March 2, 2006
Something for Nothing: Part III
By Thomas
Sowell
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.
Even when
times are booming and there is a demand for more output, employers
may work their existing employees longer hours rather than hire
new workers whom they will have a hard time letting go after the
boom passes.
Nothing
is easier for politicians than to think up benefits that they
can confer on workers by imposing the costs on somebody else.
It's something-for-nothing time, and it pays off for politicians
at election time.
Meanwhile,
businesses can't just pick up and leave the city or the state,
much less the country, overnight. But, like the South African
company that expanded its output and employment in Poland, businesses
can do their expansion where costs imposed on them by politicians
are not so high.
Some businesses
are not expanding but are just trying to survive. Costs blithely
loaded onto them by politicians can prevent some of these kinds
of businesses from surviving -- and their employees lose their
jobs.
Over time,
businesses can shift more and more of their operations out of
places where extra costs are imposed politically and some just
move their whole business elsewhere. That means taking their jobs,
and the taxes they pay, elsewhere.
For politicians,
however, killing the goose that lays the golden eggs is a viable
strategy, provided that the goose doesn't die before the next
election. Provided also that people have short memories, don't
connect the dots, and don't keep in mind that there is no such
thing as something for nothing.
Copyright
2006 Creators Syndicate
