Basic wage is all the rage
The suggested national minimum wage for South Africa is significantly higher than most of its counterparts in the Brics (Brazil, Russia, India and China), other developing economies and its neighbouring countries.
Trade union federation Cosatu has recommended that South Africa should consider a wage of between R4 500 and R6 000 – or roughly between $5 112 and $6 384 a year.
The national minimum wage of Brazil is $4 827 a year, China’s is $2 472, Russia’s is $2 161 and India’s is $700. South Africa’s economic rival, Nigeria, which recently overtook South Africa in terms of the size of its gross domestic product, has a national minimum of about $1 285 – less than a third of what Cosatu is proposing.
Another developing economy, Mexico, has a national minimum of about $1 500 a year.
South Africa’s neighbouring countries have significantly lower minimum wages than that. Botswana’s (last updated in 2012) is about $650 and Mozambique has a minimum of about $1 270 a year.
Namibia and Zimbabwe have no minimum wages, besides a floor wage of $2 724 for mineworkers in Zimbabwe.
The debate about a national minimum wage has moved from a theoretical discussion to a more concrete consideration during the past few months, with the ANC’s commitment in its 2014 manifesto to “investigate … the introduction of a national minimum wage as one of the key mechanisms to reduce income inequality”.
The parliamentary labour committee has started hearings on the topic.
Deputy President Cyril Ramaphosa has been assigned to chair a committee considering the issue, and the National Economic Development and Labour Council has been tasked with producing a report on the technical aspects of implementation by July next year.
As the possibility becomes more real, the suggestion of a particular wage level by the trade union arm of the government’s tripartite alliance is coming under increased scrutiny.
Cosatu’s strategies co-ordinator, Neil Coleman, explained why the federation is lobbying for that amount.
“There are two yardsticks that are used internationally that we have picked up.
The first is based on the average wage. The International Labour Organisation says that the minimum wage should be based on 40% to 50% of the national average wage. That average, according to Statistics South Africa, has been about R15 000 in 2014.”
The second yardstick was a minimum living level – a designated minimum amount needed to support a family of five.
“Those two figures tend to cluster around R4 500 to R6 000,” Coleman said. But Cosatu had “never proposed a specific figure. All we’re saying is that we must aim to be in that vicinity.”
An economist at the Free Market Foundation, Loane Sharp, said the band suggested by Cosatu was too high.
“It’s relevant how many people are earning below that wage. In South Africa there are just less than seven million people earning less than R4?500 per month. Those are workers who would be vulnerable in the medium to long term to replacement by technology and capital equipment.
“When you consider that volume of people, you have got to ask whether this proposal by Cosatu is realistic.
“There’s an extraordinary sensitivity to changes in the wage rate in certain sectors. Seven million people earning less than R4 500 could become precarious in their jobs if they chose that as a minimum wage.”
Despite being higher than many countries, the suggested minimum wage band is actually lower than some sectoral minimums already in place in South Africa.
For example, according to statistics collated by Peter Attard Montalto, an economist at the investment bank Nomura, the sectoral minimum for mineworkers, as determined by collective bargaining, is R7 435 a month. In the finance sector it is R6 600, and the chemical sector minimum is R6 374.
Although some have argued that this could drive down wages in sectors such as these, Cosatu has dismissed this concern, saying that a national minimum wage will not replace sectorally determined rates.
“The national minimum wage would actually be more of a protection floor for the poor,” Coleman said. “It means that no one is allowed to earn less than that. Above that there would be sectorally determined minimum wages, preferably determined by collective bargaining.”
But although the national minimum was not intended to replace sector minimums, it was nevertheless intended to “compress the wage structure”.
Coleman quoted the Brazilian example, where a larger part of the population has enjoyed above-inflation increases after the country raised the minimum wage.
“So [implementing a national minimum] cascades up the wage structure,” he said.
But, according to Charles Simkins, a senior researcher for the Helen Suzman Foundation, the South African economic environment is not ideal for a national minimum wage to have the desired effect.
“The best circumstances in which the wage floor can be pushed up is in a growing economy with nearly full employment,” he wrote in a note. “Such an economy could cope with the increased unemployment, by reducing its impact on workers and with the hope that growth will lead to re-absorption within a short time. These are not the circumstances of the South African economy at present.”
Jeremy Seekings, the University of Cape Town’s director for the Centre of Social Science Research, said that increasing the social wage would better address inequality than a national minimum wage.
“Overall inequality … is reduced much more if poor households earn an additional R1 000 per month [through low-wage jobs created by social grants] than it is by wage increases of R1 000 for the same number of people who already have jobs,” he said.
But Coleman rejected this argument. “It’s voodoo economics. It’s nonsense,” he said. “You can’t segment the employed and unemployed in a way that the right-wing economists do, because there’s no mechanical distinction between the two.
“A national minimum wage is a macro intervention; we have to look at it in a macro way. It must be combined with other interventions and managed in a way that is sustainable. The economy will adapt over time.”
“Seven million people earning less than R4 500 could become precarious in their jobs if they chose that as a minimum wage”