Johannesburg - The recent appointment of a seven-member panel of experts by Deputy President Cyril Ramaphosa, has the nation debating the value and relevance of a proposed minimum wage for all workers.
In this debate, it would be helpful to consider sectors that are already paying their workers well above minimum wage and how these sectors rank, when their average salary is considered.
In this short review, the following becomes clear:
- The vehicle manufacturing sector has the highest minimum wages;
- Of the sectors that are not monopolies or protected state-owned enterprises, the vehicle manufacturing sector and fuel refineries have the highest paid workers, on average;
- Manufacturing sectors offer the best career paths for people without post-graduate qualifications to start with a decent salary, be trained by their employers and improve their salaries over time;
- More than eight million formal sector workers in South Africa are already protected by some form of ministerial sectoral determination, union agreement or bargaining council agreement.
Heart of the debate
At present the national minimum wage range seems to be anywhere between an estimated R2 000 a month and R5 500 a month. How this amount is determined and what it includes will be at the heart of the debate for some time to come, with trade unions on one side demanding a higher minimum wage and industry arguing for no minimum wage or one that is at the lower end of the scale.
The current wage range is very wide, but if one follows the practice of making the minimum wage a percentage of the median wage, then it is likely to be less than R3 000 a month.
The median wage is the middle of a wage bracket, where one half of employees earn less than the wage and the other half more. This is often called the “typical wage”, and in South Africa the typical monthly wage for 2015 is estimated to be around R3 200.
The typical or median wage points to a minimum wage that is likely to be about R2 200 to R2 800 a month. If the proposed minimum wage is higher than this figure, then the government may have to exclude or make exceptions for workers in certain sectors, including domestic workers and workers in the agricultural sector.
The majority of workers in South Africa are, however, already covered by minimum wages, particularly in the formal sector. If one assumes that the informal sector and self-employed workers are not going to be influenced by any determination on minimum wages, then it is clear that about 80% or more of all employees are already covered.
Too many minimum wages
We already have minimum wage - just too many.
South Africa already has sectoral determinations that cover the minimum wages of vulnerable workers such as domestic and farm workers, as well as some informal sector workers, such as taxi drivers and rank marshals. It is estimated that sectoral determinations – as announced by the minister of labour – cover about 5.1 million employees.
Sectoral determinations have minimum wages that range from R1 813 per month to a high of R9 991 per month for qualified artisans in the civil engineering business sector. Sectoral determinations offer very few prescribed benefits, and it is assumed that the current minimum wage discussions on the national stage will also avoid prescribing any benefits.
Apart from sectoral determinations, minimum wages also apply in over 44 subsectors and micro-sector bargaining council agreements, which cover approximately 2.6 million employees. With extended agreements that cover non-union and non-participants in 23 out of the 44 bargaining councils, it is estimated that about 3.3 million employees are covered by these types of agreements.
Bargaining council minimum wages range from R1 200 a month for hairdressers in more rural areas to R12 974 a month for highly skilled new artisans in the tyre industry. One should consider that in this instance, and unlike sectoral determinations, bargaining councils negotiate additional benefits that form part of the agreements. This means that many employees in these sectors have access to a range of medical, insurance and pension fund contributions or other benefits such as housing and sleeping out benefits.
While it is difficult to calculate the value that additional benefits offer employees, they seem to add between 10% and 25% to the overall wage bill in sectors that have a bargaining council.
The third group of sectors with minimum wages, are those that have some form of union representation that do not have an industry-wide bargaining council. It is estimated that trade unions represent another 1.1 million members and influence an estimated 1.7 million employees in total in this third category.
While these agreements may have no official standing, they have contractual minimum wages that seem higher than either the bargaining council or sectoral determinations that the minister makes.
These private agreements negotiate minimum wages between an employer and the trade union or unions in question, although they may cover more than one company or even the majority of companies in a sector.
The following graph maps out the estimated entry-level wage that a worker in some industries can expect:
The above rates are for entry-level workers in each of the industries mentioned. They are monthly and do not include benefits such as medical insurance, housing, travel and pension fund contributions.
The top six industries shown here would all have extra benefits that would make the entry level income higher. For example, the transport sector often offers meal and sleep out allowances and in the hospitality sector, workers often receive free meals. These “benefits” and “in kind” payments are not included in the calculation.
These private agreements have surprisingly high minimum wages and include sub-sector wages that range from about R7 081 a month for certain workers in the coal sector to a high – without benefits – of R22 978 a month for artisans in the motor vehicle manufacturing industry. Many sectors have large benefits that employees get and want.
Sectoral agreements with unions usually include a range of benefits, such as medical insurance, pensions and housing allowances. These benefits seem to range between 20% and 45% of the total monthly wages, in these private agreements.
With this in mind, the motor manufacturing sector’s highest minimum wage shoots up from R22 978 to R33 318 a month. The lowest minimum wage in the motor industry also benefits from benefits taking the actual wage from R9 668 to around R14 019 a month. The lowest minimum wage in this sector, therefore, gets a further 45% in benefits. Typically, the medical benefits include medical aid and pension fund contributions by the company.
Similar numbers are evident in gold mining were the cash wages without overtime is approximately R9 210 a month and the benefits take this wage to R11 142 a month, while additional bonuses take this figure to over R12 000 per month.
The sector with the biggest minimum “wage package” for entry level workers appears to be the auto manufacturing sector, which has a current agreed monthly minimum package of R14 019 for its lowest paid employees. The mining industry is not far behind and neither is the broader chemical industry.
At the highest skill level, vehicle manufacturing is also the industry with the highest total package that we currently have data on. This is for hourly paid artisans and this minimum wage has a “wage package” that is estimated at R33 318 a month.
To put the higher-end skilled minimum wage in perspective: the vehicle manufacturing industry’s salary is 60% more than a teacher with a master’s degree and four years’ experience.
It is clear that most formal sector minimum wages are already above the R3 000 a month mark, but some entry-level salaries, including benefits, are already about five times what one would expect the minimum wage to be. This is especially prevalent in the vehicle manufacturing and gold mining sectors.
Incredibly, some minimum wages are actually placing workers in the top 20% or higher of wage earners.
The vehicle manufacturing and mining sectors seem to have minimum wages, which even at their lowest earners would escalate these employees into the top 20% of all South African salary earners. Higher skilled minimum wages in many sub-sectors show that these employees get packages that would place them in the top 3% of South African employees.
For example, the top 5% of employees earn salaries from R24 000 a month. In contrast, skilled artisans in the vehicle manufacturing sector earn well over R33 000 with benefits.
Many minimum wages in South Africa – in both the public and private sectors – are already many times that of the typical wage earner who receives an estimated R3 200 a month, although this minimum figure may be slightly higher, as not all respondents are truthful about their income. It nonetheless indicates that many sectors have minimum wages that are many times that of the proposed minimum wage – whatever that is likely to be.
Average formal sector wages vary widely
The Quarterly Employment Survey, another widely consulted wage database that surveys data from establishments in the formal sector, reports that the average wage, including overtime and bonuses, is R18 668.
This formal salary average is at least six times higher than the estimated minimum wage is likely to be. One should keep in mind that this figure excludes the directors of companies in the various sectors, but it does include the general workers and salaried employees such as the foreman and the human resource manager. It would, for example, exclude the finance director.
If one uses this data to study the non-financial sub sectors with the highest average pay, then less than 40 subsectors have average monthly salaries of over R20 000 a month. The 20 highest subsectors with the highest paid employees were, in general, highly technical sectors with many highly skilled staff in them.
In the non-financial sector, the refinery industry has the highest average monthly salary followed by air transport.
The data above shows that the petroleum refining industry and the vehicle manufacturing industry are the highest paying employers of semi-skilled workers. This is if one excludes monopolies such as Eskom.
The above reasoning holds that seven of the above industries would have a high percentage of graduates and skilled technical staff. For example, it is assumed that the legal and accounting sector (7th on the list) would employ 70% or more of their people from the pool of workers with degrees or diplomas.
Similarly, the advertising industry (17th) would have many employees who have marketing degrees or studied at advertising schools after obtaining a degree, and educational institutions (12th) would have skilled teachers as would the Setas that fall under extra budgetary institutions (13th).
Three of the sectors listed above are monopolies that would not be as concerned about staff costs as a portion of their expenses, since they can often get away with passing on any increases to the South African economy in general. Air transport also has a high percentage of trained people in the form of pilots.
Other sectors are based on commission and risk taking. One of these is the national government, which is known globally to have one of the biggest payrolls as a percentage of gross domestic product (GDP).
There are only six manufacturing sectors in this table that generally train and equip their own staff that form part of the best paid non-financial economy.
Certainly, of the employers with a large percentage of semi-skilled employees, the vehicle manufacturing and petroleum industries fare particularly well in the average salary category.
This means that, apart from freight forwarding (18th), the six manufacturing industries are industries that are not monopolies and that would employ from the general unskilled and semi-skilled population for at least 50% or more of their employees.
This places those manufacturing industries in the top employers for people who have just completed their school careers. These industries also often offer training and clear career development plans for staff to progress to more skilled positions, particularly for those who do not complete graduate studies.
For example, the auto manufacturers pay an average wage that is 50% higher than the formal sector average and also provide benefits such as a career path and other company-specific benefits such as free medicine. Not only do these employees in the manufacturing industries find themselves in the formal sector, which pays better than the informal sector, but they are also paid 50% more than the formal sector average.
In conclusion, it is clear that all of the industries listed above will not be affected by a minimum wage law, although they may not be aware of that. Unfortunately, these sectors represent the industries that will pay for the minimum wage if it triggers an inflation increase.
* Mike Schüssler is the chief economist at Economists dotcoza.