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Proposed R3 500 minimum wage sparks heated debate

Nov 21 2016 17:21
Lameez Omarjee

Johannesburg – Experts are divided on whether a proposed minimum wage is a positive development for South Africa's economy. 

On Sunday, Deputy President Cyril Ramaphosa announced the proposal of a National Minimum Wage of R3 500 at a press briefing at the National Economic Development and Labour Council (Nedlac) offices.

This is R20 per hour. Various social partners, including unions, government and business, will deliberate on the findings of the NMW report which was compiled by a panel of experts. 

READ: 'We wanted a minimum wage that would make an impact' – Ramaphosa

Ramaphosa said that the minimum wage would contribute to addressing poverty issues as well as reduce inequality and unemployment.

However, a national minimum wage could end up harming the people it is intended to help, says an analyst.

Jasson Urbach, economist and director from the Free Market Foundation (FMF), told Fin24 that introducing a minimum wage will contribute to South Africa’s unemployment levels and perpetuate inequality and poverty.

Urbach believes a minimum wage would drive down the demand for labour and end up harming the people it is intended to help, he added.

“Even just one person becoming unemployed is enough reason to oppose a minimum wage,” said Urbach.

Even if employers accept a minimum wage, it will impact on the number of employees they hire, he explained.

Professor Haroon Bhorat, from the School of Economics at the University of Cape Town, said that the proposed R3 500 is at a “well-balanced” level.

It ensures the protection for low wage workers, and it is not too high to elicit job losses, he explained.

“There is always the threat of job losses in those cases where the minimum wage is very far off the existing wage being paid,” he added.

Urbach, though, warned that employers are also likely to curb investment to make up for the increasing labour costs, which could impact economic growth.

There is also a risk of prices of goods and services going up, and this will impact poor people the most as they are most price sensitive.

“This is a political manoeuvre not helping poor people at all,” he said.

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According to analysts from the South African Institute of Race Relations (IRR), a minimum wage would make it “more difficult” for those who are currently unemployed to find work.

However Sizwe Pamla, spokesperson of trade union federation Cosatu, said concerns about unemployment are simply “fear-mongering by big business”.

“We do not want to be bogged down by that. This fear-mongering has been disproven.”

Pamla said that minimum wages exist in different countries across the world.

Although the R3 500 is not enough and “unacceptable”, given the cost of living and “fluctuating” inflation, the labour federation is “happy” that a minimum wage is becoming a reality. Cosatu proposed a NMW of R4 500. The federation will reflect on the research and give feedback in three days, said Pamla.

Dennis George, general secretary of the Federation of Unions of South Africa, told Fin24 that even though this is not a “living wage” it is a starting point to take the process forward.

READ: Ramaphosa challenged to live on R3 500

Although the Food and Allied Workers Union (Fawu) “welcomed” the news that a NMW was proposed, the union rejected the proposed value of R3 500.

“We are concerned that the proposed figure of R3 500 seems to be ignorant of or indifferent to this country as the widest unequal society on Earth,” the union stated.  

The NMW fails to address the challenge of inequality, unemployment and poverty, Fawu said. The union is calling for a minimum wage of R5 700.

The IRR also believes the minimum wage is at a low level that will promote the exploitation of the poor.

But chairperson of the Portfolio Committee on Labour at Parliament Lumka Yengeni said this amount will “save the most vulnerable workers” from further exploitation. There is still room to adjust the figure, when different social partners reconvene to reflect on the research of the NMW report.

Impact on small business

The IRR stated that the NMW further presents a challenge to the creation of small businesses. Urbach shared these views, saying that “big businesses” are likely to benefit in that a NMW keeps out competitors.

“Big business and labour unions and government will like it. But there is no voice for the small business and unemployed people.”

This is a concern as small businesses are an “engine for growth”, said Urbach. Small businesses struggle to pay the NMW level, explained Bhorat.

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