National Minimum Wage - highs or lows?

• South Africa

• Employment law

19-05-2016

According to Secretary General Gwede-Mantashe it is inevitable that a national minimum wage (NMW) will be introduced in South Africa imminently. This, for some, may be a harsh reality. The question that then arises is at what amount will the NMW be set? Its implementation may have a huge impact on the economy and the day-to-day lives of South Africans.

The general consensus at a symposium held at Wits University in February 2016 was that a NMW would benefit our country. What became obvious was the divide in opinions regarding the level at which the NMW will be set. This has deadlocked Nedlac talks on the topic.

The International Labour Organisation defines “minimum wage” as:

“the minimum sum payable to a worker for work performed or services rendered within a given period which may not be reduced either by individual or collective agreement and which is guaranteed by law.”

Simply put, a minimum wage aims to set a standard for the distribution of wages below which no worker can legally be paid.

The difficulty is that trade unions are always going to advocate for higher minimum wages and business are always going to resist them. The result is that the new NMW foreseen by the respective role players are worlds apart with Cosatu and the EFF endorsing a bare minimum of R4 500pm while businesses and farmers support the current sectoral minimums, being between R2 000 – R3 000pm.

Setting a low minimum wage will have little practical effect in overcoming the triple challenge of unemployment, equality and poverty. That said, setting the minimum too high could lead to noncompliance, unemployment, or employers finding ways in which to save costs such as, for example, replacing unskilled workers with machinery, reducing employees’ work hours, employing causal or part-time workers or outsourcing certain functions of their business.

Despite what many believe, research shows that a higher minimum wage assists in decreasing the levels of poverty. That said, introducing a NMW in a developing country such as South Africa may have different effects. Higher wages will undoubtedly place more pressure on employers and could be the cause of a rise in unemployment due to lower profits, a lack of investment in local businesses -especially small businesses that will be unable to keep up with the demands of a NMW.

What may come as a surprise to some is that the current government does not envisage raising the existing minimum wages drastically. The Department of Labour showed sympathy towards farmers facing the recent drought and announced that it would reduce the annual wage increase for farm workers from the usual 8% increase to a 6,6% increase.

The proposed NMW aims to establish the lowest level at which workers can be paid but will still allow sectors to determine their own minimum rates through collective bargaining. Perhaps then, the most appropriate, and least disruptive, way to proceed would be to introduce the NMW at the current sectoral level by retaining the sectoral determinations but catering for workers who are affiliated with a sector with a wage-setting tool.

Author: Nadia Froneman – Candidate Attorney