Economist stresses minimum wage increase will not lead to job losses

Employment and Labour Minister Thulas Nxesi. Picture: File

Employment and Labour Minister Thulas Nxesi. Picture: File

Published Feb 6, 2024


Civil society groups, associations, and political parties need not fear that increasing job opportunities will cause more harm than good, according to an economist.

The negative comments come after Employment and Labour Minister Thulas Nxesi gazetted an increase of 8.5% to the minimum wage, set to take effect at the beginning of March.

The national minimum wage will increase from R25.42 to R27.58 per hour as of March 1, 2024. This increase has been welcomed by vulnerable employees, especially farm workers and domestic employees.

However, organisations such as the FF Plus raised concerns about how similar to Affirmative Action (AA) and Black Economic Empowerment (BEE) only benefit a small group at the expense of millions of unemployed South Africans, so too would an increased minimum wage bill.

Heloïse Denner, FF Plus chief spokesperson explained that an increase in the minimum wage bill would benefit only a handful of cadres at the expense of the masses, and at best, benefit only a small group at the expense of millions of unemployed.

“Compensation ought to be fair and should be based on a process of negotiation between the employer and employee, subject to experience and productivity. This is just another way for the ANC government to score cheap political points before the elections, without taking the destructive consequences into account. Exploiting workers through starvation wages is wrong and unacceptable.”

If anything Denner said the reality of increasing the national minimum wage by 8.5% would result in many people losing their jobs, consequently increasing the country’s unemployment rate.

Chief Executive of the National Employers’ Association of South Africa (NEASA), Gerhard Papenfus, said the increase recommended by the National Minimum Wage Commission (NMWC) and gazetted by Nxesi had all but ignored the inputs and concerns from numerous business institutions and trade unions.

According to Papenfus, the minimum wage had all but ignored the fact that employers, without exception, only paid wages that they could afford and which they wanted to pay.

Furthermore, for employers who were already paying more than the minimum wage, the increase would become entirely irrelevant; and worst of all those employers who could not afford it would simply revert to alternative arrangements by reducing working hours, restructuring, reconsidering the need for lower-paid employees, and even retrenchments.

“This minimum wage is an arrangement that prevents anyone from being employed unless he can find an employer who is prepared to pay him a wage, not a wage that he is demanding, but that which the Government determines he must receive. This arrangement dictates that unless a jobseeker can find such an employer, he will be doomed to a life of abject poverty.”

Associate Professor in the Department of Economics in the Faculty of Economic and Management Sciences at the University of Pretoria, Professor Heinrich Bohlmann, explained that the increase in the minimum wage, in isolation, would most certainly be negligible at a macroeconomic level, however, its impact on employment had been greatly misunderstood.

Bohlmann stated that the hike in minimum wage may not have a significant effect on medium and large companies since minimum wage workers did not make up a significant portion of their overall cost structure. However, this reasoning does not apply to small, medium, and macro enterprises.

“No company wants to pay more for labour if they can avoid it. However, the minimum wage is an important part of our socio-economic structure and is widely implemented across the world without concern. In the long term, there are important benefits to having or moving towards a sustainable minimum wage level for workers in the economy.

“Many organisations will, like they do every year, warn that an increase in minimum wage will be 'bad' for employment. Sure, it will not be a boost to employment, however, research has consistently shown that small real wage increases, such as the one just announced, end up having little to no impact on employment.”

Bohlmann said many other factors were far more damaging to employment and related economic outcomes than small real increases in the minimum wage.

“Our general cost of doing business, due to poor infrastructure, crime, and procurement regulations, is very high and costing our businesses millions every year, and that has a far greater impact on their ability to be competitive, invest more, and ultimately produce and employ more. Governments across all levels, in combination with the private sector, will need to step in to address these, but blaming our employment woes on small increases in the minimum wage is misplaced.”