File photo: The ANC has identified the triple challenges of poverty, unemployment and inequality as threatening our stability, says the writer.
File photo: The ANC has identified the triple challenges of poverty, unemployment and inequality as threatening our stability, says the writer.

Minimum wage versus job losses conundrum

By Craig Dodds Time of article published Aug 24, 2014

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Johannesburg - Would the introduction of a national minimum wage – a feature of the ANC’s election manifesto and President Jacob Zuma’s June State of the Nation address – come at the price of jobs? By looking at the effects of wage minimums in place for some sectors, UCT economists have found two possible answers: yes and no. South Africa has minimum wages for domestic workers, private security, taxi and retail industries and forestry and agriculture, but these are differentiated by sector and even within sectors to account for regional dynamics and occupational differences.

Professor Haroon Bhorat and Benjamin Stanwix of UCT’s Development Policy Research Unit studied how the introduction of the “sectoral determinations” affects jobs. They analysed data from Statistics SA’s biannual labour force survey and found no job losses, except in agriculture. There, the impact was devastating: Employment fell from 819 048 jobs in 2002, just before the law came into effect, to 623 750 jobs in 2003 and continued to decline to 555 549 jobs in 2007 – a net loss of almost a third in five years.

The UCT pair presented their findings to Parliament’s portfolio committee on labour last week at the first in a series of public hearings intended to help shape thinking on a national minimum wage. South Africa’s mixed experience ties in with international results, particularly in developing countries. A study in Brazil found no significant effect on employment, while the Vietnamese experience showed no significant overall effect, but job losses in the formal sector were balanced by gains in the informal sector. The minimum wage had an overall negative effect on employment in Columbia.

In an earlier policy brief, Bhorat and Stanwix argued that accurate measurement of the impact of minimum wages was complicated by high levels of non-compliance.

The legislated minimum was often more an ideal than a reality, clouding the picture of its effects on employment. They found 45 percent of South African workers subject to a minimum wage were paid less than the legal level.

Even in agriculture, there were some positive effects. Though many farmworkers lost their jobs, those who remained enjoyed a 17 percent increase in their hourly wages and their average hours a week went up from 42 in 2002 to 49 the following year. Farmers gave contracts to more workers and tended to retain the services of full-time workers, shedding more of their seasonal and part-time counterparts.

But Bhorat said it would be “incredibly difficult” to measure the overall effect on poverty levels of the minimum wage in agriculture. It would involve stacking up the gains of those who kept their jobs against the losses of those who were axed, and it would be impossible to trace the latter because they would have vanished from the employment data on farmworkers. One of the lessons from the research might be that agriculture should be seen as a special case, Bhorat said.

“Part of the issue around agriculture may be thinking through a social wage. So you keep a low-ish minimum wage, but you compensate through other means, such as a social wage. Think in terms of housing, health, medical aid and so on,”

Other countries, including the UK, had a special dispensation for agriculture within the national minimum wage to preserve jobs. The motivation was usually to protect vulnerable workers and the poor, who were either not organised or poorly organised. Those who were represented by trade unions tended to benefit from higher wages won in bargaining councils in sectors where wages were not set by the government.

The debate was less about the introduction of minimum wages, which were in force, than about how to merge the sectoral determinations into one national minimum.

Setting the level of the wage was the crucial question, Bhorat said. “For those who are concerned about the impact of a minimum wage, you believe it would be really bad news, would destroy jobs, if I told you we will have a national minimum wage and it will be set at half the existing agricultural minimum wage, the debate would be over.”

This demonstrated that the level at which to set the wage was a more significant question than whether to have it. There would always be a trade-off between protecting vulnerable workers, on the one hand, and limiting potential negative economic consequences, on the other.

Addressing officials from the labour department and ministry, Bhorat said that was the “problem”. “In the case of agriculture you saw job losses, and so you need to think about how can you either reconfigure the minimum wage, to take out payments in kind… or, frankly, revisit the minimum wage. “Because there is a real threat that with minimum wages that are too high, you will get large job losses, it’s an empirical fact, it just happens,” Bhorat said.

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Sunday Independent

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