Zuma puts minimum wage debate back on agenda as economists raise worries

2014-06-20 16:57

The country’s labour laws are back on the discussion table after President Jacob Zuma said government would look into the subject.

“Government will investigate the possibility of a national minimum wage as one of the key mechanisms to reduce the income inequality,” said Zuma in his state of the nation address on Tuesday.

Zuma’s statement was well received by Cosatu. The trade union federation had earlier released a statement calling on the president to announce the implementation of the national minimum wage.

However, the ANC’s discussion of a national minimum wage does not sit well with some economists who believe “proposing to implement a national minimum wage, in an environment of slowing economic growth, would undoubtedly threaten a lower unemployment target”.

Investec economist Kamilla Kaplan said: “A minimum wage can also have adverse effects on employment in those low-skilled sectors where mechanisation is a possibility.”

She added that for government to reach its target of 5% growth and create 6 million job opportunities, it should “surely reduce the power of labour to cause disruptive strikes that damage GDP growth”.

“The increase in the minimum wage in the agricultural sector in March 2013 likely contributed to the loss of 55 000 jobs in the sector,” said Kaplan.

Her thoughts were echoed by Free Market Foundation CEO Leon Louw who argues that the implementation of minimum wages threatens employment.

“The biggest contributor to unemployment is the labour law. It condemns a lot of people from being employed. Labour laws control SMEs, most of which can’t afford to pay regulated wages,” said Louw.

Small businesses around the continent have been identified as the main job creators in developing countries, but they have an exceedingly high failure rate. Some of the reasons for the failure rate include sticky wages.

The proposed implementation of a national minimum wage also seemingly goes against what Minister of Small Business Development Lindiwe Zulu said earlier regarding the labour rigours of small businesses.

“Small businesses should not be subjected to the same labour regulations as big business. A discussion between us [the small business development department] and the unions will have to happen. Minimum wages must be ensured, but we must be realistic when it comes to small businesses,” said the minister.

“When owners make little profits, they can’t be forced to pay high wages or be forced to keep staff at the cost of their business. But we need to be careful and also make sure labour is not exploited,” she said.

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