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Column: Minimum wage does not solve inequality, unemployment

Michael Bagraim writes that minimum wage does not solve inequality, unemployment. Picture: Henk Kruger

Michael Bagraim writes that minimum wage does not solve inequality, unemployment. Picture: Henk Kruger

Published Jan 15, 2023


The National Minimum Wage Act No 9 of 2018 became effective on 1 January 2019. The legislation was enacted to provide a national minimum wage and establish a National Minimum Wage Commission.

Over and above that, the Commission was to review and annually adjust the minimum wage after investigation. The argument was that we are living in one of the most unequal societies in the world and that there is a huge disparity in income in the national labour market.

The government noted that there was a need to eradicate poverty and inequality. They believed there was a need to promote competition in the labour market and labour market stability.

The legislation has done nothing of the sort. With over 11 million South Africans unemployed, that is 11 million people who can be absorbed into the labour market, the real minimum wage in South Africa is zero rand per hour.

It has been argued by the trade union movement that the national minimum wage is too low and should be bumped up. and that the national minimum wage did not lead to mass retrenchment and therefore its implementation has been successful.

These arguments are spurious. Unemployment is getting worse and certain sectors have decided to rather mechanise, outsource, engage with a-typical employees and/or rather import.

In my interaction with businesses I get the constant refrain that it is cheaper not to employ but to outsource services and goods.

Almost 40% of the documented South African workforce are being paid below the national minimum wage.

It is almost impossible to monitor this and to oversee it. We have too few inspectors.

We also know that the informal business sector is completely unmonitored and that the informal business sector pays nothing like the national minimum wage.

In some centres, certain industries have warned the trade unions that if they have to pay the minimum wage, it will lead to mass retrenchment.

The trade unions fully understand that implementation of the minimum wage, or the wage as outlined by the bargaining council, would lead to a decimation of employment numbers.

Clearly in South Africa today, we need to respect the market forces in trying to build our employment numbers. To have false structuring or minimum wages is clearly detrimental.

I argue that the minimum wage has added to more inequality in our society and bigger disparities in income. The only way we can build our employment numbers and encourage employers to pay higher wages is to let the market determine the wage and to ensure that our workforce is better resourced and educated.

Our constitution calls for fair labour practices and equality. It is not going to be fulfilled by demanding higher wages without the higher productivity.

We need to go back to the basics of simple economics.

It is clearly dysfunctional to treat all businesses equally and to subject small businesses to the same harsh labour legislation as one would see with big business.

It is vital for us to deregulate small and new business as much as possible. By implementing the National Minimum Wage Act, we might have improved the wages of some of the lowest paid workers, but we’ve effectively locked out the majority of those who want to enter the workforce. We might have protected a few workers from unreasonably low wages, but this protection has been to the detriment of over 11 million South Africans.

* Michael Bagraim.

** The views expressed here are not necessarily those of Independent Media.

Cape Argus

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