Jobs: forget minimum wage – how about paying workers maximum wage? Healthy pay means more productivity

Minimum-wage increases will not alleviate poverty or grow the economy, but will do the opposite, says economist Dawie Roodt.

Minimum-wage increases will not alleviate poverty or grow the economy, but will do the opposite, says economist Dawie Roodt.

Published May 30, 2022

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Durban - We all want to build wealth or save money, but how do we do this when we simply don’t earn enough?

The answer to this question may be more complicated than you think. The chief executive of credit card processing company Gravity Payments, Dan Price, shocked the world when he announced in April 2015 that he would take a 90% pay cut to give his employees a liveable wage.

Price was branded a lunatic for giving away $70 000 (R1 027 987) a year to his workers. The news garnered massive attention on social media, as this was an unprecedented act by a chief executive.

The company leader said he was inspired by a Princeton University study that revealed that the emotional well-being of employees also rises with income.

Six years later, in 2021, and with his company thriving, Price said the move made him happier and a better boss.

“Money buys happiness when you climb out of poverty. But going from well-off to very well-off won’t make you happier. Doing what you believe is right will,” he said on Twitter.

Economist Dawie Roodt said the gap between a CEO and a worker’s salary tends to be smaller in developed countries like the US compared with developing nations like South Africa.

“The reason for this is that you need talent to grow a company, and for it to be successful you need to pay. CEOs demand much higher pay. If you want a world-quality CEO in your company, you pay them world salaries.”

Roodt said that, as South Africa’s economy grew, the disparities between a CEO’s and a worker’s pay would become smaller. However, it would take generations for this to happen due to the country’s slow economic growth.

In March 2022, South Africa’s national minimum wage was increased from R21.69 to R23.19 per hour, which represents a 6.9% increase from 2021.

According to Roodt, minimum-wage increases will not alleviate poverty or grow the economy, but will do the opposite.

“The skills in South Africa are quite low, with a shortage of people with skills for a modern, growing economy. Technology is changing so fast that it’s taking over jobs that people used to do.

“If you increase the minimum wage, you will accelerate this process and people will be replaced by machines,” said Roodt.

Roodt said he wanted people in the country to be paid much better wages, but that this could not be forced, because it would lead to unemployment.

The Federation of Unions of South Africa endorsed the minimum-wage increment. Fedusa’s secretary, Ashley Benjamin, said workers had felt the full brunt of the Covid-19 devastation and that the increase would help ease their burden.

Benjamin disagreed with the notion that increases in the minimum wage could be unaffordable to some companies.

“We have heard that argument before but have never come across evidence that supports such a claim.

“Our experience is that when workers are paid in line with the minimum prescriptions, this could be the basis for economic growth, as they have more money in their pockets to pay for goods and services,” said Benjamin.

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