DA leader John Steenhuisen. (Darren Stewart/Gallo Images)
Ahead of the fast-approaching elections, the Democratic Alliance (DA) has doubled down on its view that the minimum wage hinders hiring and deprives the economy of new jobs.
This and other of the official opposition’s economic beliefs are laid bare in a 68-page document by the party’s federal policy unit.
The document — which adds some texture to the rather sparse economic proposals in the DA’s election manifesto launched in February — outlines the party’s plan to “unleash enterprise, grow the economy and create jobs”. On the latter subject, the DA promises to create two million new jobs during its first five-year term, if elected this year.
While some have credited the Economic Freedom Fighters (EFF) for urging South Africa’s political economy to the left, the DA’s gravitational pull in the opposite direction is still considerable.
Although the DA’s economic policies cannot be ignored, especially in the era of coalitions, they probably won’t raise the party’s prospects.
The DA’s policy document describes the national minimum wage, implemented in January 2019, as one of the major government policies that has kept people unemployed. The party makes this argument as the country grapples with stubbornly high unemployment rates, which have climbed consistently since at least 2008.
“While the intentions of South Africa’s labour laws may be good,” the DA adds, “their outcomes are ultimately bad, as fewer businesses are prepared to hire, resulting in increased levels of unemployment, poverty, and inequality.”
The party proposes leaving the existing minimum wage — currently set at R25.42 to R27.58 for each ordinary hour worked — in place, allowing inflation to erode its value over time.
Responding to the DA’s stance on the minimum wage during a Newzroom Africa interview, Cosatu spokesperson Matthew Parks questioned the party’s economic logic.
“It is a bit of a bizarre economic theory that says let’s pay people less and somehow grow the economy … We have experimented with paying people a slave wage during the apartheid era. We never had full employment. The economy didn’t grow,” he said.
In return, the DA’s Mathew Cuthbert accused the labour federation and its ally in government, the ANC, of “gaslighting and manipulating South Africans and particularly the unemployed”.
Cuthbert contends that the current labour regime benefits unionised workers to the detriment of the country’s jobless, a view that is made repeatedly by the DA in its manifesto and economic policy document.
“We wouldn’t sit with an unemployment rate, including the expanded definition, at north of 40% if there wasn’t a problem with our labour laws,” he added. Both men allude to there being studies backing up their points.
In the lead-up to the national minimum wage being implemented, there was some back and forth on its economic benefits.
In one report, the World Bank argued that a minimum wage would have a negligible effect on inequality, noting: “Creating good jobs for the poor will have a much larger impact on inequality and poverty.”
The World Bank’s findings flew in the face of an earlier International Labour Organisation report which argued that a minimum wage would be key to reducing income inequality. A separate report by economic modellers at the Applied Development Research Solutions made findings to this effect — but with the caveat that the minimum wage would not fully overcome inequality, poverty and unemployment on its own.
Insofar as understanding the minimum wage’s actual effect, there is little evidence to work with.
In 2020, economists at the University of Cape Town’s Development Policy Research Unit assessed the quantitative effects of the national minimum wage in South Africa. They found that, a year after it was introduced, the policy had a relatively benign effect on the labour market, creating no clear change to either wages or employment. This is in the wake of widespread non-compliance.
The question is, if forced into a coalition government, will the ANC compromise on the national minimum wage, something of a feather in its cap since it was introduced five years ago?
Probably not, especially if it speeds up the deterioration of the party’s ties with its alliance partners.
The DA’s stance on matters such as the minimum wage, as well as labour law reforms, could significantly hinder its chances of making a deal with the ANC, if its Multi-Party Charter alliance fails in unseating the governing party.
In its recently-published baseline election scenario, Oxford Economics sees the ANC’s vote share falling to 46%. The DA also slips, albeit slightly, to 20%. Meanwhile the Economic Freedom Fighters boosts its share to 15% “in a difficult economic environment, where its radical message resonates”.
In this scenario, the ANC will choose to partner with some of the smaller parties, maintaining the status quo insofar as policy is concerned.
Until the votes are counted, this is just speculation. That said, amid shifting forces, the governing party will probably do what it can not to lose its balance.