“Minimum wage” – Not yet a good idea for the current economic situation

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By Haikali Ndatulumukwa

It is such an honor that our leaders genuinely care about their people, especially in not only maximizing social utility, but in seeking strategic initiatives to ensure that every worker gets what they deserve.

However, given Namibia’s current economic crisis status, the minimum wage will have bad impacts on the economy. A minimum wage is a legal minimum for workers. This means that workers are guaranteed a certain hourly wage, which helps reduce relative poverty. However, a minimum wage could have potential drawbacks.

It can disrupt the economic system

Given demand and supply where the economy is in equilibrium, the minimum wage works similarly to a floor price. Imposing a higher wage level than equilibrium would disrupt the price mechanism, which means that the market will not be able to equilibrate as workers cannot find jobs. As a result, non-price competition, such as personal relationships, experience or the age of the worker, would supplant price competition, making it more difficult for unskilled and younger people to find employment. It just means that a minimum wage policy will have side effects that can cause a lot of damage to the job market.

Cost inflation

The minimum wage can cause cost inflation. Indeed, companies are faced with an increase in costs which is likely to be passed on to consumers. This is even more likely if the wage differentials are maintained.

it can hurt the poor

Advocates of increasing the minimum wage often say that it is difficult to support a family with the sole breadwinner who earns such a minimum wage. However, in order for an increase in the minimum wage to help such a person earn money for their family, they must have a job and try to raise it. In addition, increases in the minimum wage will actually redistribute income among poor families, where some receive higher wages and others are made unemployed.

It can create unemployment

If labor markets are competitive, a minimum wage could lead to unemployment, as companies will demand less labor, and higher wages could encourage more workers to contribute their labor.

Firms in labor-intensive sectors will be the most affected. For example, hairdressers and cleaning companies will see a proportionately larger increase in their payroll.
In a free labor market, wage rates would reflect the willingness of employers to hire them and the willingness of workers to work. As you can see, individual productivity is the main determinant of what employers are willing to pay, and most working people are not directly affected by the minimum wage, as their productivity, as well as their wages, is already well above. Now, because legislative increases in labor costs do not increase worker productivity, some workers would lose their jobs, especially those who are less productive.

It does not offer opportunities for personal growth

Most of the people who work for low wages are usually those who do not have fully developed skills. However, they also have to work to support themselves, especially when they have dependent families, leaving them no choice but to work, even for minimum wage. Worse yet, some of them are tasked with doing labor intensive jobs and don’t really have the opportunity to develop their skills to get a better job. Sad to say, there are employers who wouldn’t spend on training knowing that they can hire people who can perform specific tasks without it.

While I think the underlying politics are problematic, I think we should still be debating ways to help improve the standard of living of Namibians. Instead of focusing on this kind of defeatist mentality where we have to raise the minimum wage, why don’t we focus on creating better paying jobs? Or focus on helping businesses create more jobs for our people?



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