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Securing a minimum wage: lessons from the US

It could significantly reduce poverty and inequality and boost South Africa’s GDP – Dr Stephanie Luce, City University of New York.

SIKI MGABADELI:  New research shows that a national minimum wage set at a meaningful level will significantly reduce poverty and inequality and give a welcome boost to South Africa’s GDP. Government, trade unions and the private sector have been at the negotiating table about the national minimum wage since 2014. We’ve seen Applied Development Research Solutions, a company that does economic modelling and research, recently published a working paper that considers the effects on the economy should a national minimum wage be implemented, and they’ve shared their findings.

Let’s chat to City University of New York’s Stephanie Luce. Stephanie, thanks so much for your time today. We’ve been having this back-and-forth conversation in South Africa, as I mentioned, for a couple of years now about a national minimum wage. But what’s the international experience?

STEPHANIE LUCE:  What we are finding increasingly is that countries around the world, whether rich countries or less wealthy countries, are finding that implementing a minimum wage really has positive effects, not just for workers, but even for employers and the economy overall.

SIKI MGABADELI:  Give us an idea of how that would work.

STEPHANIE LUCE:  Well, what we are finding is for many employers, particularly small employers, they want to be paying a higher wage or some are already paying a somewhat higher wage, and they feel it’s unfair to have to compete with the very large multinationals that pay the bare minimum. So small employers realise that, by keeping workers on longer term, they can invest in their worker, the worker gets more productive, doesn’t quit and it can be an economic gain for both sides.

SIKI MGABADELI:  So the argument then, from some in business in this country, that we would see job losses – are you saying that it does not hold water?

STEPHANIE LUCE:  Well, we are just not seeing that. That’s certainly what you learn in your standard economics class, but employers in fact have a number of ways of adjusting. One is that they can recoup some of the costs through higher turnover or higher productivity. They can pass some of the price increase on to the consumer in a small amount, and they can reduce their corporate salaries.

SIKI MGABADELI:  So is that how it would then also assist in creating jobs? I’m just trying to see where the link to job creation would be.

STEPHANIE LUCE:  We can’t yet prove that it causes job creation, but we know when low-wage workers get higher wages they can then spend all the additional wages in their local economy, increase consumption for goods and services. That creates new economic demand and that seems to go hand-in-hand with job growth.

SIKI MGABADELI:  We are sitting in South Africa right now, and the reason job creation is a big topic is of course the high youth unemployment rate that we are sitting in, and government has been trying to find ways to get young people into jobs, whether it is through some youth wage subsidy and so on. What effect, if any has been studied, does something like this have on young job seekers?

STEPHANIE LUCE:  This is one area where we have found a few studies that show that a reasonable minimum wage can impact teenagers. They were talking 16- to 18-year-olds. So we are not talking about young workers in general, like those coming out of school or going into labour markets. We don’t see the same impact on young workers. So it seems as if a minimum wage can be beneficial for young workers as well as older workers.

SIKI MGABADELI:  Is it sector-specific? Would some sectors do better than others? We already have sector-specific minimum wages in South Africa.

STEPHANIE LUCE:  We generally think that different employers, whether in different sectors or different regions, are going to have different impacts. And I know in South Africa the report that you mentioned that came out does find some sectoral differences. But even there they found that in a six-sector study, only one – agriculture – had any kind of negative impact in terms of a higher minimum wage. The rest of the sectors all reported that they could adopt the higher wage and not have a negative impact.

SIKI MGABADELI:  I mentioned in my introduction that it would have to be meaningful. How do we decide what’s “meaningful”?

STEPHANIE LUCE:  That’s a good question. I think we have some good methodologies out there for looking at where the basics of a minimum wage, a living wage, housing, food and so forth. The methodologies use government data to look at averages. And then from there you really want a good conversation among all partners in society, businessmen, labour and community groups should all be part of that discussion.

SIKI MGABADELI:  We’ll leave it there. Thanks for your time today, Stephanie Luce.

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