Proposed legislation to govern minimum wages for South Africa’s lowest-paid employment sectors could pose a serious danger for employment losses, writes Haroon Bhorat
The Department of Labour has recently called for public submissions and comment on the issue of minimum wages and conditions of employment for domestic and farm workers. An analysis of the first of these two issues, namely wages, will place into sharp focus the stringent trade-offs faced by the department in this part of the workforce.
It is important, at the outset, to get a sense of the basic wage and employment statistics governing domestic and farmworkers in the economy. There are approximately 700 000 household domestic workers in the society, compared with fewer than one million farm labourers.
The imposition of any labour legislation will therefore impact on nearly two million workers, and their respective dependants. One is not, therefore, talking of an insubstantial number of affected individuals.
The overwhelming majority (96%) of domestic workers are female, while the majority of farmworkers (78%) are male. Hence the legislation would have a near equivalent impact on both males and females in the workforce.
But perhaps the most important reason for the Department of Labour seeking to isolate these two occupations for special consideration lies in the pitifully low wages earned by these two groups.
Domestic workers on average earn just more than R300 per month, while farmworkers earn approximately R400 per month. These two occupations are far and away the lowest paid in the South African labour market.
To put into perspective how low these earnings are: domestic workers earn a third of what the average miner earns, and fourteen times less than the average skilled professional. Extremely low wages lead to the familiar outcome of individuals having a job, yet living in deep poverty.
Given these earnings of domestics and farmworkers, it is not surprising that more than 80% of all these workers remain below the poverty line. In this environment of extreme levels of indigence, it is tempting to give serious consideration to a legislated policy of minimum wages for these workers.
It is possible, given the above parameters, to undertake a carefully conceived thought experiment, wherein the dilemma of the choice between higher wages and lower levels of employment is vividly displayed.
We can think of such an experiment in the form of two scenarios:
l Scenario one – where the wage of domestic and farm workers is increased by 10%.
l Scenario two – where the wage is doubled.
The first scenario is, of course, a far more likely outcome than the second. But the purpose of the extreme second case is to display how harsh some of the trade-offs between wages and employment are.
The effects of scenario one will be that the increase in the wage of these two occupations by 10% will reduce the percentage of workers in poverty to 75%, a 5% reduction to the poverty level prior to the wage increase. This, for domestic workers, means that about 32 000 of them will no longer be in poverty.
For farmworkers, the wage increase will extricate 47 000 of them from poverty. Given the large numbers of these workers, this is not by any means a significant poverty reduction effect.
This does not mean that the wage increase will not be beneficial, but it is clear that its benefits in terms of alleviating poverty will be marginal. It has to be remembered though that, along with a wage increase, there is a serious danger of employment losses, as some employers perceive the cost of employment as being too high. This option may be the best and most optimal available to the department.
Aside from the concerns around the trade- off between poverty and employment, there are two other relevant issues surrounding the minimum wage. These are the effects a minimum wage may have on payments in kind and, secondly, the monitoring of minimum wages should they be set.
On the first, it is true that a large number of employers do offer transfers in kind to their employees. By this, one is referring to, for example, food given to domestics, or bags of mealie meal to farm labourers, by their respective employers.
The imposition of the minimum wage may see employers rescind these free transfers and begin then to charge employees for these products. So, an employer of a household domestic may decide that the new higher minimum wage is not affordable, given the current working arrangements.
In order to retain the services of the domestic, the employer will begin to include the free meals and so on as part of the wage paid to the domestic.
In such a case, the cash wage received by the domestic may not change and, in some cases, may go down. The potential for circumventing the minimum wage law arises thus from the existing and significant free transfers flowing from the employer to the employee.
The second concern around the minimum wage, that of monitoring its implementation, is, in many senses, what the effectiveness of the legislation hinges on. For example, even a minimum wage at double the current average wage is only effective if the government can ensure that such legislation is implemented and adhered to by employers.
The Department of Labour is currently under-resourced in this arena, and effective monitoring of such legislation will be extremely difficult. In addition, and more importantly, domestic services and farming are sectors notoriously difficult to monitor, even if the department did have an adequate supply of labour inspectors.