IS IT really true that the laws on minimum wages work
against the poor, reducing employment, as is so often claimed by commentators with
their knickers in a knot?
If the minimum wage is such a dreadful thing for the
economy, I wanted to know roughly what kind of figures we were looking at, so I
did a bit of trawling.
According to the published and amended sectoral
determinations, a farm worker should be paid R1 503.90 a month, R347.10 a week
or R7.71 per hour.
In the wholesale and retail sector, the monthly minimum for
a ‘general assistant’ is R2 159.43 per month (R11.48 per hour if they work 27
hours or less).
A contract cleaner gets R14.45 per hour (just a little over
R2 100 for a full month’s work), while a forestry worker should earn at least
R1 278.03 per month, R294.95 per week, R6.55 per hour.
In the hospitality industry, the lowest wage is R2 240.60;
in the security industry it’s R2 041 (for a ‘general worker’ in the first six
months of employment); in the taxi industry, rank marshals should get no less
than R1 959.40 or R9.42 an hour.
(Bear in mind that the average South African household
spends nearly 20% of its income on transport – more among the poor – so each of
these wage figures takes a battering even before rent, food and any utilities
are paid for. That forestry worker may go home to his family with just R1 000
Would anyone really pay much less than that?
It seems so: “Minimum wage violation is South Africa is
disturbingly high. We find that 45% of covered workers get paid wages below the
legislated minimum, whilst the average depth of shortfall is 36% of the minimum
wage. Around this average, violation is most prevalent in the Security,
Forestry and Farming Sectors.” (Minimum Wage Violation in South Africa, Haroon
Bhorat et al, September 2010)
There’s been much hoo-ha lately about the increase in
minimum wages for domestic workers and how people are going to have to let
their domestic workers go. As of November 30 2012, the minimum wage has risen
from R1 625.70 to R1 746.00.
Seriaas? Seeeriaaas?! Someone who can afford domestic help
in the first place can’t fork out R120 a month extra?
We are warned in solemn tones that increases in any minimum
wage will hamper growth and boost unemployment. Firstly, there doesn’t appear
to be certainty about the impact: if there is any consensus at all, it seems to
be that an increase possibly results in some negative effects, but that these
are not significant.
Secondly, I find myself puzzling over why minimum wages are
such an obstacle to growth – and why doing away with them will be wonderful for
the very poor.
The other day, I heard a recording of a late-night caller to
talk radio, who told a tale that went something like this:
I have a small business and I’m doing quite well, thank you:
I drive a car that’s worth R600 000 and every year I get away to go skiing in
the Austrian Alps. My guys were earning on average about R4 000, and one day I
just decided this isn’t right. I can take a bit of a contraction in my
lifestyle to balance things out a bit. So I gave them all a 50% increase. And
I’m telling you, the results are unbelievable!
Productivity has shot up, they are all walking around with a
spring in their step, and best of all, I feel wonderful!
Aside from the boost in productivity, and the personal
reward the business owner received, another inevitable result of this story
would have been this: men and women who previously just managed to get by –
maybe even visiting a loan shark to make it over the last few days of the month
– now suddenly had extra cash.
They spent it at the local second hand clothes shop or with
the local hawker, both of whom got so busy they had to hire help.
Now if our business man had instead cut his wages by just
10% overall, so that he could employ one more person, the hawker might have
been unable to make enough in a day to replenish her stock.
Do this on a large scale, and pretty soon, although more
people are indeed employed at a very low rate of pay, they are just surviving
(if that), so there’s no spare dough to buy the widget Mr Skiing Businessman
makes and soon, he’s had to go out of business.
All the staff who were earning R4 000 a month (before he
decided to expand the number of people in his employ without expanding his wage
bill) are now out of work.
“Families living in or near poverty spend close to 100% of
their income just to meet their basic needs, so when they receive an extra
dollar in pay, they spend it on goods or services that were out of reach before
[...] channelling any addition to their income right back into the economy,
creating growth and jobs. This ‘multiplier effect’ means that a higher wage
standard for retail workers will also generate new jobs.” (Retail's Hidden
Potential: How Raising Wages Would Benefit Workers, the Industry and the
Overall Economy: Catherine Ruetschlin, www.demos.org, 19 November 2012)
And that’s how you make more jobs. Just saying....
* Mandi Smallhorne is a versatile journalist and