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Johannesburg - It is important to take a stance now already against the idea of a national minimum wage, because of its potentially incredibly destructive impact, warned emerging markets economist Peter Attard Montalto of Nomura on Thursday.
Congress of SA Trade Unions (Cosatu) general secretary Zwelinzima Vavi told delegates at a labour relations indaba on the East Rand on Tuesday that a national minimum wage should be implemented as soon as possible and at a level sufficient to support a family of five.
READ: Vavi calls for national minimum wage
On the other hand, the business organisation AHi said the drive by organised labour to impose a national minimum wage across all sectors and its call for legislation to be enforced will lead to higher unemployment, especially amongst vulnerable sections of the South African society.
READ: Minimum wage will cause unemployment
Montalto said such a national minimum wage may well not come into law until after the 2019 election. He expects it could even form a core manifesto offering at the time for the ANC at the time of the election.
"The private sector in its broadest terms - from the domestic worker, self-employed to the SME to the large enterprise - needs to call out the damage an inappropriately set level of the minimum wage would inflict," warned Montalto.
Nomura found in its analysis that a minimum wage of about R2 500 per month could be established without a serious impact or distortion on the economy and could result in a net positive impact.
"However, Cosatu is now talking about a level of R4 500 to R6 000 per month. Such a level would have a serious impact on a much larger sweep of the private sector and a much larger number of employees," warned Montalto.
"Setting a minimum wage so far above the clearing rate would lock out far more unskilled workers from the work force, with businesses instead focusing on technological substitution and increasing demand - and pay, and so inequality - of higher skilled, higher income workers."
In this context, what Montalto calls "the magic pay them more and consumption will go up and with it the demand for more jobs" becomes a complete red herring.
"A belief that paying workers many times the clearing rate in the market will not result in jobs losses is to single out labour as the only demanded good anywhere that has a different demand curve – that is that increasing cost does not increase demand for the item," explained Montalto.
"If Cosatu really believes that paying say R5 000 per month does not lead to job losses, then they should be recommending R10 000 per month instead. They don’t, because they know it doesn’t really work like that."
In Montalto's view Cosatu "is continuing with its usual modus operandi of non-caring about the unemployed".
Levels of inequality
He said it is important to recognise that the vast bulk of what separates SA’s level of inequality from that of, for instance, a more "normal" country, is not income inequality, but inequality caused by unemployment from the formal sector.
"The World Bank's report on SA's fiscal policy being highly effective at redistribution that came out earlier this week is in some ways not a surprise – such a finely structured grant giving system was always going to have that effect," said Montalto.
"The problem is that this is only papering over inequality caused by unemployment. It is not addressing the real problem of boosting private sector job creation through decent, non-invasive, microeconomic policies."
In his view there is also far too much "spurious association" of SA's current SA situation with Asia's or Latin America's historic experiences.
He explained that comparing the current state of SA, with its low foreign direct investment (FDI), low potential growth, unreformed micro policy economy within a weak global environment, to those others during a period before the financial crisis of rapidly expanding global credit supply, hefty FDI and in many cases economies undergoing wider microeconomic reforms, "is simply nonsensical".
"In that previous environment businesses had the capacity to absorb increased costs through increased future expected earnings and leverage. That is not the case now," he said.
"The labour market has been a bugbear of foreign investors - particularly corporate FDI investors - for some time. Indeed, we have identified it, and its associated regulatory framework and institutions, in the past as the one of the largest single areas suppressing long-run potential growth."
How a minimum wage could work
Montalto explained that minimum wage legislation is currently enacted under the Basic Conditions of Employment Act, which allows for sector determinations.
It also has a number of provisions that allow for umbrella minimum wages for sectors not covered by existing sectoral agreements.
"Practically, additional legislation may not be needed, but could be done by gazetted order of the Minister of Labour after agreement in the cabinet. Most likely a period of internal analysis by the department of labour will take place, followed by public consultations and evidence taking," said Montalto.
"That would be followed by a white paper on the subject, which would be debated in Nedlac (the joint business, government and labour council), though the government would not be bound by any outcome at that stage. It would then proceed to an order and enactment."
Any nationwide minimum wage would likely be accompanied by a boost to existing efforts to track non-enforcement, in his view.
He pointed out that the issue of national minimum wages is also complicated by an attempted push by the National Treasury to get national employer and employee defined-contribution pension schemes off the ground.
- Fin24
