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The national minimum wage: How high?

Aug 23 2015 15:00
Dewald van Rensburg

The long-promised national minimum wage rise is coming, with the business, labour and government constituencies at Nedlac apparently working towards a deal in time for President Jacob Zuma’s next state of the nation address.

The research being produced for these talks is now being made public, showing just how revolutionary a relatively high minimum wage could be.

A minimum wage even remotely approaching the levels considered necessary to eradicate poverty among working people and their dependants would have to raise the wages of literally millions of people.

New research shows that if the wage were set at R4 500 a month, it would cover at least half of the employed population, even after any number of conservative assumptions about people underreporting their earnings – and excluding part-time workers and, crucially, informal, domestic and farm workers.

If official labour figures produced by Stats SA are taken at face value, a minimum wage of R3 200 would already help half of South Africa’s workers.

But if the wage were to have any real impact on poverty, it would have to reach at least R4 125 a month, a level defined as the “working poor” line. This takes into account that many wage earners in poor households often support a large number of dependants. It represents the wage needed to move an average poor household with one earner up to the poverty line of R1 319 per capita, enough to supply the earner with 2 100Kcal in food a day and a minimum of essential items – a subsistence level of living.

Wage levels at the moment mean nearly 90% of people employed in the agricultural sector and 95% in domestic services fall below the working poor line, compared with just over 23% in the mining industry.

The trade industry employs the largest number – 1.1 million – of the working poor, with about 60% of workers earning less than R4 125 per month.

More than 20% of all workers who earn less than this threshold are employed in the trade industry. More than 17% are in the services industry, which employs about 945 000 workers.

Along racial lines, nearly 60% of African workers are part of the working poor, compared with 56% of coloured workers and 22% of white workers.

While the minimum wage has elicited both extreme opposition and support, it is almost completely meaningless without some idea of the level at which it will be set – or some basic design issues being sorted out.

The public discourse on it is “not very evidence based”, says Gilad Isaacs, a researcher at the Wits University’s corporate strategy and industrial development (CSID) research programme. The CSID, along with the University of Cape Town (UCT), hosts two brains trusts working on wage-related research for Nedlac, and this week started releasing the research they have been giving decision makers.

Arden Finn from UCT’s labour development research unit presented a paper on South Africa’s current wage structure to journalists, showing how much impact a minimum wage would have at different levels.

It shows that South Africa’s median wage is roughly R3 500. That means a minimum wage of R3 500 would boost the wages of half the country’s employees. One of R5 000 would do the same for 60% of workers.

This differs sharply between sectors, with agriculture, domestic work and construction the most sensitive to a hypothetical wage level of even R3 000. The actual function and impact of the wage depends almost entirely on the level at which it is set – relative to existing wages.

Ingrid Woolard, chair of the Employment Conditions Commission – which sets the current sectoral determinations containing minimum wages for millions of workers in unorganised sectors – has previously said the wage would mostly aim to “cover the uncovered”. That means catching the workers who do not yet have a minimum wage set by one of the nine sectoral determinations. This view has the national minimum wage patching up the wage-setting system instead of suddenly raising the wages of people already subject to some or other minimum.

The stated objective of the wage, from the ANC’s election manifesto, is to combat income inequality. To do that, it would have to be set at a level higher than at least some current wages, argues Isaacs.

Some major decisions are pending, such as whether domestic and farm workers should be excluded, considering their far lower current wages compared with just about any other kind of work.

There are several studies about how national minimum wages have affected employment in other countries. By and large, the consensus is there is no real effect at all. Everything would still depend on how high it is compared with existing wages in the economy.

Usually, a minimum wage would be set in relation to another labour market metric – probably a fraction of the average or median of wages before a minimum wage is introduced. These things are different in different countries – and across industries within a single country.

A City Press analysis of the most common kinds of employment in South Africa indicates that a minimum wage of R3 500 per month would affect almost exactly half of the people employed in the following jobs: farm worker, domestic worker, security guard, construction worker, cashier, clerk and restaurant staff.

This kind of work is what a third of South Africans employed by companies or other people do. South Africa has about 15.6 million working people, of whom 13.1 million are employed and paid by someone. 

Should the government set a national minimum wage to improve the lives of workers? Is a wage of about R4 000 a month enough to lift the lowest paid out of poverty?
SMS us on 35697 using the keyword WAGE and tell us what you think. Please include your name. SMSes are charged at R1.50

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