​Treasury warns national minimum wage will lead to 715 000 job losses

The proposed wage of R20 an hour, or R3 500 per month, was announced by Deputy President Cyril Ramaphosa at the weekend. (David Harrison, M&G)

The proposed wage of R20 an hour, or R3 500 per month, was announced by Deputy President Cyril Ramaphosa at the weekend. (David Harrison, M&G)

Treasury is not in favour of a national minimum wage (NMW) of above R3 000, arguing that it would result in 715 000 job losses and an economic shrink of 2.1%. 

The treasury’s dire warning of the impact of the NMW is contained in the recommendations report currently under consideration by labour, government and business in the National Economic Development and Labour Council (Nedlac).

“Based on a minimum wage of R3 189 in 2014 numbers, the national treasury concludes that approximately 715 000 jobs will be lost. Moreover … the model predicts that GDP will fall by 2.1%” reads the report.

Despite this, calls to hike a proposed national minimum wage of R3 500 are mounting from unions. Treasury has warned that approximately 715 000 jobs will be lost and the country’s gross domestic product will fall by 2.1% if implemented at the current rate.

The proposed wage of R20 an hour, or R3 500 per month, was announced by Deputy President Cyril Ramaphosa at the weekend. It is the culmination of two and a half years of debate and a three month period of interviews conducted by the advisory panel.

In response to treasury’s “pessimistic” warning, the panel said “it was not in the business … to judge the accuracy of these models but rather … considered all inputs to inform its deliberations on the minimum wage.”

On Sunday, at the presentation of the report, the panel said the Treasury’s model of the impact the national minimum wage would have was incorrect and had been debunked. Despite this Mkalipi told the M&G that the model remains the government’s official position on the wage and would not be withdrawn.

Treasury’s impact study is accompanied by macroeconomic modelling work done by the University of Cape Town’s Development Policy Research Unit (DPRU). The DPRU is equally pessimistic – and predicts job losses of between 204 977 and 897 068.

In contrast to this, the University of the Witwatersrand’s National Minimum Wage Research Initiative takes an optimistic view, describing the NMW as a “pro-poor measure” which would help “increase the average sector wage rates from below, instead of disproportionately” hiking the pay of highly skilled workers.

The labour department’s chief director, Thembinkosi Mkalipi, told the Mail and Guardian that his team had not yet debated the recommendations. 

“We are going to meet and look at the report. We said the minimum wage can be anywhere between R2 000 and R3 000, so it’s not too far from us.”

While the labour department treaded a more careful line, chief economist at Econometrix, Dr. Azar Jammine, was brutally frank in his criticism. 

“It’s ridiculous to have a national minimum wage. Different sectors have different demands for labour and different skill conditions. Studies have shown that in most sectors, it’s not conclusive what the minimum wage would do,” Jammine said.

“One area we have definite evidence of where the minimum wage had a detrimental effect was in 2002 in the agricultural sector. Employment fell by approximately about 250 000 jobs,” he added.

The report also found that 7 million South Africans currently earn less than R3 500 and the poverty line for a family of four to five people is set at around R5 100 per month.

If accepted by the Nedlac partners, the wage would dramatically boost the salaries of around 80% of domestic and farm workers, who currently earn less than this, over a two and a half year implementation period. Ramaphosa announced plans to fully implement the wage by July 2019 and has set a target for the proposal to be adopted as government legislation by July next year.

Unions that have condemned the advisory panel’s recommendations include the Food and Allied Workers Union (Fawu), which organises farm workers and has demanded the proposed wage be set at R5700. 

The union’s general secretary, Katishi Masemola, said in a statement: “We wish to reject the R3 500 as inappropriate and far from addressing the triple challenge of unemployment, inequality and poverty where a CEO would earn in one year what a low-paid worker must work 10 000 years for at R83 000 a year or R6 700 a month.”

Note: This story has been updated to include a longer response from the panel about the treasury’s estimates.

 

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