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What critics of the minimum wage are missing

When nobody is happy, there is a chance for progress.

On November 20, Deputy President Cyril Ramaphosa announced a proposed national minimum wage of R3 500 per month. This was not a final figure, he said, but one “around which there can be meaningful discussions”.

What has been most interesting to watch since this announcement was made is that almost nobody has welcomed it. Organisations across the political spectrum have voiced their displeasure.

Cosatu noted that it was glad that a minimum wage would be implemented, but it argued that the amount was too low. It has called for a figure of R4 500.

The ANC Youth League also rejected the proposed amount. It suggested an amount of R5 000 per month instead.

Irvin Jim from the National Union of Mineworkers, which split from Cosatu in 2014, went further. He called R3 500 slave wages, and said that Ramaphosa was a “Thatcherite” for suggesting it.

This was not, however, a label that the Free Market Foundation (FMF) would attach to the deputy president. Even before the announcement was made, the organisation had said that any national minimum wage would be “economically insane and morally reprehensible”. After the proposal was tabled, the FMF said that the minimum wage would increase poverty and drive up unemployment, and that what South Africa needs is more freedom, not more regulation.

Dr. Azar Jammine of Econometrix called the national minimum wage “ridiculous”. He argued that imposing a minimum wage on the agricultural sector in 2002 had cost 250 000 jobs, and that there could be further detrimental effects if the new proposal is implemented.

The ultimate negotiator

On the face of it, one might wonder if Ramaphosa has been chastised by all of this criticism. He has, it seems, pleased nobody.

However, it is actually far more likely that the deputy president has been heartened by this reaction. It is worth remembering that Ramaphosa is a master negotiator. He was one of the most prominent figures in unlocking the stalled political negotiations in the early 1990s that led to the 1994 election, was instrumental in drafting the interim constitution, and had a long history before that of securing settlements between labour and business as a union leader.

He will know that it is only when nobody is completely happy that there is potential to reach a compromise solution. Agreements of this sort can only be successful when everyone has to give up something in order to find a some sort of middle ground.

The national minimum wage was always going to be a controversial, and so some sort of compromise had to be reached. Ramaophosa’s proposal appears close to finding that.

The bigger picture

However, most critics have also tended to see the national minimum wage in isolation. And in missing the context, they may also be missing the point.

The national minimum wage is possibly the first step in something much bigger, and much more important. Business Unity South Africa (BUSA), hinted at this in a media release it put out over the weekend in response to the recent announcements by ratings agencies Fitch and Moody’s.

“Working together in an unprecedented spirit of cooperation, government, labour and business have made a great deal of positive progress in a number of key areas,” BUSA noted. “Representatives from each social partner have worked tirelessly to promote the reforms necessary to stimulate growth and to avert a ratings downgrade and we can be proud of the success achieved on a number of fronts.”

These gains included: “Positive progress with regard to labour market reforms, with discussions on a national minimum wage and management of workplace conflict and strikes at an advanced stage.”

What this shows is that the national minimum wage is not an end in itself. It is part of a much wider discussion on labour market reforms.

In response to this, many critics will argue that it is exactly the kind of reform that we don’t need, but again we probably need to give Ramaphosa a lot more credit. He knows how this game works, and he knows that sometimes you have to give something before you start talking about what you are going to take away.

For all their criticism of the proposed amount, labour is in universal agreement that there must be a national minimum wage. They are now going to get it.

It may well be that this is an olive branch that government and business are extending to the unions in order to allow for some far more difficult discussions down the line. Broad reforms to labour regulation are going to be a hard sell, but they have to happen.

Could the national minimum wage be the teaspoon of sugar that is going to help that particular medicine go down?

Put simply, if there is going to be agreement on these reforms, everyone has to feel that they are getting something out of it. The unions now have a national minimum wage, which means that Ramaphosa can ask them to start compromising elsewhere.

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I have got no problem with paying a minimum wage as long as my business is guaranteed a minimum profit in return.

I am most willing to pay a certain percentage of my profits as wages and thereby treat my workers as shareholders. The problem for employers is that those who demand a bigger slice of the pie are not willing to accept any of the risks involved. The entrepreneur is expected to face the cruel world of supply and demand, while workers ignore the vast oversupply of cheap labor to determine the price of labor.

It implies that the risk for entrepreneurs rises while the profit declines. This can only lead to growing unemployment.

I will pay at least minimum wage if the employee provides at least minimum value.

If your employee does not perform at 80% – 85% of your expectation then you are to blame. the Question is what have you done about it?

Agree, but not only do I support this relatively low minimum wage, I’d also set the bar higher at 90% – 95%. Let me explain (and I apologise to potential readers for its length):

When I employ a person I explain to them what I need by way of contribution (value add) and agree to pay them at a specific rate for that, not for less. Remember, I interview them and make the selection decision based on a predetermined set of minimum requirements. It is then MY JOB to equip them to be able to deliver as required – via climate, equipment, facilities, skill enhancement, etc. With this I must manage their performance and coach / guide, counsel and even discipline as necessary to ensure this happens. If my people are performing below par, this has not happened overnight – it comes over time and means that I have condoned it. Problem being, what I condone today becomes tomorrow’s standard.

This has been Coetzee’s biggest problem with the Bok team and a case in point is the stat that was reported that well over 50% of the team selected for the end of year tour did not make the required level on the fitness test. The players knew they could get away with this as there had, until that point, been zero consequences for non-performance.

Until our economy and society in general matures sufficiently such that we have a gini coefficient, which is the worst globally, (among other things) ranked in at least the top 50 in the world we need basic measures in place to ensure we limit the degree of exploitation that has and is taking place. Business leaders (before govt) need to step forward and set the example here.

In regard to business leaders let’s take a recent case as an example. Whitey Basson (a fantastic and wonderfully successful businessman who deserved a good reward) got a 100% (+) performance bonus of R50m. He ran a company employing approx. 138 000 employees with a lowest salary rate of around R 4 000 pm. My problem is not the fact that he got a bonus, it is that while he took the lead and ultimate responsibility for the success (or possible failure) of the business, he could not have achieved anything without the backing, commitment and hard work of his employees. What bonus did they get – 5%, 10%, 20%, 30%? Hell, a 30% bonus for Whitey would have been R15m, which in itself is a lot more than what some CEO’s get paid in SA. We have to recognise that success in business does not just come from 1 person, it requires a total effort from all in the company. With this, we need to learn to share more equitably and begin to stamp out those foul instances where exec’s get massive bonuses even where their companies do badly (and sometimes extremely badly).

Let’s look at the Bok team again – imagine (as difficult as it is) if the Bokke had achieved the successes that the All Blacks or England had achieved this year and SARU then turned around and only paid Coetzee a bonus, and one equal to 100% at that. The public (and player representatives) would never in 1m years have accepted that.

We can learn to accommodate a minimum wage in our businesses and our economy if we get creative and cultivate a culture of belonging, ownership and pride (these are the only elements that will lead to people taking responsibility for their work and contribution).

I could not survive on R3 500 pm and I guarantee you that 100% of the readers of MoneyWeb couldn’t do so either. Remember that there are many, many of our fellow countrymen that receive far less than this. And that is my starting point when I look at this issue, what’s yours?

Business people WILL ALWAYS BE SMARTER THAN POLITICIANS because they actually create wealth and get things done.
I think the 250,000 job losses quoted by Dr Jammine is conservative.
I sold my business because of govt. interferance in wages BBEEE increased accountabilty to the state etc etc- 3 years later it went bankrupt.
These idiots should take a trip to Zambia and see how interferance crippled the mining industry there- then they dropped the draconian laws got business back – now they are starting the same sh#!^ again – Afrika never learns.DESTINED TO SELF-DESTRUCT

the problem in SA Mr SPAP is the dice is loaded against business- you can do what you like to incentivise workers , but if the culture to give one’s best is absent and only perform when being supervised you are lost.
A colleague of mine with a factory came up with an incentive system- it did’nt take long until he was taken to the CCMA for NOT paying incentives to some staff who were not performing- they deemed it descrimination and he lost the case. RESULT- he removed the incentive.
Business theories contrived in functional states DO NOT WORK HERE.

Well hi Ms geranium. Tell me whose responsibility is it to create and set the culture in a business?

Also, there is nowhere that I state, or even suggest, that for people to give their best they have to be supervised. I’m talking about the fundamental principles of good LEADERSHIP. It is only through good leadership and hard slog that a positive business culture can be created and this does not happen overnight.

The most amazing outcome of a healthy business culture is that your people will not need to be supervised as they will take ownership and be pushing the boundaries of their jobs for ever increasing success and with this their ‘managers’ to up the ante ito value add and margins.

I’ve seen many so called incentive schemes that are so badly conceptualised, designed and implemented that they cause more harm than good (more often than not via the impact of unintended consequences). If a company implements an incentive scheme and it fails (even if it the best conceptualised and designed system in the world) then one of 2 things have happened –

1. The climate is not conducive and therefore has not been prepared.
2. The staff do not understand it and have not been lead to a position of buy-in (and yes, I say lead because this doesn’t just happen by default and I also hope you realise that these things cannot be forced into place).

My advice – attend to the above and then you will not have employees (or their representative bodies) taking you to the CCMA. Therefore I will not even bother to question the capability of the Lawyer that represented the company because the mere fact that they ended up there is an indictment on the management team that implemented the system in the first place.

Oh, and by the way I’m not postulating “Business theories contrived in functional states”, rather I’m referring to principles distilled from what has been proven to work in successful (by which I also mean sustainable) businesses over many decades.

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