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Impact of a national minimum wage: Gilad Isaacs – coordinator, National Minimum Wage Research Initiative, University of the Witwatersrand

‘There’s a range of factors which impact employment’ – not only wage costs.

SIKI MGABADELI: We are focusing on the national minimum wage today, looking at the impact it could have on our country. In the recent Annual Nelson Mandela Lecture, Professor Thomas Pikkety argued that a national minimum wage could be an important tool to reduce extreme wage inequalities. South Africa, as you know, is one of the most unequal societies in the world, with a Gini coefficient of a staggering 0.66. That’s more than double the average of OECD countries.

Gilad Isaacs is a researcher at CSID at Wits University and also coordinator of the National Minimum Wage Research Initiative. Gilad, thanks so much for your time.

GILAD ISAACS: Thanks very much.

SIKI MGABADELI: Just to be clear, have we moved beyond the debate on whether we need to introduce a national minimum wage to how do we do it – or are we still stuck on “do we need one”?

GILAD ISAACS: Politically, we have moved beyond that, there’s been an absolute commitment made by government and the ANC that this will be instituted. In terms of the public discourse, we’re still engaged in a conversation of, is this good, isn’t it? It’s worth remembering at the outset that currently what we have are a series of sectorally set minima which cover individual sectors, which vary in their level. But on the whole the sectoral determinations, the ones set by government and not collective bargaining are relatively low. So the conversation is around having one national minimum wage, a floor under which no worker would be allowed to earn, unless prior agreement for a certain sector.

SIKI MGABADELI: Why is it that we need this rather than the sectoral determination? What’s the problem with the sectoral determination?

GILAD ISAACS: That’s an excellent question. And the International Labour Organisation advocates the institution of a national minimum wage for a variety of reasons. The sectoral determinations aren’t covering everyone. They generally disfavour marginalised workers, like female and youth; they are harder to enforce; and they generally set taking a much narrower set of economic circumstances on a sectoral level into account, as opposed to thinking about what the aggregate impact on the economy might be.

SIKI MGABADELI: Let’s maybe talk about that, then, because when the question is raised around the national minimum wage, some say, well, we’re going to see job losses, for example. What have you seen in your research when you look at other countries that have actually introduced a national minimum wage?

GILAD ISAACS: We have these notions of the economy, which we would call supply-side-dominated notions, that it is costs which are the main factor and its wage costs in particular. But actually the economy is much more complicated than that. Employment is determined by output, output by demand, as well as a whole range of investment of factors, everything from IT to political stability to our transport infrastructure. And so there’s a range of factors which impact employment.

In terms of both the local and international experience, what we see overwhelmingly from the international evidence is that the impact on employment is very slight, negligible or statistically insignificant. And there’s been very thorough method analyses of the evidence done. The developing world – less evidence, but generally the results still cluster; while the differentiated they are clustering around a neutral impact. We’ve just finished our own modelling exercises, which I can talk about…

The kind of highlights of what we’ve seen in that and which need to be unpacked more, are that wages rise, incomes rise, output rises. And it is a positive impact on economic growth as seen in our GDP. ,…

SIKI MGABADELI: Gilad Isaacs is coordinator of the National Minimum Wage Research Initiative.

To access the full discussion click here.

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