by Stef Terblanche

Minimum wage in focus

Debate on need for a national minimum wage gains momentum

Alistair Smith, executive director of the National Economic Development and Labour Council (Nedlac)
Alistair Smith.jpg

The debate continues on whether South Africa should have a national minimum wage and, if so, at what level should it be pegged. A variety of recent political, labour and economic developments brought the debate to the fore but the biggest driver remains poverty levels. However, the quest for economic growth and job creation also complicates the matter. 

The debate was given new prominence at the Congress of South African Trade Union's (Cosatu) collective bargaining, organising and campaigns Conference held in mid-March, but it has been under discussion since last year’s labour unrest in the mining and agriculture sectors. It also ties in with calls for a review of the current collective bargaining system, a changing labour relations environment as well as global and local economic pressures.

The local debate also coincides with similar debates in countries like the United States, where former Harvard law professor, Senator Elizabeth Warren is leading a campaign focusing on the enormous productivity and profitability gains by companies for over four decades while minimum wage levels stood still, leaving American workers worse off than 40 years ago.

She argues that even if the minimum wage level went up from the current $7.25 an hour to $24, companies would still reap the productivity gains of the past 40 years. She campaigns for the US minimum wage to be increased to $22. President Barack Obama has suggested an increasing it to $9.

Warren wants to know what happened to the other $14.75, being the profit increase from productivity gains while the minimum wage remained stagnant.

Arindrajit Dube, an economist from the University of Massachusetts, who gave supporting evidence at the Senate hearings on the issue, said the difference went into the coffers of the corporates and their top executives.

Dube argues that had the minimum wage increased at the same rate as the remuneration of the top 1% income earners, the minimum wage would now have been $30 an hour. This is simply evidence of how American income inequality has grown.

South African income gap

In South Africa the enormous income gap between lowest-paid workers and top executives has become a major issue. Cosatu refers to it as the 'apartheid wage gap', with calls for tax reforms to target executive pay among other measures.

But even the gap between senior and mid-level managers and the lowest-paid workers is big. Cosatu is proposing simplified grading systems that allow for only five job grades, with an income difference of no more than 10% between grades.

South Africa has no across-the-board national minimum wage for all economic sectors and those calling for it, like Cosatu, do so with reference to a clause in the Freedom Charter. 

At present the Minister of Labour determines the minimum wage of different sectors in terms of the Basic Conditions of Employment Act on advice from the Employment Conditions Commission (ECC). According to Ingrid Woolard, the chairperson of the ECC and Associate Professor in Economics at UCT, about 4.5 million South African workers currently have their minimum wage decided in this way.

Cosatu claims that the “average minimum wage in South Africa was R3 336 in 2010. Minimum wages are reported by the Labour Research Service Report on Bargaining Indicators (2011) as being 19% below the living wage level of R4 105. Therefore, the call for a national minimum wage in the Freedom Charter is yet to have effective meaning for at least 44% of the workforce”.

Cosatu resolved at its recent bargaining conference “to engage urgently with government on our call for a legislated National Minimum Wage to be introduced by 2014”.

No simple matter

But it is no simple matter. It is a complex issue full of potential pitfalls, an instrument that can be manipulated to the benefit of some, and the detriment of others. It is not necessarily the great equaliser many would hold it up to be.

For instance, Walter E. Williams, economics professor at George Mason University in the US calls it “an effective tool used by racists everywhere”. He cites several examples of how legislators and employers in the US and in pre-1994 South Africa used the minimum wage to protect the jobs of whites at the expense of blacks.

While such racist considerations are unlikely to apply these days, some stakeholders object to a minimum wage on the grounds that it would stifle economic growth and employment creation. South African Chamber of Commerce (Sacci) CEO Neren Rau, for instance, reportedly said that “the minimum wage will be a barrier to employment creation.”

The Transvaal Agricultural Union (TAU) also said recently, when the minimum wage in that sector was increased from R69 to R105 per day following the labour unrest on Western Cape farms, that at least 2000 farm workers had been notified of their impending retrenchment as farmers were mechanising to cut costs.

Cosatu’s strategy co-ordinator, Neil Coleman, advised its bargaining conference that a tripartite body, including independent experts such as the ECC, should be established to determine a realisable minimum wage level.

He acknowledged that while a minimum wage is unpopular with the business community, it "would create a structural way of transforming the wage structure rather than the chaotic events (recent labour unrest) we are witnessing now.”

Coleman’s view was supported by International Labour Organisation (ILO) senior economist, Patrick Belser, who argued for a national minimum wage as a way to "help ensure that the benefits of growth are shared with those at the bottom of the distribution pile".

But Belser also warned that it would entail a delicate balance not to harm growth and alienate entrepreneurs.

Support for a national minimum wage also came from Alistair Smith, executive director of the National Economic Development and Labour Council (Nedlac), at the bargaining conference of another labour federation, the Federation of Unions of South Africa (Fedusa). 

He urged business to consider it and called on unions to include it and other issues in their wage negotiations this year. South Africa was at a crossroads. It required renewed efforts of engagement among all role-players and the issue of a minimum wage could not be excluded from talks, Smith said.

Cosatu, keen on emulating the Brazilian model, is currently considering a national minimum wage of about R4 500. But, aware of the pitfalls and the need for the balancing act mentioned by the ILO’s Belser, it has given the assurance that it will not take any final position on the matter without careful research and without engaging all stakeholders.


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