New minimum wage proposal: here’s what you need to know
Following months of discussion, a proposal for a national minimum wage was presented today (20 November) during a press conference by a panel commissioned by Deputy President Cyril Ramaphosa. Speaking on behalf of the panel, Professor Imraan Valodia, Dean of the Faculty of Commerce, Law and Management at Wits University, proposed a national minimum wage of R20/hour. For full-time workers, this amounts to around R3500 per month.
In his introduction of Professor Valodia, Ramaphosa stated that a national minimum wage was “aimed at reducing income poverty in South Africa [and] beginning to address the issue of inequality in our society…” He further stressed South Africa’s “triple challenge” of unemployment, inequality, and poverty. In addition, he stated that this proposal is not final, and is subject to further discussion with and ultimate agreement to by “social partners”.
Valodia outlined three main considerations that led up to the proposal.
The first consideration was microeconomic evidence. He stated that 47% of working South Africans earn below R3500 per month, and that the impact of the national minimum wage could be important in lifting many workers out of low-wage conditions. He reiterated Ramaphosa’s point about addressing inequality through the national minimum wage, and further claimed that the minimum wage could boost economic growth in the country.
Secondly, Valodia referred to research based on and lessons learned from other countries that had implemented their own national minimum wages. He highlighted the point that the implementation of such a minimum wage should be done “in a thoughtful way, based on evidence…”. He also stated that where it has been implemented, prior projections had shown large job losses that subsequent research had refuted.
Lastly, he focused on research into the likely impact of the national minimum wage in South Africa. Some research, he stated, showed that there would be some job loss if the policy is implemented, while other research showed no negative impact on employment, with a positive impact on economic growth and the potential to lift large numbers of South Africans out of poverty. He pointed out that these were predictions, though, and that the actual (future) outcome is unknown.
Valodia clarified that although the proposal was for R20/hour, a part-time employee working fewer than 4 hours per day should be paid for 4 hours’ work.
He also outlined an “adjustment process” whereby the economy would adapt to the new national minimum wage. This adjustment process would be a period of at least 2 years during which the minimum wage of R20/hour would not be adjusted. A period of at least 2 years would also give sufficient time to evaluate the evidence of its impact.
According to Valodia, the implementation of the minimum wage would be different for three sectors.
For small businesses, the adjustment period would be extended to 3 years; Valodia stated that the panel members “do accept that the smaller you are, the … harder it is to adjust.”
For domestic work, the proposal is that the minimum wage should be set at 75% of the national minimum wage (that is, at R15/hour).
In the agricultural sector, for which there is evidence that increased wages impact negatively on employment, the proposal is to have a minimum wage of 90% of the national minimum wage (that is, R18/hour).
Finally, Valodia proposed an exemption process for anyone who could not afford to pay their employees the minimum wage. Such employers would need to make an application for the exemption, with evidence of their inability to pay the minimum wage.
Compliance and revision
When asked about compliance, Valodia stated that the panel had an “innovative” solution.
“Technical support” would be offered to firms to “persuade” them to adjust to the minimum wage during the 2-year adjustment period. After that period, there would be active enforcement “with penalties, if needed…” Valodia also added: “We’re suggesting that the capacity within the Department of Labour to [conduct] that enforcement should be significantly improved.”
In terms of the “institutional design” of the minimum wage, Valodia proposed the establishment of a “panel of experts” who could make recommendations for revisions to the minimum wage in future. This panel, he suggested, should comprise members from business and trade unions.
In his closing, Valodia said the following: “We think that the proposals we’ve made strike the right … balance between being quite bold [in dealing with] those problems, but also [allow us] to act in a responsible way, to make sure that what we’re trying to do does not hurt those that we’re trying to help the most.”
Ramaphosa stressed that the minimum wage should not be too low so as not to have an effect on poverty and inequality, but should also not be too high, as that would lead to job destruction. Additionally, about the proposed minimum wage, he said, “Clearly, this is not a living wage.” To that he added: “We still need to look at the wage structure in our country comprehensively.”
No doubt that Rational Standard contributors will have much to say about this in the coming days…