Economic theory holds that there exists a product price below which a firm makes no profit, but can nevertheless continue to operate in the sense that the price allows the firm to cover its operating costs.
In addition, there exists a price below which a firm will not cover its operating costs; below this price the firm has no option but to shut down. In other words, there exists, first, a minimum price level at which a firm breaks even (it neither makes losses or profits) and, second, a minimum price below which the firm shuts down.
Interestingly, when it comes to labour power, such logic is suspended.
Workers sell their labour power, which they reproduce in their households. Like a firm that sells its commodities at a certain price, workers also sell their labour power at a certain wage rate.
Correspondingly, there exists a wage level below which workers work at a loss, but continue to go to work because they can cover their operating costs of reproducing their labour power.
Thus, it happens that many workers and the broader working class stay in informal settlements, overcrowded spaces and general squalor.
These squalid conditions, which may vary in degrees, constitute a large part of the losses that workers suffer in order to supply the capitalist system with their labour power.
The gap in value between a shack and a decent house, a basic meal and a decent meal, and so on, adds up to the losses being suffered by workers in their reproduction of labour power.
Many workers also do not have sufficient income to cover operating costs for the whole month, such as transport to go to work, decent food and the like.
They rely on those workers who earn higher levels of income for subsidisation. In economic terms, such workers should ordinarily “shut down”, since their wage is insufficient to cover their operating costs of reproducing labour power.
At the heart of it, the issue of minimum wages is about the minimum wage that is required for workers to at least “break even”. That is to say, it is a wage that should incorporate a decent quantity and quality of inputs that go into the reproduction of labour power.
Decency is, however, subject to contestation. A shack may be a more decent form of housing under colonialism than it is under liberal democracy.
There is no doubt that the wage structure in South Africa remains largely colonial. One of the key principles that underpin the National Union Metalworkers of SA (Numsa) strike also comes from the Cosatu National Collective Bargaining, Organising and Campaigns Conference, insisting that there is a need to close the colonial apartheid wage gap, to fight for equity in the workplace and to demand a living wage.
The most recent statistics reveal that Africans earn a quarter of what white people earn. In 2010, the median earnings of an African worker were about R2 167 and those of the white worker were R9 500.
This structure of earnings has been inherited from the apartheid system and it continues up to this day. On average, four African workers must pool their salaries to get what their white counter-parts are earning.
In the manufacturing sector, Statistics SA reports the average monthly wage of a worker to be R13 636. However, in light of the massive skewness in the distribution of income, a simple average as the one just reported presents a distorted picture.
Accounting for the “colonial wage gap” factor of four, the average income of an African worker is R5 454, inclusive of bonuses and overtime. The white worker, on the other hand, gets four times this amount, or R21 817.
This pattern of earnings cannot be resolved by simply increasing nominal wages at a rate that is equal to consumer price index inflation. Drastic solidarity measures that entail wage increases that are above inflation plus productivity are required. The first of these interventions is to legislate and enforce a nationwide minimum wage. Currently there are sectoral minimum wages. However, these minimum wages are widely violated. A study by Bhorat, Kanbur and Mayet, which was published in 2011, found that 44 percent of employees received sub-minimum wages in 2007.
The study also reported that workers were paid, on average, 35 percent less than the legislated minimum wage in South Africa. The minimum wage violations amounted to a monthly R16 billion being extorted from low-paid workers and amassed by their bosses.
The average minimum wage in South Africa was R3 336 in 2010, and should be roughly R4 200 this year, assuming an inflation rate of 6 percent a year.
The Labour Research Service report on bargaining indicators in 2011 mentioned that the average minimum wage was 19 percent below the living wage level, which is now almost R5 000.
One thing to note is that the average African wage in manufacturing is almost the same as the average minimum wage, which in turn is the same as the living wage. All this means that on average, African workers in manufacturing just “break even” from their earnings and cannot save anything significant for their future. African workers in manufacturing, on average, are living on the edge.
The second intervention, which should complement the first, is to put a cap on executive pay within each enterprise and redirect value to the lowest-paid workers. Mainstream economics maintains that imposing minimum wages will lead to job losses because these minimum wages may not be consistent with productivity.
However, what is not mentioned is that mainstream economics itself does acknowledge that power relations in the labour market may be skewed in favour of employers. In fact, in the South African case, the wages that normally prevail are not primarily a result of bargaining.
They are set by employers and imposed on workers. In such a situation, employers exercise their buying power by depressing the wage rate below what is consistent with productivity. There is ample evidence that this is happening. The fact that there is widespread violation of sectoral minimum wages points to the fact that workers are powerless in defending their earnings.
Secondly, as of 2012, 54 percent of the workers received no regular wage increments or had their wages determined solely by their employers.
In addition, bargaining councils cover just 9 percent of the workforce, while only 23 percent of the wages of workers are negotiated directly through unions.
These facts show that many workers are vulnerable and powerless to determine their wage. Given the prevailing power relations in South Africa’s labour market, it is clear that an introduction of a minimum wage will not adversely affect employment. Even within the logic of mainstream economics, a minimum wage will serve to shave off the “super-profits” that arise from depressing wages below the levels consistent with labour productivity.
Since those who will benefit from the introduction of a legislated minimum wage are likely to be the lowest-paid working poor, their incomes will increase.
This in turn will raise demand for goods and services, and provide space for firms to fully utilise their economies of scale and improve efficiency in production. The feedback effect of this is an increase in aggregate employment and a better distribution of income.
Ultimately, the minimum wage must combat two things at the same time:
- It must combat the colonial depression of the black, particularly African wage, below what is required for an adequate reproduction of labour power,
- It should combat the depression of the black, particularly the African wage, below what is consistent with productivity because of the prevailing power relations that favour employers in wage setting.