SA does not have a national minimum wage. Different minimum wages are set for different sectors of the economy. The first prize in SA industrial relations has always been that employers and unions negotiate and agree on minimum wages and conditions of employment in a given sector.
In sectors where there is no collective bargaining, like domestic work and agriculture, the state can set minimum wages through the Employment Conditions Commission.
A national minimum wage would not replace these arrangements, but would set a floor below which they cannot go. Parliament would set a minimum wage through legislation and everybody would have to pay at least that. Unions and employers would still engage in collective bargaining, and the Employment Conditions Commission would still recommend minimum conditions of employment, but none of this could be lower than the national minimum.
Conditions of employment of course encompass much more than just wages – it also includes working hours, pension & medical aid arrangements, overtime, leave and so on. Wages are by far the most important, but not the only condition of employment.
A BRIEF HISTORY
Three years ago in May 2012, Cosatu commenced discussions on a national minimum wage. Fifteen months later, in August 2013, an Alliance summit (a joint ANC, Cosatu, SACP meeting) supported the idea. In its election manifesto in January 2014 the ANC undertook to: “Investigate the modality for the introduction of the national minimum wage as one of the key mechanisms to reduce income inequality.”
In June 2014, in the first state of the nation speech to the new Parliament, President Zuma said that the labour unrest in SA (remember the 5-months strike in the platinum industry, the one month strike in the metals industry and the chaos at the Post Office?) was a reason for the “social partners” to deliberate on wage inequality. (Social partners refer to business, labour and state.) To make this happen, Dep.-Pres. Cyril Ramaphosa was mandated to facilitate a dialogue at NEDLAC.
At a NEDLAC summit in September 2014 a committee, which included 6 cabinet ministers and representatives of labour and business, was appointed to develop an agreement and report back by July 2015. Dep.-Pres. Ramaphosa was quoted saying that the minimum wage was not a question of “if”, but “when” and “how”.
In November 2014 a NEDLAC Labour Relations summit was held in Ekhuruleni. Here the parties (government, labour, business) committed themselves to various actions including investigating a national minimum wage. Also in November Parliament’s portfolio committee on labour began nationwide public hearings on a minimum wage, which ran from November to March 2015.
In the February 2015 State of the Nation speech Pres. Zuma said: “Government will implement the agreements reached with business and labour, including the consideration of a national minimum wage.” A member of the NEDLAC committee, Narius Moloto from Nactu (National Council of Trade Unions) said: “In principle, we have agreed. There are differences on figures. The question is at what level and form”. In a speech Gwede Mantashe, ANC general-secretary, said to reduce workplace conflict (strikes) both current collective bargaining arrangements and the introduction of a national minimum wage should be considered.
WHERE ARE WE NOW?
The NEDLAC process overseen by the deputy-president is due to report in July. We will then have much more clarity on what is in the offing.
So far, however, it looks like the weight of opinion is in favour of a national minimum wage, but one set at an appropriate level.
So the critical question the July report must answer is at what level a national minimum wage would be set. Sure, the parameters are clear – high enough to prevent exploitation, but low enough not to impede job creation – but what number does that translate into?
ARGUMENTS FOR AND AGAINST
While waiting for the July report and standing back from the day-to-day developments, we can distil the following:
Government and the ANC see inequality as one of the reasons for the 2014 strikes (platinum, metal industries, post office) and believe a minimum wage will help to stabilise labour relations.
Organised business has been very quiet, in public at least, about a national minimum wage (although the grapevine suggests they are engaged in furious discussions behind the scenes). One can safely assume business will declare themselves in favour of less inequality and poverty, but against a national minimum wage that will exacerbate unemployment.
Labour is probably divided in their arguments. Cosatu is the most radical with a proposed minimum wage of R4 500 p.m. which it sees it as part of a grand strategy with several other elements as well to revive the economy (the logic being that if poor people earn more they will spend it and stimulate demand). Other (smaller) labour federations also support a minimum, but at an unspecified lower amount. The smaller federations would be close to business’s stance and their position can be summarised as prevent-exploitation-but-do-not-cause-unemployment.
The impact of minimum wages is a field regrettably more known for opinion pieces (the opinion depending on the side of the political spectrum the writer comes from) than for insightful research. But some credible research has been undertaken by the Development Policy Research Unit at UCT by Prof Haroon Bhorat and colleagues.
Their various studies analysed the impact of minimum wages in 5 non-agricultural sectors employing some 2,2 million workers. The impact is largely in three areas: higher wages, employment and hours worked.
Wages increased, even where employers did not pay the full new minimum wage. Where the wage was much lower than the new minimum employers granted higher increases.
Many employers responded to the new minima by reducing the hours worked, but not so much that it cancelled the higher wages that workers got as a result of the new minima. Overall income rose, whilst working less hours.
In four of the five sectors employment did not decrease. Overall, workers were better off and employment unchanged – a clear win-win then.
The exception was the taxi industry where employment did decline as wages rose, but the researchers point out that taxi employment started to decline about three years before the introduction of a minimum wage; and continued after the introduction. I am speculating the decline may have been a function of more people using their own cars, people moving closer to work, expansion of public transport and so on. Although it came long after this study, the Gautrain has certainly decimated the taxis at OR Tambo and Uber is now probably decimating more.
These results in four sectors run counter to orthodox economic predictions that minimum wages will reduce employment. However, the orthodoxy has been confirmed in the 6th sector agriculture.
New minimum wages were promulgated for farm workers effective from March 2003. The minima were R650 and R850 per month depending on geographical area.
A study in 2004 of 190 grape farmers in the Western Cape found a 3%-6% decline in employment for a 10% increase in wages. Another study (2007) of 103 sugar cane farmers in KZN found no evidence of mass retrenchments but workers who left were not replaced, in-kind benefits were reduced and some farmers reduced working hours in order to reduce their wage bill.
A new study by Bhorat and others (2014), reviewing the work I quote above but expanding on it with their own research, found that in response to the 2003 minimum wage increase:
Wages rose 30%. This increase occurred although 4 years after its introduction more than 50% of workers still received less than the minima;
“employment fell significantly in response to the law” – the writers found a 20% decline in employment; and
The biggest impact was on unskilled and part-time workers. They were the clear losers whilst the full time workers were the clear winners.
In March 2013 a new minimum wage of R105 a day was promulgated for farm workers after riots in the Boland. Agricultural employment in that quarter was 764 000. A year later it was 709 000 – a decline of 55 000 or some 7%.
How much of that decline was due to the higher minimum wage and how much to other factors is not known, so one must be careful to jump to conclusions. This is where proper research would be really useful. But given what has happened after 2003 one can safely speculate that at least some of the 55 000 decline was due to the higher minimum wage. This puts the policy dilemma for the country in a nutshell: some lose their jobs but the remainder get higher wages – good or bad policy?
A momentum has built up in our body politic in favour of a national minimum wage – or at least higher wages than what are currently being paid at the bottom end of the market.
The devil is in the detail and the detail will only emerge once the NEDLAC report is published, which is scheduled for July.
The most important detail will be the level at which a minimum wage is set.
Rightly or wrongly the ANC and government see the strikes of 2014 as having their origin in wage inequality. That analysis has tipped the scales in favour of higher minimum wages as a way to stabilise labour relations.
Empirical evidence contradicts economic orthodoxy and suggests that if the minimum is set at the appropriate level a win-win can emerge – income can rise whilst employment is unchanged. However, if it is set at the wrong level, incomes will rise but employment will suffer.