CLOSE X
Advertisement

Disparity in SA is worst in world

Opinion

The government has committed to introducing a national minimum wage. At present, a significant number of sector-specific minimum wages are in place, but there is no generalised legislation that applies to all employees, and many workers are conspicuously left out.

While a law remedying this is expected, the details are yet to be hammered out, and these details, which will ultimately constitute the body and form of the legislation, may vary tremendously.

Tell a friend

This is a hotly contested topic and there is no doubt that the design and implementation of the national minimum wage legislation, and centrally – the level at which it is set – will be highly impactful on the low wage workers it targets, as well as their employers, and the economy in general.

While we can expect a national minimum wage, the exact nature of the law, its provisions, exceptions, etc, is still up for discussion, and negotiation. Just such a discussion will take place at the 29th Annual Labour Law Conference at Emperors Palace, Kempton Park, Johannesburg, on August 24 and 25.

There are some who are convinced that the introduction of a national minimum wage will have a devastating effect on employment, causing mass lay-offs, and rendering businesses that rely on low wage labour inoperable.

However, statistical modelling by Wits University’s National Minimum Wage Research Initiative shows that setting the national minimum wage to an amount between R3 500 and R6 000 a month would have a negligible detrimental effect on employment levels.

This conclusion is borne out by extensive international research on the topic, conducted in the developed and developing world. Indeed, a national minimum wage’s effect on employment is one of the most studied fields in all of economics and the results of the studies are remarkably consistent in pointing to a negligible effect in this regard.

Among the emerging economies, notably, Brazil and China have adopted strategies to reduce inequality and stimulate the economy involving national minimum wages.

In the developing world issues relating to ensuring compliance with national minimum wage legislation are particularly fraught and important. This is something lawmakers in South Africa will have to grapple with.

South Africa’s sector-specific minimum wages can be viewed as “pilot” programmes, giving us domestic, real world data, which confirm the international consensus. When minimum wages were introduced for domestic workers and security guards, it did not result in the nightmare scenario of lay-offs and bankruptcies envisioned by opponents of minimum wages.

The economy was able, without difficulty, to accommodate the increase in wage for these workers. The demand for these jobs is sufficient, and the wage increase modest enough, that the increased cost of employment was absorbed with little in the way of side effects. The only result of the sector-specific wage minimums was the intended one; an increase in the earnings and quality of life for those workers.

There are a number of theories as to why the implementation of a national minimum wage has such a negligible effect on employment levels.

Chief among these is that there are ample “channels of adjustment” which employers can utilise to avoid employment losses. These include improving organisational efficiency by reorganising work systems, setting higher performance standards, requiring greater work intensity and upgrading skills in the workplace.

Employees have an average of four dependants, and those who earn less than R4 000 monthly, it is widely agreed, are not able to lift themselves and their families above the poverty line.

These people are referred to as “the working poor”, who shockingly, represent more than 40% of workers.

In the agricultural and domestic sectors it is estimated that a staggering 90 to 95% of employees earn below this level.

These workers are caught in an inescapable cycle of subsistence labour, and never have an opportunity to better themselves, and their families. They depend utterly on their next pay day, and are not in a position to negotiate for better pay.

This cycle of unceasing labour, with no hope for advancement, savings, or a better future, is often called “wage slavery”.

Overwhelmingly, evidence shows that introducing national minimum wages contributes significantly to reducing wage inequality. South Africa’s wage inequality is among the worst in the world (to say nothing of wealth inequality).

On average the top 10% of wage earners are paid 24 times that of the bottom 10%. Narrowing the comparison to the top and bottom 5%, nearly more than doubles the disparity, with a 50% wealth gap. This gap is widening at an alarming rate. In 2010 the gap between the top and bottom 5% was a “mere” 30 times.

Minimum wage opponents worldwide frequently raise the spectre of unemployment to attack minimum wages, as if it were an inevitable trade-off. While that very assumption is itself untrue, given modest minimum wages, it is also worth noting that wage differentials rather than unemployment are the primary driving force of economic inequality.

Thus even if minimum wages were found to harm employment in a few sectors, due to specific market forces, an improvement in the wages  of those below the poverty line would still be in the general best interests of reducing economic inequality.

For those who are unpersuaded by quality of life or inequality concerns, and wish to dispassionately examine the economics of the matter, there is still much to recommend a minimum wage. Every reputable economist admits that the poor spend a much greater percentage of their income than the wealthy.

A worker below the poverty line often spends 100% of their monthly income, reinvesting it in the economy, replenishing the national tax coffers through sales tax on the goods they purchase. By contrast, wealthier people spend much less of their income, creating “static wealth” which is isolated from the economy, sitting in savings accounts, foreign investments, and undertaxed as capital gains.

More wealth in the hands of the poor creates dynamic, economy driving reinvestment, which is good for the economy as a whole.

The latest figures show that unemployment is rife – particularly among the youth (18-25 years old), whose official rate of unemployment is 52%, nearly double the national average. There will be a special session at the 29th Annual Labour Law Conference devoted to youth unemployment.

There will also be a detailed presentation on issues concerning the national minimum wage and the practicalities involved in its design and implementation at the conference. The conference will furthermore tackle the difficult question of how to reinvigorate dialogue on these key issues between the social partners being business, government, and trade unions.

This is especially important given the challenges trade unions and trade union federations face in these uncertain times. There will be two slots dealing with trade unions specifically – one titled “The Role of Trade Unions in Recessionary Times” and the other titled “Challenges facing Trade Union Federations”.

The Annual Labour Law Conference is jointly organised by the Universities of Cape Town, Witwatersrand and KwaZulu-Natal. It is the largest of its kind in Southern Africa attracting about 600 to 800 professionals.

* Nicci Whitear-Nel (BA LLB) is a senior lecturer at UKZN’s School of Law

Tell a friend
Advertisement
X