National minimum wage can be done

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Last week we argued, drawing on international experience, that the introduction of a national minimum wage in South Africa could play an extremely positive role in the country’s economic development, if combined with other economic instruments.

At the level of the labour market, we clarified that the relationship of a statutory national minimum wage to collective bargaining was a complementary one: a national minimum wage would set a floor, and sectoral bargaining would negotiate wages, working conditions and other sectoral frameworks appropriate to the different sectors.

But, by law, no one could earn below this national wage floor. This is how the national minimum wage operates in many countries (see International Labour Organisation (ILO) global wage reports).

The introduction of a national minimum wage, as part of a comprehensive wage policy, will allow for an organised way to transform the current wage structure. We realise that such a development will be strongly resisted by certain vested interests. However, the alternative is to continue living with high levels of poverty and inequality in the labour market, which threaten to implode our labour relations framework, built to allow for structured engagement. A chaotic process of conflict outside a regulated environment will benefit neither workers nor employers, and the economy as a whole would suffer.

The challenge is how to move in a managed way from the current wage structure to a far more equitable arrangement. This is precisely what the proposal for a national minimum wage, and a new wage policy, seeks to achieve.

What are the indicators that the current wage structure is completely untenable?

n The existence of numerous minimum wage determinations, with huge variations between them, set without any reference to objective criteria such as a minimum living level.

n The fact that millions of workers are covered by minimum wages on which they cannot afford basic necessities. The UCT economic research institute DPRU estimated in 2010, in a detailed study, that about two-thirds of workers covered by sectoral determinations lived in poverty.

n The multi-tier labour market not only depresses wages of vulnerable contract, temporary, labour broking workers, but also denies them basic benefits, such as retirement, health, leave and other elements of the broader wage package, plunging them deeper into poverty.

n Even collective bargaining arrangements do not guarantee a floor which protects minimum living levels. Unions in certain low-paid industries (particularly crisis-hit ones) are constantly under pressure to bargain wages downwards, via “concessional bargaining”, in an often futile attempt to protect jobs.

n Large numbers of workers in different industries are not covered by any minimum wage determination.

n There are huge, and increasing, inequalities between different levels of the wage structure – top, middle and bottom; and between different sectors of the economy.

These are “systemic” challenges which therefore require a well thought out response. We have conducted detailed research on the evolution of our labour market over the past two decades. It shows that while the democratic labour relations framework is an advance on the previous dispensation, our wage-setting mechanisms are still reproducing a fragmented and unequal labour market. Transformation of the public sector wage structure is a partial exception to this state of affairs.

This is why we have proposed the need for a coherent national wage policy, with the national minimum wage and a restructured collective bargaining system, as the key pillars.

The ANC’s 2014 election manifesto takes important steps in this direction, inter alia proposing a national minimum wage; promotion of bargaining in all sectors; use of state incentives to promote wage equity in bargaining; and implementation of requirements on companies to reduce excessive income inequalities. This is an important breakthrough, and lays the basis for a broad national engagement.

While engagements unfold on these matters, a process to implement a national minimum wage would constitute an important first step to move us forward. International research by the ILO shows that a key advantage of the national minimum wage is its simplicity, and therefore it is relatively easy to implement and enforce. However, we face a number of challenges in moving from our current complex and fragmented minimum wage structure.

The principles are clear: a legislated minimum wage will be set, which is national, and below which no sector (see qualification below) or region will be allowed to pay. While those currently earning below that minimum will be upgraded, those earning above the minimum will not be able to be downgraded.

The minimum wage will be linked to a researched minimum living level, which determines the minimum income required to support a family of four or five.

Workers, through their unions in sectoral bargaining processes, will continue to fight for a living wage above this national minimum level, to provide for the needs of workers beyond the bare minimum which is usually provided for in a national minimum wage.

But as the ANC manifesto recognises, there are a number of modalities which need discussion and engagement, to ensure that the transition to a national minimum wage is managed in a structured way. Among the questions which arise are:

n How do we determine the initial level or amount of a national minimum wage, and an amount which should be targeted over the medium term?

There are two important yardsticks used internationally which should be considered. First, an acceptable minimum living level – this requires serious research by reputable institutions (such as those which historically researched the household subsistence level), as well as involvement by people themselves in defining their most basic needs.

Second, we should consider the formula used inter alia by the Organisation for Economic Co-operation and Development, which suggests that the national minimum wage should be around 40 percent to 50 percent of the national average wage.

This is where the often-quoted figure of R4 500 a month comes from in the South African context.

n Should there be a process of phasing in an amount based on such measures?

In the context of extremely low minimum wages, it may not be possible to immediately move to an amount based on the above criteria. Therefore, the national minimum wage might require a process of phasing in, to ensure that we achieve the target of an adequate national minimum, without a massive shock to the economy.

Of course the balance between these two considerations will be the subject of intense debate and contestation. But we need to remember the situation of farmworkers, where ultra-low minimum wages were raised by more than 50 percent without the huge disruption predicted. So the necessary level of boldness is required.

n What formula would be used to target the substantial real increases needed every year, to achieve the target of an acceptable national minimum wage?

In Brazil, the government introduced a formula where the national minimum wage was increased annually based on inflation plus the combined growth of gross domestic product over the past two years. Such a formula could be considered, but we would probably need to be bolder than this given the extremely low base we come off.

n What should be the scope of a national minimum wage?

Ideally it should be universal, but internationally, the practice is to cover domestic workers separately. The alternative of including them may mean that the national minimum wage is set at too low a level, to be broadly acceptable.Therefore it might be necessary to cover domestics with a separate determination.

Certainly however, such a determination would need to drastically increase the minimum wage of domestics, currently at the completely unacceptable level of R1 100 to R1 300 a month (depending on the area). This minimum needs to be urgently and drastically increased, at least in the order given to farmworkers last year.

n Which body should determine the national minimum wage?

The most common approach internationally is for the government to decide, based on recommendations by a tripartite advisory body with expert input. Important here would be for the government to set clear guidelines for the minimum wage, based on a national wage policy, to avoid unintentionally entrenching the existing situation of working poverty and inequality in the labour market.

Our Employment Conditions Commission would need to be restructured and given the necessary research capacity, along the lines of the Low Pay Commission in the UK. The Department of Labour too would require beefing up, to develop appropriate policies and ensure implementation.

n What advice is available on how best to manage this process?

South Africa is not unique in this endeavour. We should make use of the considerable experience available internationally from national bodies, as well as technical assistance offered by the ILO.

n Finally, how would we manage the relationship between the national minimum wage and sectoral wage bargaining?

If the national minimum wage provides a basic floor, it should ultimately only apply to a minority of workers in the economy – the majority of workers should be covered by improved wages and conditions negotiated in sectoral bargaining forums. It is therefore welcome that the ANC manifesto promotes the need for sectoral collective bargaining across the economy.

However, in the short term, many workers in vulnerable sectors may not be covered by such collective arrangements. Therefore in certain unorganised sectors it may still be necessary in the short term to retain an instrument such as the sectoral determinations, which could set minimum above the national minimum wage.

The national minimum wage will form a key part of a national wage solidarity model to deal with the whole wage structure, and must be combined with an improved social wage to address various costs which are placing extreme pressure on the wages of workers.

Although these challenges are admittedly complex, this shouldn’t be used as an excuse for inaction. Growing tension in society shows the need to move decisively.

 

* Neil Coleman is the strategies co-ordinator in the Cosatu secretariat.


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