Alet Janse van Rensburg

A national minimum wage could make people poorer

2016-11-22 14:52

WATCH: How does SA's new minimum wage compare to other countries?

2016-11-22 14:09

South Africa's proposed National Minimum Wage of R3500 is being rejected by several organisations, while some are calling for the scrapping of a NMW altogether. Watch.WATCH

The publication of the National Minimum Wage Panel Report led to quite the discussion among South Africans the past couple of days.

The panel suggested that a National Minimum Wage (NMW) be set at R3500 per month.

“Is that all?!”

“How do you survive on R3500 per month? Surely it should be set at a higher amount?” was the standard knee-jerk reaction.

Which was exactly how economists and analysts responded criticising a NMW. If this is supposed to stimulate the economy and relieve poverty as per the panel’s argument, why aren’t we raising it to double that amount?

The problem with a NMW is that it messes with the principles of a free market economy. For instance, the current minimum wage for domestic workers in major metropolitan areas is R2 065.47. This is disturbingly low. But if I have a domestic worker that I now have to pay R3500 per month (which comes down to R800 per week, or R20 per hour) and I can’t afford it, I'm forced to employ that worker for fewer hours. The net outcome is that she will end up doing the same amount of work in fewer hours. Chances are she’ll end up earning the same she does now, or even less.

We’ve already seen this happen in the farming sector, where a sectoral minimum wage was set after widespread strikes in 2011. Farmers now employ many more temporary workers who they pay an hourly rate. Any benefits farm workers may have received such as housing, water and electricity have also been lost.

Simultaneously, business owners who have to have workers on the clock for all business hours will in turn be forced to raise the price of their goods and services to be able to pay these workers. This ultimately affects the workers, for who the price of goods and services has now gone up everywhere. It’s a snowball effect.

No wonder National Treasury warned in the very report that recommends the NMW, that a minimum wage above R3000 will lead to massive job losses.

“Based on a minimum wage of R3 189 in 2014 numbers, the national treasury concludes that approximately 715 000 jobs will be lost,” says the report.

This will lead to a further decrease in the GDP of 2.1%.

Countries that successfully implement a minimum wage are first world countries with a healthy economy and strong middle class. Even here, in countries like Sweden, Norway and most European countries, it is rare that lower middle class families can afford to employ domestic workers full time. They do their own laundry and clean their own houses. Where unemployment isn’t a problem this is perfectly fine. But in a country that’s trying to create jobs, it is not ideal.

So if you don’t raise the minimum wage, how do you stimulate the economy and lift people out of poverty?

By focusing on upskilling and creating an economic environment where small businesses can thrive, experts say; and by not using labour laws to pander to political agendas.

By upskilling people, you put them in a position to apply for better paying jobs, where they’ll earn better salaries and can ultimately add value to the economy. It’s Economics 101. Let’s focus on getting the basics right first.

* Janse van Rensburg is News24's opinions editor.

Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.


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