The Economist magazine reports that the official unemployment rate in South Africa is 26 percent but that the real unemployment rate there may be even higher. The South African economy is growing. Why then this extremely high unemployment rate? What is going on?
What is going on in South Africa is what has been going on in other economies with huge problems. Somebody could not resist the lure of something for nothing.
Minimum wages in South Africa have been set higher than the productivity of many workers, so employers have no incentive to hire those workers, even though such workers are perfectly capable of producing much-needed goods and services.
South African labor unions say that they are not going to let their workers become "the West's sweatshop." But the irony is that a South African firm which has been manufacturing aluminum wheels solely in South Africa for two decades has begun expanding its output by outsourcing the additional jobs to Poland.
Does that mean that Poland is becoming South Africa's sweatshop? Or does it mean that there are economic consequences to setting wage levels in disregard of productivity levels?
The South African government refuses to admit that an unrealistically high minimum wage rate has anything to do with the high unemployment rate. In other words, they think that they can pass a law to give workers something for nothing.
That idea is not peculiar to South Africa. In many cities and towns across America, local politicians, activists, and even religious groups have been pushing for laws mandating "a living wage" higher than the federal minimum wage.
They too apparently think that there will be no dangers to the jobs of workers whose output is not worth what third parties choose to call a "living wage" -- in other words, that the workers can get something for nothing.
South Africa's problem is compounded by the fact that, in addition to minimum wages set above the level of many workers' productivity, the government has passed laws making it very difficult to fire an employee.
That should reduce unemployment, right? Wrong. Countries like Germany with strong job protection laws have chronically much higher unemployment rates than countries like the United States, where the government does not impose such laws on private businesses.
Making it harder to fire workers makes it more risky to hire workers in the first place. It is easier to substitute capital for labor. South African companies "rely more on capital" than labor, according to The Economist magazine.
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