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The national minimum wage and the impact it could have on SA

Siki Mgabadeli speaks to Gilad Isaacs who is a Researcher from the National Minimum Wage Research Initiative at Wits University

SIKI MGABADELI: we’re focusing now on the national minimum wage, looking at the impact it could have on our country. In its recent annual Nelson Mandela lecture, Professor Thomas Piketty argued that a national minimum wage could be an important tool to reduce extreme wage inequality. South Africa, as you know is one of the most unequal societies in the world with a Gini coefficient of a staggering 0.66. Now that’s more than double the average of OECD countries. So Gilad Isaacs is a Researcher at CSID at Wits University and also Co-Ordinator of the National Minimum Wage Research Initiative. Gilad, thanks so much for your time today.

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 sectoral 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, opposed to thinking about what the aggregate impact on the economy might be.

SIKI MGABADELI: Lets 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: So we have these notions of the economy which we would call a supply side dominated notion that it is costs which are the main factors 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 factors, everything from IT to political stability to our transport infrastructure and so that 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 net analyses of the evidence done. The developing world less evidence, but generally the results still cluster whilst differentiated they are clustering around a neutral impact. We’ve just finished our own modelling exercises, which I can talk about, if you’d like.

SIKI MGABADELI: Absolutely, yeah.

GILAD ISAACS: I mean, the kind of highlights of what we’ve seen in that and needs to be unpacked more, is that wages rise, incomes rise, output rises and it is a positive impact on economic growth as seen in our GDP. We do see a small negative impact on employment, against a baseline of between 0.1% and 0.2% higher, so there is that slight negative increase. We do see a sustainability of this with regards to debt, trade surpluses, etc, and we see, in line with the international evidence, a positive impact on poverty and inequality.

SIKI MGABADELI: That’s very interesting because the argument again, and they talked about jobs, right, then the other one is, oh, we can’t afford it and you hear this from particularly your more liberal economists, or neo-liberal, if one wants to put a label on someone’s ideology. So the concern they say, is we’re going to lose jobs, companies can’t afford it and what you’re going to find is that we’ll have more mechanisation. Is there any evidence of that, both in the developing and the developed world?

GILAD ISAACS: That’s always a risk, and there’s some truth in that. I don’t think we should see that as the determining factor, but we must recognise that any policy has benefits and it has risks. What we must understand about that is two very important things. Firstly the international evidence shows that firms adjust in a range of ways. So it is decreasing in operating profit-like margins, changes in hours worked, increase in productivity, altered work structures and a whole range of individual ways in which firms are compensating. The other thing we must realise is that a national minimum wage is a policy tool which impacts on the aggregate, and so what we see internationally is some reallocation of jobs within the economy between sectors, but the aggregate employment impact we’ve seen both from our own modelling and from the international evidence, is, as I said earlier, very small or negligible.

SIKI MGABADELI: In your modelling what did you set it at?

GILAD ISAACS: It’s the million Dollar question. We did four different modelling exercises, a minimalist one which we set at R2,250, a maximalist one at R6,000 and then two indexation ones in between that, and what I mean by indexation is that we start at a certain level which is a percentage of the average wage and we increase it over a five year period to allow the economy to adjust, and that is actually a policy option which is open to us. So there was a lower indexing one which went from about 3.6 to like 3.9 and a higher indexing one which went from about 4.6 to 5.1 and we tied those to a percentage of the average wage which is what we also see internationally that minimum wages hover around 40% of the average wage.

SIKI MGABADELI: All right, we’ll leave it there, thanks for your time. Gilad Isaacs is a Researcher at CSID at Wits University and also Co-Ordinator of the National Minimum Wage Research Initiative.

 

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