Don't rush basic wage decision

Deputy President Cyril Ramaphosa, who sits on the committee of principals guiding the talks on a minimum wage, lends weight to the discussions. (David Harrison, M&G)

Deputy President Cyril Ramaphosa, who sits on the committee of principals guiding the talks on a minimum wage, lends weight to the discussions. (David Harrison, M&G)

ANALYSIS

If discussions between labour, business and government make headway, talks on the introduction of a national minimum wage could conclude by the year’s end.

Whether this will happen and the process moves on to legislation remains to be seen. There is no indication that pivotal questions have been tackled, notably at what level a minimum wage should be set.

Two task teams are thrashing out labour-related matters under the auspices of the National Economic Development and Labour Council (Nedlac): a wage inequality technical task team and a labour relations technical task team. The task teams are “endeavouring to conclude engagements by the end of the year”, said Nedlac.

The process is lent political impetus by Deputy President Cyril Ramaphosa, who sits on the committee of principals guiding the talks.

Taking time to iron out the implementation of a national minimum wage may be worthwhile – recent research revealed how misplaced, and arguably politically hurried, policy can affect jobs.
Work done for the Confederation of Associations in the Private Employment Sector (Capes) revealed the introduction of an amendment to the Labour Relations Act, signed into law in 2014, has resulted in the loss of jobs rather than the protection of employees.

The change to the law ensured labour brokering or temporary employment service (TES) employees who earn below R205 433.30 a year are deemed “indefinite employees” after three months of continuous employment. These changes were controversially pushed through Parliament ahead of the May 2014 general elections, with several other pieces of legislation.

The research, by Haroon Bhorat, Sibahle Magadla and Francois Steenkamp, found job destruction was a key response in many industries and sectors after the changes.

“For every 100 TES employees, about 50 of these workers lost their jobs” through retrenchment or termination, the research noted.

Some workers benefited from the change: about 27% of employees were taken on either permanently or on contract. More than 22% of employees were unaffected by the change. The negative effects were felt most strongly in the manufacturing, finance, real estate and business services, and public and social services sectors, the researchers found.

“The data provides early, short-run evidence that the most common response among firms facing the regulatory change has been to retrench workers or to prematurely terminate contracts of employment,” the researchers said in their note.

“As one examines the longer run effects of this law, the concern among policy-makers must surely be the extent to which additional possible employment creation has been reduced, given this regulatory intervention.”

The potential effect a national minimum wage policy could have on the economy is one of the issues the Nedlac process has to confront.

According to Nedlac, the task team has thus far agreed that, among other things: the national minimum wage should be a legal floor, below which no employee may be paid; it is treated as a basic condition of employment; and certain exceptions may be needed.

It has also agreed it will exclude volunteers, persons undergoing work experience or training and public works employment opportunities.

The government’s expanded public works programme offers temporary work for the unemployed.

Khanyisile Kweyama, chief executive of Business Unity South Africa, said business was committed to a national minimum wage that sets a minimum acceptable level of earnings and, although South Africa already has a sectoral and collective bargaining wage system, some employees not covered by this system would be covered by a more comprehensive system of setting a national minimum wage.

Nevertheless, a key concern in setting a national minimum wage “is the potential to outprice the cost of employment so that it becomes a disincentive to existing and prospective employment”, Kweyama said.

“Also, given the existing regulatory burden, another tier of wage setting could add a further layer of complexity for businesses,” she added, explaining that South Africa’s Basic Conditions of Employment Act advocates both social and economic factors be taken into account in determining a national minimum wage.

From an economic perspective, determinants that should be taken into account include “economic growth, competitive wages relative to neighbouring and trading countries [and] small business affordability, among others”.

“Most important in the current South African context is the consideration of the impact that national minimum wage could have on employment and investment confidence,” she said. “A national minimum wage should be exactly as the name implies – a minimum wage that operates as a floor for the most vulnerable employees.”

Despite these concerns, research from the University of Cape Town’s development policy research unit indicates that in other sub-Saharan countries the introduction of a minimum wage has no or very minimal negative effects on employment. The research’s authors were Bhorat with Ravi Kanbur and Benjamin Stanwix.

In a June working paper they said although research on the effects of minimum wages in sub-Saharan Africa is limited, findings from Ghana, Kenya, Malawi and South Africa suggest “in most cases introducing and raising the minimum wage has a small negative impact or no measurable negative impact”. The exception is South Africa specifically, in the agricultural sector.

Their research also indicated significant variation on this finding: the effect of a minimum wage depended on a range of factors such as the level of the minimum wage relative to average wages, the increase’s size, the sector, the level of worker productivity and the enforcement regime.

“While past increases in minimum wages have generally not negatively affected employment, it is not the case that such positive outcomes will persist regardless of the level to which a minimum wages is raised,” the research said.

“There is a level beyond which minimum wage will begin to negatively affect employment; this level may differ across geographic regions, sectors, and firms.”


Legal victory for labour brokers

The labour brokering industry has won what it deems a major victory in the face of business uncertainty.

This week, the Labour Court found for the labour brokering industry in a test case to decide whether a worker (earning below R205 433.30 a year) for a labour broker can be deemed to become the sole employee of a client employer after being placed there for three months.

The case has provided some clarity on the interpretation of amendments made to the Labour Relations Act, which said workers employed by the client of a labour broker could be deemed employees of the client after three months.

According to a July briefing note by law firm Cliffe Dekker Hofmeyr, a previous ruling at the Commission for Conciliation, Mediation and Arbitration found that these workers must be deemed employees of the client, ultimately entitling them to the same treatment as permanent workers.

The Labour Court found the client organisation is a concurrent employer rather than the sole employer, a Federation of African Professional Staffing Organisations (Apso) statement said.

“Although the Act intended to streamline the country’s labour environment and protect vulnerable workers, the interpretation that TES [temporary employment services, also called labour brokers] employees transferred permanently to the client after a three-month period, resulted in the opposite occurring,” said Apso’s vice-president, KC Makhubele.

He referred to research by the Confederation of Associations in the Private Employment Sector that revealed that only a small number of employees were permanently employed by client organisations in the 12 months following the amendment.

“Many companies, instead of permanently contracting their temporary workers, identified the need to downscale, as they could not afford to permanently employ the temporary workforce they required for a set time or specific project,” he said.

An effect was the folding of many small, black-owned recruitment firms.

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