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South Africa – National minimum wage may impact jobs

15 January 2014

President Jacob Zuma, in his annual speech to the African National Congress (ANC) on the 8th January 2014, committed to “investigating the modality for the introduction of a national minimum wage, as a key component of reducing inequality”. 

The proposal has been greeted with caution in business and political circles, with commentators arguing that there is a distinct possibility that setting such a minimum wage will cut jobs, rather than create ‘decent jobs’, reports iol.co.za.

According to Loane Sharp, a labour analyst for Adcorp, once the idea was ‘floated’ in the manifesto, it would likely be implemented. He noted that previous proposals in ANC manifestos; such as pledges about labour broking and affirmative action, had been implemented. “There is a high degree of confidence that the provision will therefore be implemented… but its effects on employment will be disastrous.”

He explained that following dramatic wage increases in the agriculture and mining sectors there was a sharp fall in employment. In agriculture job numbers dropped from 2.1 million in 2011 to 770 000 in 2013. A minimum wage regime on farms was implemented in the late 1990s.

While there was no legislated minimum monthly wage in the mining sector, there was an effective minimum wage as negotiated by the trade unions, Mr Sharp explained. The lowest wage paid in mining was about ZAR 4,000 (USD 369.20) a month. In agriculture, the minimum wage rose to ZAR 2,870 (USD 264.90) late last year, after a +100% rise was implemented by the Department of Labour.

Anton Alberts, a spokesman for the Freedom Front Plus party, said while the idea of a minimum wage was noble, the economy could not sustain it. He is worried, however, that the ANC was creating expectations about a national minimum wage, which could not be implemented.

Shadow Minister of Finance Tim Harris added that South Africa has one of the highest rates of unemployment in the world because of structural rigidities in the labour market, including an extremely low level of flexibility of wage determination.

According to Mr Harris, in order to create jobs South Africa needs to overhaul its wage setting mechanisms and prevent the extension of centrally bargained wages to small firms that were not represented on bargaining councils.

“The ANC’s proposal to investigate a national minimum wage would take us in completely the opposite direction by reducing flexibility in wage determination and would probably see us drop from 144th to stone last (148th) on the global competitiveness index,” Mr Harris added.

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