With countries such as the USA and UK moving to increase the levels of their minimum wages, South Africa is debating the implementation and subsequent effects of a similar policy back home.
Research from the Wits School of Economic and Business Sciences’ National Minimum Wage Research Initiative (NMW-RI) has proposed a national minimum wage of around R4,000 a month being implemented in the country to uplift the 2.35 million workers who do not currently benefit from collective bargaining in the country.
The level of minimum wage has been a tricky subject, with the proposed limits set anywhere between R3,000 and R8,000 or more – while economists have argued anything more than currently in effect threatens to kill jobs in a market that can ill afford it.
Assuming South Africa introduces a national minimum wage at a level of R4,000 a month, the wage would still rank as one of the lowest in the world – even compared to similar markets such as Mexico.
A comparison done in April by the World Economic Forum found that countries like Australia, Luxembourg and Belgium offered citizens the highest minimum wages (between US$8.50 and US$9.50 an hour) – while countries like Mexico and Latvia had some of the lowest (US$1.00 to US$1.50 an hour).
Taking a prospective monthly wage of R4,000, and adjusting it for purchasing power parity (R5.52/$) across a typical working month (40 hours a week for 20 days), South Africa’s potential hourly wage would come in at US$0.90 an hour – lower than all countries listed in the WEF’s comparison.
A minimum wage of R8,000, as suggested by Pacsa, would put South Africa above Latvia at US$1.80, but still very low on the spectrum.
South Africa’s current average minimum wage (taken from all sectors’ collective bargaining) of R2,340, is significantly lower at only US$0.53.
The great minimum wage debate
According to the WEF, inequality often starts in the labour market, and a broad package of coherent labour market policies – including minimum wages – is vital to tackle inequality and ensure that economic growth benefits everyone.
“Ensuring that the benefits of growth reach the many rather than the few is one of the great challenges of our time, and rising wages are clearly a key driver of inclusive growth,” said Jennifer Blanke, chief economist at the World Economic Forum.
“When wages remain stagnant, imposing a minimum wage is one vehicle for driving them higher.”
Echoing sentiment from anti-minimum wage groups, however, the WEF noted that, while a minimum wage leads to higher wages for those with jobs, a downside is potential job cuts and higher unemployment – something South Africa can scarcely afford.
Despite this, “history has shown that minimum wages that are not ‘too high’ have a benign effect on unemployment, and can be an effective lever (although the threshold is of course difficult to determine),” Blanke said.
Research conducted by NMW-RI found that at a level of around R4,000, the benefits to South Africa would outweigh any negative effects. Economists have disagreed, however, and said the move would destroy jobs in the country.