LABOUR MARKET
Mechanisation is but one reason minimum pay could eliminate jobs
There has been extensive debate on the national minimum wage (NMW) and the expert panel’s recommendations. A recent exchange in Business Day in which the chairman of the panel, Prof Imraan Valodia, responded to Ann Bernstein has been particularly revealing about the reasoning underlying the panel’s recommendations. Valodia draws a sharp distinction between the market for labour and the market for tomatoes, arguing that in the case of tomatoes the only feasible adjustment consequent upon an increase in price is a reduction in demand. However, by contrast, in the case of labour "all sorts of adjustments are possible — productivity could increase, profit rates could fall and domestic demand could rise". It is these adjustments that, in the view of Valodia and the panel, could compensate for the potential negative effect of the introduction of a NMW on employment. However, as Valodia’s correct use of the word "could" suggests, these adjustments might not occur, and even if they do, they...
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