–– Paul Schlehlein
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The unemployment rate in South Africa stood at about 7% in the mid-1970s. It rose to 13% in the mid-90s, 25% in the late 2000s, and stands at about 33% as of the first quarter of 2025. In a recent survey of 24 developed countries, South Africa had by far the highest unemployment rate. Other worldwide surveys confirm that unemployment in South Africa is among the worst in the world.
While there are many solutions to unemployment, one obvious answer is removing Minimum Wage Laws (MWLs)—one of the greatest causes of a jobless society. An MWL is when the government makes it illegal to hire someone at a lesser rate than it has decreed.
Previously, we learned that MWLs are futile because they forget that employers and employees know the best price for a product, not the government.
Lowers Employment
Here we’ll learn the second negative effect of MWLs: they lower employment. This is because employers will only pay what a worker is worth. If the government demands that a restaurant pay its workers more than they’re worth, the owners will overcome this problem by lowering their workforce, often by replacing the workers with machines.
We must remember that a wage is a price, so MWLs are really Minimum Price Laws, though the former is easier to defend than the latter. For example, when the government mandates the lowest wage Shoprite may pay its employees, it’s no different than the government ruling that Shoprite must sell rice, bananas, and chocolate cake at a certain price. And just as people will buy fewer pineapples if the price is too high, employees will hire fewer workers if the cost of labour is too high.
I know of a relatively poor town in South Africa, such that it has few flushing toilets. This town also endures very high unemployment, so that men and women are desperate to find jobs. Yet the local fast-food/takeaways restaurant uses high-tech machines to serve its customers because these robots are cheaper than humans. If there were no MWLs, this would help lower unemployment because locals (especially youth) would be willing to work at far cheaper rates than the government demands. MWLs have become the machine’s best friend.
Common Arguments
Consider some of the common arguments in favour of MWLs. The first is that higher wages make some workers richer. This is true, as certainly some employees in an industry will benefit from magistrate-mandated higher wages.
Suppose the government passes a law that says KFC can pay no less than R2,000 ($112) per 40-hour week. Previously, the lowest KFC paid some employees was R1,000 ($56) per week. This means some employees will find themselves several hundred dollars a week richer. But we must remember Henry Hazlitt’s one crucial economic lesson: Don’t consider merely the immediate but the longer effect of a policy; trace the consequences to all groups, not just one.
Though Roger, for example, may be richer because of MWLs, his friends Mike and John are not. They are unemployed. Their boss at KFC could no longer afford them. As the adage goes, the actual minimum wage is zero. This is what Mike and John now make.
The second justification for MWLs is that if XYZ business pays puny, meagre wages, it is better that MWLs put them out of business. That is, the government should force Big Wheel Tires to pay their employees double per day. If Big Wheel doesn’t like it, they shouldn’t exist anyway.
But notice all those hurt by the business going under. The local customers can no longer buy tires. The fifty employees no longer receive an income. Though the wages were low, the money was the best the workers could find, otherwise they would have gone elsewhere.
A third argument is that MWLs ensure that a nation’s workers receive what they deserve. But this justification ignores the fact that the free market decides what a worker is worth, not the government. Artificially raising a price simply increases the supply and lowers the demand.
For example, Thomas Sowell points out that there was a time when South African workers were twice as productive as those in Indonesia, but also paid five times as much. When the South African politicians demanded higher wages for their nation’s workers, they priced their countrymen out of the market, and the jobs went elsewhere. Unemployment rose.
Sowell writes in Basic Economics:
“It would be comforting to believe that the government can simply decree higher pay for low-wage workers, without having to worry about unfortunate repercussions, but the preponderance of evidence indicates that labour is not exempt from the basic economic principle that artificially high prices cause surpluses” (p. 215)
Sum
First Timothy 5:18 says that a labourer deserves his wages. This should be determined by a voluntary agreement between employer and employee, not by the government through MWLs, as this will only cause more unemployment.