What youth really think about a national minimum wage
There has been little attention paid in the national debate to what young people know about minimum wages, their wage expectations and who stands to benefit most from a minimum wage. This is unfortunate as the labour market needs of young people are complex, with only one in five youth between the ages of 18 and 25 years employed, down from almost 30% in 2008.
How to provide protection for those in the labour market, while taking the needs of those on the outside looking in, remains a key challenge as the presidential review panel deliberates on a national minimum wage.
The Centre for Social Development in Africa at the University of Johannesburg conducted extensive focus group discussions with youth in this age group, in urban and rural areas in five provinces.
We found that young people across all groups (employed and unemployed) had limited knowledge of the minimum wage, its purpose and how the current system of collective bargaining and sectoral determination works. Many of those who were employed reported wages below current sectoral determinations.
They spoke frequently of uncertain and erratic pay, and of the absence of employment contracts.
Many doubted employers would abide by a national minimum wage, while others thought their pay would be frozen indefinitely or that their wages would be reduced.
Should a national minimum wage be implemented, it would have to be accompanied by education and information for employers, workers and job seekers. Enhanced enforcement would also be necessary.
In our sample of working youth, median earnings were R2 000 a month compared with a national median of R2 500 for 18- to 25-year-olds, based on Statistics South Africa’s 2014 Quarterly Labour Force Survey.
Many said they would, and do, work for wages below those perceived to be fair. Most would also work for less than their perceived cost of living.
This suggests that South Africa’s youth place great value on working, contrary to the stereotype of youth as lazy and entitled. It suggests young people are looking for and taking jobs at wage levels that are unlikely to lift them out of poverty. Median wages earned are also unlikely to offset the high cost of transport and job searches.
A national minimum wage is likely to benefit employed young people (about 20%), especially those who fall outside existing wage legislation, and those who come from large and extremely poor households.
A national minimum wage system would be considerably simpler to implement than the sectoral determination system that is in place now. The latter does, however, take into account wage levels in different economic sectors. A national minimum wage could substantially reduce the exploitative pay practices uncovered by this research.
But the majority of youth are unemployed. While we find that the prospect of higher earnings may stimulate job-seeking, especially for those who have become discouraged (762 000 in this age group nationally), unemployed youth are unlikely to directly reap the benefits of a national minimum wage in the same way as working youth. It is likely that if a minimum wage is set too high, it could lead to employment losses or reduced hours of work for youth in some sectors and geographic areas. Employment losses would be particularly devastating in this age group, where 3.5-million are not in education, employment or training.
Young women may be negatively affected as they have a lower labour absorption rate than young men of similar age, as well as higher unemployment rates. Although rising youth unemployment is a global challenge, South Africa continues to have exceptionally high unemployment rates – only Spain, Bosnia and Herzegovina and Greece fare worse according to World Bank statistics from 2014.
Economic modelling conducted by the Development Policy Research Unit at the University of Cape Town predicts employment losses at a national minimum wage of R2 447 a month of about 281 000 jobs. But modelling conducted by the National Minimum Wage Research Initiative at the University of the Witwatersrand does not foresee significant employment losses for a national minimum wage set between R3 500 and R4 600 a month.
Neither of these models assess the impact on youth specifically. The international literature on the institution of minimum wages shows that when significant employment losses do occur, it is the youth who suffer disproportionately, often owing to their limited work experience. Additionally, about 68% of South African youth are employed in small businesses, which do not have the same capacity as large businesses to absorb the cost of higher wages.
It is important that policy debate consider the vulnerable position of unemployed youth in the labour market through co-ordinated complementary policies and programmes.
Thought could be given to a youth subminimum wage. This policy option has been used in many countries that have a national minimum wage on the assumption that lower wage costs for youth may stimulate their employment. Most youth in our study were not in favour of a lower minimum wage because they perceived this to be unfair. But a minority saw it as a way to possibly enhance their employment prospects.
Consequently, a youth “opportunity or a training wage”, for a specified time period while a young employee gains skills and experience, might be a way to include young people in the labour market. But more discussion with the youth is needed to explore options that will protect them as well as improve access to employment.
Leila Patel is professor of social development studies and holds the South African research chair in welfare and social development at the University of Johannesburg (UJ). Lauren Graham and Zoheb Khan are researchers at the Centre for Social Development in Africa at UJ.