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Minimum wage

Dec 03 2012 07:43 * Mandi Smallhorne
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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 in cash.)

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....

- Fin24

*Mandi Smallhorne is a versatile journalist and editor. Views expressed are her own. Follow her on twitter.


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