/ 26 April 2018

Minimum wage vs the robot age

(John McCann/M&G)
(John McCann/M&G)

South Africa is gearing up to introduce a national minimum wage that could see workers earning R20 an hour, yet the World Bank says the future of work requires revised labour regulations with lower minimum wages, easier dismissals and lax contractual agreements.

A draft of the World Bank’s 2019 World Development Report on the Changing Nature of Work says the working environment is being consistently disrupted by digital advancements and labour rights are becoming “burdensome”, making workers more expensive than technology. To make up for the reduction in labour rights, the draft report proposes a social insurance system that provides everyone with a guaranteed income linked to the “flexible labour markets”.

“This approach may reduce benefits for the few covered by current arrangements but will add protection to the many workers — often the most vulnerable — who are effectively excluded today,” according to the report.

The 158-page document bases this argument on the fact that employment, particularly in the developing world, is rapidly changing — “more than half of the global labour force is estimated to be informal”. This is because digital and general technologies are eroding the standard model of work “based on a contractual, often stable, relationship between an employer and an employee”.

The report says technology has made some types of work accessible to every individual on a more flexible basis, with examples ranging from grocery delivery to sophisticated tasks such as accounting.

But as labour markets become more fluid and these new gigs — online, short-time and remote jobs — provide flexible and new earning opportunities, they are in a grey regulatory area that does not provide benefits that formal workers normally enjoy.

“After all, labour regulations are often used as a tool to provide the protections that social assistance and insurance systems fail to provide, such as ensuring a livable wage through the minimum wage or unemployment benefits through severance pay,” says the report.

It says the adoption of technology is being slowed down by strict labour regulations, “specifically with burdensome dismissal procedures”, and “technology-intensive sectors are smaller in countries with stricter labour regulation”.

Although the World Bank recognises that minimum wages are legislated to protect workers against abuse by employers who may have more market power, it still says they “warrant rethinking”.

The report says an alternative to the minimum wage could be a system that links wages to productivity, such as profit-sharing. This could be monitored by social partners and covered by company collective 
bargaining arrangements.

Workers would receive a lower minimum wage and the revenue from the profit sharing could be deposited into an individual savings account. Increased risks in the world of work make it imperative to adapt how societies protect workers, the draft report says. This could be done with an inclusive minimum income coupled with basic universal social insurance.

The minimum income could be issued in various forms, either as a universal basic income programme, “where benefits are clawed back from the rich”, or a negative income tax. This “social protection” would apply to everyone irrespective of whether they were formal or informal workers.

The report stresses that the minimum income should be “progressive”, meaning it should adequately cover the “poorest while also extending support to other vulnerable groups”.

“Each of these modalities present different comparative advantages, fiscal, political and administrative implications,” it says.

Tebogo Tshwane is an Ademela Trust financial reporter at the Mail & Guardian 

Bring multinational profits home, says report

The 2019 World Development draft report says changes in the nature of work have made it essential to rethink the social contract to reduce levels of inequality.

The main pillars of a new social contract involve an efficient tax policy and an investment in human capital.

The World Bank analysts say this would involve increased tobacco and carbon taxes, eliminating value-added tax exemptions and energy subsidies in some countries and making global companies pay their equal share of corporate taxes in every country.

The report specifically outs “superstar” companies — Alphabet, Amazon, Apple, Facebook — which rely on intangible assets, as examples of corporations that are not paying their fair share of taxes.

To remedy this, the World Bank says global corporate tax laws that were drafted in the pre-internet and pre-globalisation era need to be updated so that the companies can be taxed effectively. The report says current estimates are that the level of assets sheltered in tax havens amounts to about 8% of global gross domestic product, or about $200-billion.

“Recent estimates suggest that 45% of multinationals’ profits are shifted to tax havens, causing a loss of 12% of global corporate tax revenues,” it adds.

The new social contract would redress the balance by providing everyone with equal opportunities to acquire higher-order skills to compete in a highly automated environment.

“The most direct way to provide fairness is to support early childhood development. Guaranteeing every child access to adequate nutrition, health, education and protection in early years ensures that they have the required foundations for developing skills in the future.”

This involves cash transfers and supporting the first 1 000 days of a child’s life in terms of nutrition, health and stimulation, as well as at least one year of preschool. — Tebogo Tshwane