Economic Watch

The debate on national minimum wage far from over

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Expect a heated, emotionally and ideologically laden public debate on the wisdom and level of a national minimum wage (NMW) to rage for some time to come.

Probably aimed at calming troubled economic waters before the “sovereign rating season”, which started on Friday last week, Deputy President Cyril Ramaphosa last Sunday announced a proposed R3 500 NMW per month by a panel of the National Economic Development and Labour Council (Nedlac).

It was intended as a starting point for wider consultation.

But the immediate indication was that the announcement might turn out to have been counterproductive as it dragged the issue into the public domain, where various stakeholders and interested parties immediately took rigid positions.

The reaction varied from the Young Communist League, Economic Freedom Fighters (EFF) and even the ANC Youth League saying it should be at least R5 000, to the Free Market Foundation heading their statement: “How best to increase unemployment? Introduce a National Minimum Wage.”       

On Monday, the day after the announcement, Deputy Finance Minister Mcebisi Jonas said the proposal “will not only establish greater labour stability in South Africa, but it will also evoke positive collaboration between business, labour and government.”

By Wednesday, however, the Democratic Alliance (DA) revealed that the Nedlac panel’s report included a study from the National Treasury which indicates that “the introduction of a National Minimum Wage could result in a jobs blood-bath, with more than 700 000 job losses, causing our economy to decline by 2.1%”.

The DA also indicated that it will request that the full recommendations report on the NMW be tabled in Parliament’s Portfolio Committee on Labour as soon as possible.

The fight is on and one can expect it to become not only emotional in light of the latest unemployment statistics, but also politically charged.

No simple issue

The turn of events is unfortunate, and although important, is also very complicated. National interest would probably have been best served with a holistic, multi-disciplined process in a controlled environment.

In an insightful article published by MoneyWeb, economist Mike Schüssler, after analysing the complexity of the job market, alludes to the worldwide structural economic challenges.

He writes: “From the activists parading as academics and industry and labour leaders, the economic reality is far ahead of you and continues to change. This is not only a South African phenomenon, but an international tsunami as countries with relatively high minimum wages have less than 50% of adults receiving a regular wage.”

He argues that the proposed NMW will impact differently on the various sectors and groups of people in South Africa.

On the question “… is this minimum wage level too high for the business and will it cause unemployment increases?” Schüssler writes: “I would argue that at least in the formal sector outside of agriculture most minimum wages are already way beyond the R3 500. (People often lie about their income, making it lower to not attract attention and that is why the labour side is so up in arms – yet they do hammer business about poverty wages and a median wage of R3 000 which has now come back to bite them.)

“Most of the formal sector already has much higher wages: mining, most manufacturing, transport and financial services are already paying far above the minimum wage.

“As domestic workers and agriculture will be required only to pay 75% and 90% of the minimum wage, these sectors get a little relief. For domestic workers the minimum wages required will be R2 625 and the actual minimum in the cities from next month will be R2 422, which means that within a year or so the domestic wage in cities will be above the required minimum wage.

“So, provided enough time elapses before implementation, many in vulnerable sectors will not have a problem either.

“For farm and forestry workers, the current minimum is R2 607 per month; so given three years to reach the required R3 150, it is likely that farmers and forestry companies will reach this level without too much hardship. (But the drive towards mechanisation will continue).

“So on the face of it, not many sectors will have a problem paying the minimum wage in say three years’ time.

“But the reality is complex, and changes have taken place and will continue to.

However, the country has a complex labour market, and in many cases, the minimum wage will hurt or help change the structure and nature of employment.”

He further concludes that “while the minimum wage is not going to affect the majority of people working – even if the Labour Market Dynamics Report says so – the impact will be in the continued mechanisation and specialisation that the South African economy is already undergoing.

“I do not believe many jobs will be lost in the short term or indeed added either. I think that we are not doing the poor a service, as the structure will continue to change as even in the construction industry equipment rentals are catching on for the small operator as well as self-employed people.”

Final conclusion

On the question of whether the R3 500 proposed minimum wage is good and fair, he concludes:

”Well relatively, I believe it is set slightly higher than achievable for some smaller business – but not so high as to upset the big formal economy and most regular wage employees will keep their jobs.

“But at the bottom end the subsistence entrepreneurs will be in a bigger fight for survival. You will not hear big companies complain about it – I promise.

“But the changes will also rearrange the structure of the economy. I believe we will see more survivalists businesses and traders, personal care people and backyard builders.

“The growth in formal jobs will stay slower than population growth and the disparities in the economy in the form of inequality will continue to grow.

“This is not damning, but it is certainly a very narrow approach advocated for the few of us who have regular pay already. If we want small business to create jobs, then this flies smack into the face of that implementation.

“If you want an equal society then this is not what you want – however fair it sounds.”

by Steve Whiteman

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