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South Africa – Minimum wage could give rise to a labour black market

23 January 2014

Economists are warning that employment in South Africa is likely to be adversely affected if the national minimum wage (NMW) policy is implemented, reports moneyweb.co.za. The African National Congress (ANC) proposed a wage floor for all employed South Africans of ZAR 4,500 (USD 415) per month as part of its election manifesto.

This warning comes after the announcement yesterday by Mildred Oliphant, the Minister of Labour, that the Department of Labour would devise proposals over the next five years for the introduction of a national minimum wage. 

Cosatu (Congress of South Africa Trade Unions) touted the possible benefits of a national wage floor on inequality and poverty alleviation as far back as 2012. In a 2013 document entitled ‘Towards a national minimum wage’ Cosatu dismissed the macro-economic theory that a minimum floor leads to an increase in unemployment, using the success of Brazilian national minimum wage as a model for enforcement.

Loane Sharp, labour economist at Adcorp Holdings Limited, does not agree: “The reality is that a [NMW] will promote informalisation and casualisation, and obstruction of the law. It will lead to a thriving black market for labour where the minimum wage is the only official wage, but the real wage is substantially less.”

According the Cosatu document, the NMW is calculated based on the international benchmark used by the International Labour Organisation (ILO) and the Organisation for Economic Co-operation and Development (OECD). The proposed ratio is between 40% and 50% of ZAR 12,000 (USD 1,105) per month - the average national wage in South Africa (December 2011) – resulting in a NMW of between ZAR 4,800 (USD 415) and ZAR 6,000 (USD 553).

The Cosatu report states that the NMW will act as: “comprehensive social protection and a universal social wage to provide workers with non-wage income [which will be] complemented by a system of compulsory centralised bargaining.”

Mr Sharp strongly disagrees: “Cosatu often makes arm-chair pronouncements that have no basis in economic reality. Cosatu lives in a fantasy world where there is no relationship between wages and employment. They have no research to back-up their plans and it is worrying that national employment policy could be determined by Cosatu’s ad-hoc and senseless plans.”

According to a global survey of 189 countries that regulate wages (ended June 1 2013), South Africa ranked number 30 amongst many developed countries with an average monthly minimum wage of ZAR 5,116.80 (USD 646.43).

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