/ 17 January 2017

Minimum wage is part of the moral economy

Hundreds of striking farm workers gathered in De Doorns in Decemmber to hear union leaders address them on a way forward on the wage dispute.
Hundreds of striking farm workers gathered in De Doorns in Decemmber to hear union leaders address them on a way forward on the wage dispute.


We read with disappointment the piece by John Spiropoulos (“The minimum wage and the moral economy”) on the proposal by the advisory panel of the National Economic Development and Labour Council (Nedlac) for the introduction of a national minimum wage.

Spiropoulos suggests that the panel’s report is a “compromise” and takes no account of the specificities of young adults in the labour market.

While we agree with a lot of what Spiropoulos says about the nature of the labour market, he incorrectly makes a link between his own research and the panel’s proposed R20 an hour as the first national minimum wage and then, without any substance, suggests that we ignored issues of young adults.

Poverty in South Africa is undisputed. The panel wrote extensively on this in the report. The panel also received input from a wide range of actors in vulnerable sectors and considered research, among others, on youth, care workers, small businesses and informal workers.

The proposal from the panel is crafted precisely with these people in mind. (The report is available at nedlac.org.za).

The panel’s view is that the trajectory of economic and labour market policies is not addressing the challenges we face.

Thus, we need a radical change of policy. We are fully aware of the precariousness nature of employment in many of the sectors, coupled with the alarmingly high unemployment level. But our brief was strictly to look at a national minimum wage and this is the area we focused on.

It is worth remembering that the national minimum wage is seen primarily as a poverty relief measure and not as a job creation tool.

The experience around the world is that a national minimum wage has had a positive effect on poverty alleviation and, in some countries, on employment growth.

It is generally accepted that a national minimum wage should aim to have little or no disemployment effects and is not used as a measure to create jobs. As highlighted by the International Labour Organisation (ILO), it is important that the national minimum wage should not be used in isolation but should be linked to other progressive policies that bring about meaningful socioeconomic change.

The panel noted the advice from the ILO and dedicated a chapter in the report (Chapter 8: “Further measures to address inequality and poverty”) where we suggested other policy issues that need to be considered to strengthen the effect of a national minimum wage.

These include:

  •  Promoting collective bargaining;
  •  Ratifying ILO Convention 131 of 1970;
  •  Consideration of Section 27 of the Employment Equity Act, which would regulate the wage ration between the top 5% and bottom 5% of earners;
  • Interrogation of a social wage policy through the comprehensive social security policy that has recently been tabled at Nedlac;
  • Looking at cost drivers of poor households and vulnerable firms;
  •  Industrial and productivity issues;
  •  Research and development on expenditure and monitoring; and
  •  Investment in human capital as well as physical and digital infrastructure support for small businesses.

These areas were beyond the brief of the panel but we recognised the importance of a holistic approach that includes research and engagement on issues beyond the national minimum wage.

This chapter was a demonstration of our understanding that the national minimum wage on its own will not make the necessary changes to the South African landscape that we so desperately need.

Which brings us to the level. The panel had the invidious task of developing a clear proposal on the national minimum wage in a time of extremely low economic growth, high unemployment and rampant poverty.

We were also conscious that poverty in does not only affect the unemployed but that there are a great many workers who fall into the category of “working poor”.

We felt that to expedite the introduction of this progressive policy it would be more prudent to make decisive proposals, which led us to a rate of R20 an hour, rather than a number of options to send back to the negotiation table, or a range which would be more complicated. Anyone would agree that introducing a new far-reaching policy in a time of strong growth is hard enough and in a time where the economy is not growing is incredibly difficult.

We agreed with the view of the social partners that this has the potential to make a fundamental difference to many people in this country.

The proposed level of R20 an hour will affect no fewer that 47% of workers, which raises a startlingly worrying picture of current earning patterns in the labour market. That alone has been a useful exercise, in itself, to get the nation talking about the widespread levels of extremely low pay.

We must repeat what we have said on numerous occasions – nobody believes R20 an hour (roughly R3 500 a month for most workers) is a decent wage that will provide the means for a decent life. We are also not saying that anyone should earn R3 500. We are saying that no one should earn less than R3 500.

The national minimum wage must be coupled with other interventions, which is precisely the point we make in Chapter 8.

The panel could have taken the populist approach and set the level much higher but we felt that this would run the risk of having many businesses going off the radar and falling outside of the system, which would benefit no one. At levels above R20 an hour we believe that the risks of higher unemployment and noncompliance are a serious concern. We believe R20 an hour strikes the balance between implementation of a bold and progressive policy but also ensures coverage and implementation is as wide as possible.

We believe we have – as much as we were able to predict the future – protected the jobs that currently exist and any higher level at this initial stage would probably result in high levels of noncompliance and greater jobs losses. This would be a great injustice to the 47% of workers we are targeting.

The anecdotes that Spiropoulos mentions are all stories familiar to the panellists.

Our view is that community support and ubuntu is something to be celebrated and not to be discouraged. It is our belief that after the first review we will have a much better picture of the dangers and benefits of a national minimum wage.

We hope that by this time our country will be on a firm growth path, which will allow for a greater increase in the national minimum wage. We also trust that the social partners responsible for policy development will take seriously the recommendations in Chapter 8 and ensure that the national minimum wage becomes part of a package of progressive policies to support the poor.

In the meantime, rather than being a bad compromise, we see the proposed national minimum wage as the first step of building a progressive and moral economy that serves to bring all South Africans into – at the very least – decent employment where they will enjoy a living wage.

Professor Imraan Valodia is chair of Nedlac’s national minimum wage advisory panel