Table of contentsCh. Section PageIntroduction 31 Economic efficiency of the minimum wage 3 - 42 The effect on unemployment 43 The effect on the use and cost of capital in production 44 The effect on the cost of production and inflation 45 The effect on productivity 46 The effect on international competitiveness 47 The consequence for long-term sustainable economic growth and stability 4 - 58 The social consequences 59 Wage discrimination 510 Suggestions for dealing with unemployment 511 Literature consulted 5IntroductionMinimum wage legislation has been introduced to other countries as early as 1894 in New Zealand, followed by Australia in 1896 and the United Kingdom in 1909 and in North America in 1912 (WordIQ (online), http://www.wordiq.com /definition/Minimum_wage, August 10); Common to all these introductions as well as South Africa is conflicting views on the pros and cons. Economists, human resources consultants and human rights activists all have different arguments; however, the approach taken by governments to win the favor of the majority of voters is common to all. The question remains: how beneficial is minimum wage legislation? Although the new legislation has granted certain rights to employees and improved the lives of many; it has brought distinct changes to South Africa's labor market, society and economy. This assignment aims to illustrate the effects of minimum wage legislation by highlighting its potential drawbacks.1. Economic Effectiveness of the Minimum Wage South Africa has suffered economically for decades due to numerous factors ranging from apartheid to the collapse of the global economy; we suffered from double-digit inflation that reigned from 2974 to 1992 and left considerable scars. Although inflation has been reduced to single-digit levels, around 7.8 percent over the past ten years (Reserve Bank (online), http://www.reservebank.co.za/internet/ Publications.nsf, August 10), this is still too high for a struggling economy and society to improve basic living standards. Studies have shown an inverse relationship between the implementation of a minimum wage and labor demand, as illustrated below: “DD” and “SS” are labor demand and supply respectively. The initial equilibrium wage is “We” and the quantity of labor employed is “Ne”. The imposition of a minimum wage of “Wm” reduces the quantity of labor demanded at “Nm” and thus causes unemployment. (Mohr, Fourie, associates, 2000: 389) The resulting beneficial effects could be: • A reduced dependence of low earners on state benefits, which may lead to a reduction in taxes • A stimulation of economic growth by discouraging labor-intensive industries. the downsides may include: • Increased unemployment for low-wage earners • Increased barriers to employment for people with little or no work experience • Reduced economic growth due to labor costs higher labor costs • Labor becomes more expensive, which discourages investment