Minimum wage study shows positive impact

Published Jul 18, 2016


Johannesburg - New research on a national minimum wage (NMW) shows that more than 85 percent of economic sectors would see positive employment impacts, with minimal job losses elsewhere.

Read also: Minimum wage will cost small businesses the most

The findings fly in the face of warnings by business that imposing a NMW would result in large-scale job losses among low-income employees – the very workers that the policy aims to uplift.

The report by Applied Development Research Solutions (ARDS) in conjunction with the National Minimum Wage Research Initiative at Wits University shows that a NMW policy would have a positive impact on the wage rate, prices, employment, household income and consumption, and it could reduce the country’s widening inequality gap.

While the government claims all parties are on board to introduce a NMW this year, business has been accused in negotiations of deploying a twin strategy of refusing to engage on critical issues and prolonging discussions.


However, Deputy President Cyril Ramaphosa, who led the negotiations, stepped in to iron out differences through a series of bilaterals. It was agreed that another meeting would be held on July 25 and that a panel of experts would be established to review research on the NMW.

It would report back in about two months.

While there have been disagreements among researchers at the country’s different universities on how big an impact the NMW would have on workers and the economy, this latest analysis provides answers the country has not had before. Its findings, similar to the majority of international studies on the subject, cast severe doubt on the claims that the NMW would be bad for employment.

“The small negative effects on employment in a few economic sectors neither threaten macroeconomic balance nor hinder economic growth.

“That seems an acceptable trade-off for a policy, with significant positive contributions to household real disposable income, poverty alleviation, income equality, and economic growth,” reads the research report, compiled by ARDS director and chief economic modeller, Asghar Adelzadeh, and ARDS chief executive and senior labour market specialist, Cynthia Alvillar.

The study’s economic modelling works with five wage scenarios. According to the scenarios, the service sector, which employed 78 percent of all full-time workers in 2014, including 3.8 million workers who earned less than R2 815 a month, would be significantly affected by the introduction of a NMW.

The annual average increase in the sector’s mean real wage rate would be between 2.6 percent (minimal) and 10.9 percent depending on the scenario.

“Relative to the primary and service sectors, manufacturing has a smaller portion of full-time workers that earn wage rates below the NMW scenarios. Therefore, the average wage rate in the manufacturing sector will be less directly affected by the introduction of the NMW,” the study concludes.


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