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Friday, 7 September 2012

Minimum Wage is Necessary

By Charles Ntumwa

Those members of Zambian Economist, who read the article by Jessica Achberger on the minimum wage, must have felt (as I did) angry and dismayed, at what the Zambian Government had done. An increase of this size is unheard of in the developed world, apart from the precedent set up by President Truman many years ago  back in 1950 when the national minimum wage in United States was raised by 87%. Zambia is a developing country, with the economy just beginning to bear some fruit. Largely due to the help of the Chinese who need our minerals for their development back in China. 

It was only when I turned to see what had been written in the report published in the Times of Zambia that I found the full details of the increase.I was pleased to find that the Government had put some thought to this increase by targeting a small group of workers - regarded by the Government as vulnerable poorly paid and lacking a union to represent them. This reasoning made me feel proud to be a Zambian. The employers and businesses do not come under this category. They will pick themselves up, brush themselves off and move on. It is going to be a bit tough, but they have more resources compared to the group referred to above.

This area, which belongs to both economics and social policy is hotly debated by professionals, businesses and Government alike. It is the responsibility of the Government to see that the resources of the country are fairly shared, both by the rich and the poorly paid members of our society. Failure to do this, the Government face troubles looming ahead. The price to be paid later will by far be greater. It is not everybody who agrees with these sentiments. Some people strongly believe that minimum wage destroys jobs, particularly the young and those without experience. Many researchers have concluded that minimum wage policy actually creates more jobs than the opposite view expressed by others. Let us look at what was found by researchers both in United Kingdom and United States.

As early as last year (MSN Money - 10/10/2011) two respectable institutions, expressed their views on this subject. Sam Bowman, researcher at Adam Smith, said that ''too many politicians have failed to realise they cannot change the laws of economics any more than they can ban gravity. Wages are a function of productivity, and therefore, no external forces were needed to determine how much each employee should be paid, apart from the real price of productivity and the material cost of the goods and services rendered.'' He asserted that for every 10% increase in Minimum Wage causes 1-3% rise in youth unemployment. Dr. Faiza Shaheen, Senior Researcher on Economic Inequality, at the New Economics Foundation said that ''minimum wage ensures a decent floor''. Meaning that the market cannot drive wages down to a level where people cannot sustain a basic living. She also argued that it was not true to say that minimum wage destroyed jobs, because there was no such evidence to support that allegation.

A research study carried out by Professor Mark Stewart at Warwick University (1999 -2002) concluded with this statement: ''The effect of the introduction of the minimum wage on probability of employment is insignificantly different to zero for all four demographic groups and in all three details used''.

The American Researches have shown similar result outcomes. In 1950 when President Truman increased the minimum wage by a massive 87%, no one found significant job losses. Equally true, the result was the same, when Congress raised the minimum wage in 1967 by 28%, carried in two stages. A bigger Research which was carried out by Allegretto and colleagues Michael Reich and Arindrajit Dube who studied data on young employment from 1990 to 2009, they found that, ''minimum wage increases in the range that have been implemented in the United States do not reduce employment among young people''.

Lastly, but not the least in 2007 five hundred and fifty Economists signed a statement calling for increases in Minimum Wage. The fact that they were not all specialists in Labour Law was considered to be irrelevant.

7 comments:

  1. This is what governments should be doing world over,businesses would never reward employees with wages that are generous and beneficial to the local economies.
    Governments need to step up with regulations to realign economic activities inline with maximum output from each citizen. This notion of paying low wages or wrongly justifiable MA calculations to determine the inputs,will only stifle growth.An ambitious society should strive to have as many people using their hands and getting paid for it,a deliberate policy to have less machines and have more people carrying out functions.
    Machines never apply for mortgages?

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  2. I would like to say that I completely agree that the minimum wage should be raised, and I made it clear in my posting.

    What I questioned was the manner in which it was handled. Would it not have been better to inform employers that over a 3-6 month period the wages of their employees would have to increase? There are few of us in our personal lives (those with domestic workers) or in our business lives that can afford to live without a budget. A 100 percent increase in employees' salaries needs to be planned for in advance.

    Will a minimum wage increase cause unemployment in the long run? No, because people will be able to plan for it. What I was pointing out directly after the wage laws were changed was that in the short run many people were put in a difficult position of having to increase the wages immediately, and, if they could not, to fire their employees or risk breaking the law.

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  3. Employment will be affected. All jobs that are easily replaced by machines will be replaced when the wages are more expensive than the machines. All jobs requiring higher wages than the income created by the job will eitther be eliminated or move into the informal sector where incomes are unregulated. We saw this already with previous increases in the minimum wage. I stopped growing field crops, vegetables and oranges because the costs (including wages) rose higher than the income. I stopped employing watchmen when their wages went higher than the value of property being guarded. If I have to pay the new minimum, about half my remaining business will have to close along with the associated jobs.

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    1. Kasubah,Though you can not see the detrimental effect of employing machines,i will heap the blame on the fact of you being business minded rather than social caring,i may sound like saying you don't care about social responsibility, please am only trying to show that business men are concerned about wealth maximisation or be ahead of the cost of debt curve.
      Now,machines yes can be cost effective and be efficient but one thing they do not do is consume or use services. We all know when the lack of consumption or utilisation of service is low,employment goes down, this leads to pressures on cost of production as the demand goes down and price stability is affected.The price margins are affected by the low spread.
      Your point on the other businesses to be affected by the minimum wage structure,have you noticed the expansionary policy of the new gov. to target businesses like yours. The injection of money into the economy.I don't know what business is suffering in Zambia at the moment as the climate is very good. Yes some businesses may have issues but these can be external factors rather than a good business model.

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  4. Ruth Henson, I think you make a very valid point that I did not bring up in my commentary. The agriculture sector, which provides such a large percentage of employment, is very concerned that minimum wages will be increased for them as well.

    Particularly for agriculture, there would most certainly be a move towards mechanisation if the minimum wage was increased for those workers. This would be a huge detriment to the Zambian people.

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    1. Jessica Agriculture is affected by the new wage. It applies to all agriculture employers that are not members of both the ZNFU and the ZFEA (ZNFU's employers union)The small scale sector is less affected because they are rarely monitored but they will still be affected. ZNFU has asked for sector based wages, so far without success. We can pay different rates for different sectors even within agriculture as different products have very different labour to income ratios.

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  5. This comment has been removed by the author.

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