Prof Imraan Valodia (Potential disemployment effect of minimum wage carefully weighed, February 14) believes economics as we understand it does not apply to the labour market, claiming that labour is not tomatoes.

While more complex than Econ101, I think he unfairly dismisses some pretty fundamental laws of economics — if you change the price by dictat, there will be consequences.

For example, if the national minimum wage is implemented in a particular labour-intensive industry, capital is diverted from profits to wages.

This reduces the return-on-investment and capital will move away to more machine-intensive industries. There are numerous other possibilities of reaction.

Valodia himself recognises the world is a complex place. He tells us the committee
"did not underplay the potential disemployment effects" and "they understood the importance of a managed introduction of the national minimum wage in a manner that reduces risks".

What worries me is why we are laying down a policy with such an unknown result. In this respect, is the policy not irrational given fundamental disagreement on the likely outcome?

Ann Bernstein argued from the textbook graph of a supply curve intersecting with a demand curve (Dramatic change to pay structure will set off dangerous chain reaction, February 10).

Other things remaining equal, an increase in the price of labour would lead to reduced demand or — if politically enforced — a black market in unregulated labour.

The elephant in the room is why SA’s labour markets are so broken.

The Fraser Institute’s ranking of labour markets gives clues, where SA scores 142nd for hiring and firing and 139th for the extent of collective bargaining.

The true solution to SA’s labour problem is not an enforced minimum wage, but a shifting up in the demand curve for labour through reduced state interference.

Until we have entrepreneurs creating new, labour-intensive industries, the demand curve remains rigid.

Valodia should recognise that without this political solution, economics will simply adjust through the price.

Neil Emerick
Hout Bay

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