer War, and he said: “If we believe a thing to be bad, and if we have a right to prevent it, it is our duty to try to prevent it and damn the consequences”. Many of his actions, based on wrong ideas, caused great harm to many people.

The first and most complete analysis of the concept of unintended consequences was done in 1936 by American sociologist Robert K Merton. In an influential article, “The Unanticipated Consequences of Purposive Social Action”, Merton identified five sources of unanticipated consequences. 

Results caused by actions intended to bring about planned outcomes occur so often that the term “law of unintended consequences” came into general use. Most often the law of unintended consequences applies to government actions that do not deliver promised outcomes, and even result in consequences that are the very opposite of their stated intentions.

Labour policy and legislation affect the lives of a large proportion of the population of any country and appear to attract a disproportionate share of wrong ideas that “feel” right. In the labour field people often believe a thing to be bad and are of the view that it is government’s duty to try to prevent it, whatever the consequences. Unfortunately, the ultimate consequences are very often, as in SA, mass unemployment. 

Establishing a legislated minimum wage feels  so right that most countries end up with such legislation. But what are the consequences? People whose productivity level is lower than the statutory minimum wage become unemployable, not because employers are nasty but because employees, incapable of producing enough to cover the cost of their wages and share of overheads, are a drain on the firm. If the employer continues to employ them the company will eventually go out of business. The fact is that while minimum wage laws might feel  right, they cause unemployment.

To have no statutory minimum wage will feel  wrong to many because surely everyone is entitled to a living wage? But what happens to job seekers who cannot find anyone to employ them at the minimum wage? Should they starve, or should they have the right to negotiate to work for a lower wage? This is illegal in SA at present. The “feel right” law prevents employers, under the threat of severe penalties, from entering into such agreements. Does this treatment of the unemployed person who is prepared to work for a lower wage — any wage, just to earn some money — now feel  right and fair? Or does the statutory minimum wage start to feel  wrong? 

Before the introduction of the minimum wage labour brokers provided what is known as temporary employment services, which match their client’s short-term labour demands with available skills. An estimated 1.2-million people were employed in this way. Currently such firms supply work for a reduced number (estimated at 500,000 people). The introduction of the minimum wage reduced the number for whom temporary employment services can find jobs. 

Some workers turn to temporary employment services because they cannot find full-time employment with a single employer, or because they do not want full-time jobs and prefer to choose their working times. According to the SA Employment Association the industry is worth about R6bn. Temporary employment service firms overcome one of the most serious problems that face all firms, especially small ones, which is to deal with the plethora of regulatory requirements related to hiring people, such as PAYE tax deductions, unemployment insurance and the intricacies of dealing with the labour laws.

Temporary employment service firms provide the workers they employ (and hire out on a temporary basis) with the security of receiving wages from the temporary employment service firm, so that they do not have to concern themselves about the reliability of small businesses. There is nevertheless one issue a temporary employment service firm cannot overcome, which is the inability of some people to produce sufficient value in the work they do to cover the cost of the minimum wage on an ongoing basis.

Statistics SA reported that on June 30 2023 the unemployment rate had increased to 32.6% of the economically active population (about 8-million unemployed people). On the same date the number of employed people totalled 59.6% (16.4-million people employed). About 61% of young people between the ages of 15 and 21, designated by Stats SA to be “job seekers”, were unemployed. 

Does it “feel right” for a government to introduce barriers to employment such as a minimum wage, that cause misery for almost 8-million people, and earn a level of “feel wrong” unemployment that causes the International Labour Organisation to rank SA as the country with the highest unemployment rate in the world? Does the current government, which is responsible for the introduction of this highly efficient barrier to entry into the labour market, really “feel good” about what it has created? 

Government’s responsibility is to create an environment that will increase employment opportunities, reduce unemployment, and reduce poverty. MPs surely cannot believe it “feels right” to keep 8-million people unemployed and increase the misery of unemployment that already exists and is worsened by the economic conditions in the country. The culprits must examine their feelings and be brave enough to work out the “feel right” consequences of repealing the minimum wage laws, encouraging widespread economic development in the country and the rapid absorption of the currently unemployed people into the economy. 

• Davie is a director of the Free Market Foundation. He writes in his personal capacity.