How experts arrived at SA's R3 500 minimum wage figure

Mobile payments could result in a cashless society. (Duncan Alfreds, Fin24)
Mobile payments could result in a cashless society. (Duncan Alfreds, Fin24)

Johannesburg – A panel of experts tasked with determining South Africa's proposed National Minimum Wage (NMW) came to a figure of R3 500 because they believed that this would not lead to job losses.

This is according to Wits University's Dean of Commerce Law and Management, Imraan Valodia, who led government's research into a proposed minimum wage.

The panel on South Africa's minimum wage discussions ranged from academics to economists.

“It would have been ideal to propose a higher wage, but we had to consider job destruction,” he told Fin24 in a telephonic interview.

He explained that the panel looked at “supporting evidence” for the R3 500 figure.

And Valodia said that three branches of evidence were considered: Data on South Africa's labour market, international research and the impact on growth.

1. Micro-economic data on the labour market in South Africa

This includes the unemployment rate, the wages earned by people who are employed and poverty lines. All this was considered in determining a decent wage, said Valodia.

Based on the research, 47% of working South Africans earn less than R3 500, he said.

“[The NMW] has the potential to improve the earnings of a large number of people who are working in South Africa.”

READ: Ramaphosa challenged to live on R3 500

2. International research

Valodia said the panel looked at lessons that could be learned from countries that introduced minimum wages.

What they found is that a NMW has “quite a big impact” on reducing poverty, and inequality.

The most important finding is that projections of job losses, as a result of introducing a NMW, were overstated and “much higher” than what transpired in reality.

“Expectations of job losses are much higher than what happens in practice,” he said.

The proposed wage was benchmarked against countries such as Brazil, Mexico and India.

“The proposal is in line with systems in these countries,” said Valodia.

3. Impact on growth

A lot of the research showed that introducing a NMW could lead to growth, Valodia explained.

“The evidence shows it may lead to economic growth,” he said.

Other recommendations

The experts also came up with other recommendations. This includes a two-year “freeze” on the NMW to give companies and businesses enough time to make the transition, said Valodia.

“We want to make sure we do not put firms in a situation where they shed workers.”

There are concerns that the NMW could impact small businesses, especially as they struggle to meet the NMW requirements.

For this reason, small businesses are given a three-year adjustment period. They can also apply to be exempt from paying a NMW, said Valodia.

READ: 'We wanted a minimum wage that would make an impact' - Ramaphosa

Further, the agriculture and domestic sectors are given separate minimum wages to avoid job losses in these sectors.

For agriculture, the proposed minimum wage is 90% of R3 500 or R3 150, while the proposed minimum wage for the domestic worker sector is 75% of R3 500 or R2 625.

The proposed R3 500 is to be a “floor” below which employers should not be allowed to pay, explained Valodia.

Above this floor, sector-based wage systems and collective bargaining will apply, he added.

ALSO READ: Proposed R3 500 minimum wage sparks heated debate

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