The real power of R20

Johannesburg - The widespread fixation on the R3 500 figure announced for the national minimum wage is misguided.

The proposal is fundamentally hour based and R3 500 is just the hypothetical outcome if someone works a 40-hour week every week at a rate of R20 an hour.

In reality, it comes to R3 440, which was rounded up in the announcement.

READ: Inside Labour: High hopes dashed

The distinction is crucial because most affected workers currently work more than 40 hours a week.

The sectoral determinations that set wages in unorganised, low-paid sectors mostly assume that a 45-hour work week is normal. At R20 an hour, that comes to R3 870.

In the private security sector, the norm is 48 hours per week (R4 128).

“We should stick to R20,” says Imraan Valodia, who headed the panel that this week put the proposed national minimum wage on the table at Nedlac.

“I was really concerned. We debated this as the panel and we were clear: it is R20 an hour, R20 an hour...”

“South Africans think in monthly terms. In other jurisdictions, such as the US, you ask someone what they earn, and give you an hourly rate. We only did the R3 500 to get a sense of what the distributions will be,” he said.

The R3 500 is symbolic because it is roughly the median earnings South Africans report through the quarterly Labour Force Survey – the major official source of labour market data.

If you took all employed South Africans and split them in two groups according to declared income, R3 500 is the middle.

That would include part-time workers and people essentially working two full-time jobs.

“We worked from R3 500 and we thought that we would want to get to a 40-hour week,” said Valodia.

That is how R20 an hour came to be.

“We would have loved to go higher, because then you could have said you were making a much more decisive impact, but I think there are pretty serious risks of disemployment,” said Valodia.

“You can knock the [economic] models, but, at some point, we do have an elasticity. We just don’t know for sure where it is.”

In economics, an elasticity is the relationship between a price increase and demand for something, including labour.

The proposed national minimum wage now on the table is full of concessions to make the transition for employers “as easy as possible”, said Valodia.

Two major low-paid sectors, farming and domestic labour, will have lower initial rates, and small business will get an extra year to adjust.

State-subsided work, including learnerships and expanded public works programme jobs, should be exempted, the panel proposed.

WHAT IT COULD DO

There has been a lot of attention on people who are being paid less than the proposed national minimum wage, but the implications do not stop there, argued Valodia.

“One of the issues we did not think about and nobody has done any thinking about is the cascading,” he said.

“Say, for instance, that I am now above the line, I am sitting on R3 600. I look behind me and suddenly there are a whole lot of people who have come to R3 500. I am not going to be happy at R3 600 any more.”

In this way, the national minimum wage could upset grading systems and job hierarchies throughout the system, he said.

“What is this going to do to other kinds of work? There are all sorts of self-employment. What is it going to do to those kinds of bargaining contracts?

“What is going on here really is a change in the balance of power at the bottom end. You are giving those workers there a bit more power by setting a kind of reference price.

“It is also nice to have a round number. If that reference price is R19.42 or R20.12, it is not the same.”

“There is a hell of a lot we don’t know about what that adjustment process is going to be,” said Valodia. “Part of it is going to be employment numbers, part hours of work, and part positive spin-offs from the demand-led growth stuff that comes from some of the models.”

Valodia predicts that the adjustment to the national minimum wage in key sectors will entail “some trading up on the wage with a bit of compensation on the hours, but leaving workers better off in rand terms”.

“I think that would be a positive adjustment all round. I think the evidence on this is best in the domestic work sector, if you look at the impact of the sectoral determination in the sector,” said Valodia.

“The adjustment has been mainly on the hours worked [not the number of workers]. You have to think about this in the long term,” said Valodia.

“What it is doing is putting down a marker for a much more substantial kind of rethinking of what the world of work will be. The vision we had was of a labour market where people earn at least enough to be above the poverty line, but it has got to be an adjustment that takes a little longer than we would like.”

The way in which the national minimum wage will get adjusted after it is established is largely left open in the panel’s report, but it could become very important politically.

“Can you have a national strike if you are not happy with what comes out of the new institution?” asked Valodia.

These and other questions are left to government to decide.

“I think we have an interesting political context within which we are doing this that you don’t find elsewhere because of the nature of income distribution.

“Think about a party like the Economic Freedom Fighters saying we are going to organise these guys and demand a higher wage. I do think people are going to use it."

TWO KEY FEATURES

THINK IN TERMS OF HOURS

The proposed national minimum wage is R20 an hour. The 40-hour week, which hypothetically turns that into R3 500, is almost as important as the wage rate itself.

Professor Imraan Valodia, dean of the commerce, law and management faculty at the University of the Witwatersrand, has been involved with the insourcing of campus staff and says: “On average, if you are looking at the vulnerable sectors such as security guards and cleaning staff, all those kinds of sectoral determinations have very high working hours.

“The security guards at Wits work incredible hours, and they are happy the more you throw at them,” he said.

“In general, the impression is that people work too much. So, if you lift the hourly rate, you give them the scope to work less.

“We were thinking of people over the 45-hour threshold,” he adds.

The flip side of this is the significant proportion of South Africa’s workforce who work less than 40 hours a week.

“The question is whether there will be a big adjustment in their working hours that could lead to workers earning even less than they do now,” says Valodia.

“What will it be like for groups who only get a few hours’ work, not by choice? That would be part of the evidence we need to look at.”

A LITTLE INFLATION GOES A LONG WAY

Another important part of the proposed national minimum wage is what the R20 wage is in 2019 money terms.

A two-year period is proposed, during which everyone has to adjust to that hourly rate, which will not change until the transition is complete.

Today, that future R20 amounts to between R17 and R18, depending on the inflation rate one expects in the next two years.

Many of the lowest wage rates in the existing sectoral determinations will reach that level in the next two to three years anyway, making the shift to a national minimum wage imperceptible.

“That was part of the thinking,” admits Valodia.

“I think anyone who will be setting a sectoral determination in the near future is going to use this as a reference point.”

The proposed lower wages for farm workers and domestic workers are also seemingly designed to accommodate the trajectory on which their wages are already based.

The private security industry is an outlier because it has relatively high “normal” hours of work and does not currently explicitly set wages in hour terms.

The lowest-paid guards have an hourly equivalent wage of about R15 currently, which will still be well below R20 by 2019 if adjusted by inflation.

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