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What the national minimum wage should be

If too low, it will be meaningless. If too high, the economy will perish.

A national minimum wage (NMW) in South Africa is inevitable. But the level at which it is set will be the difference between addressing poverty and inequality meaningfully and plunging the economy into decline. 

After a general consensus that a NMW would benefit South Africa, the second day of the NMW symposium held at the University of the Witwatersrand (Wits) last week covered the level it should be set at and suggested practical guidelines for its implementation.

Bandile Ngidi, director at Rethink Africa, said the numbers bandied about as a possible NMW level in South Africa were based on minimum needs assessments from organisations such as Statistics South Africa (StatsSA) and the Southern Africa Labour Development Research Unit (Saldru), which have different views on what the poverty level is – neither of which he believes are sufficient.

The Pietermaritzburg Agency for Community Social Action (Pacsa), for example, uses a price barometer which is revised monthly and includes a static basic basket of goods. When energy and medical expenses are included, poor people would still have to turn to debt, as many already do.

“Our poor healthcare and social infrastructure means that the minimum wage might need to go far further than a bare minimum level,” said Ngidi.

Shanmugam Thiagarajan from National Wages Consultative Council in Malaysia, said its NMW of RM900 (R3 470) per month, which was introduced in 2012, is calculated using a formula which takes into account the level of unemployment, inflation, productivity, and poverty line income – and is adjusted downwards.

Uma Rami from the International Labour Organisation, said that in India, minimum wages are set arbitrarily by both central and State governments, with multiple rates of minimum wages for different jobs in each state.

Minimum wages under sectoral denominations barely cover food needs


Source: NMW research Initiative

According to the International Labour Organisation, evidence from countries that have implemented minimum wages, reveal that they typically range from between 40-50% of the average wage in a country. In South Africa, with the current sectoral denomination, minimum wages are less than 25% of the average wage. 

“There are two main methods for setting the initial rate,” said Neil Coleman, spokesperson for labour in the wage inequality task team at the National Economic Development and Labour Council (Nedlac). “The first method is based on cost of living and aims to determine a rate that will cover the basic needs of workers. This appears to be the most clear-cut method but it does give rise to some problems…. If wages are to cover the needs of the workers and their families, one needs to establish how many children should be taken into the equation.”  

The second method, he added, involves basing the minimum wage rate on the lowest and average wage rates. But this could also present a problem in cases where the actual wages paid are not a true reflection of workers’ basic needs and the needs of their dependents.

In South Africa, a NMW set at 40-50% of the estimated average wage of formal workers, which according to StatsSA’s quarterly labour market survey is around R10 274, would be at least in the range of R4 110 to R5 137.

Poverty line estimates

Research institution

Poverty line estimate (2015 prices)


Upper-bound poverty line: R960 per person, which is R3 840 for a family* of four, or R4 840 for a family of five.


Cost of basic needs poverty line: R1 319 per person, which is R5 276 for a family of four, or R6 595 for a family of five.


Monthly price barometer: approximately R1 400 per person, which is R5 600 for a family of four, or R7 000 for a family of five.

*’Family’ assumed to include three dependents, which is the average

Source: Neil Coleman, Cosatu

Said Ngidi: “Unfortunately, literature is very scarce on what other countries include in the calculation of the NMW. Most countries use general indicators like the inflation rate, while other countries use specific cost-of-living measures or cost of certain items, such as food, healthcare… But ultimately, it’s a political decision.”

Business will never come around

Gabriel Sterkel, a trade unionist from Germany, said the €8.50 (R150) NMW, which was established in Germany in January last year, was also set politically. It was the figure most often quoted in discussions leading up to its implementation.

Sterkel said unions would always think the minimum wage was too low, while business would always resist it. She said there was a massive media campaign from business and economic research institutes, forecasting the economy would collapse, with up to two million job losses predicted. And this has not been the case. In fact Germany recorded its highest employment level in December 2015.

“Our international allies tell us that the experience is the same all around the world,” said Coleman. “In fact, when we went to Germany, the NMW had already been implemented, and employers were still grumbling about it as if it had never been introduced and feeding in media information about the terrible consequence of a minimum wage.”

Coleman said business’s refusal to engage with empirical evidence around international experience with minimum wages, and refusal to participate in discussions around the NMW level at Nedlac, had stifled progress on the matter. He said “business made it clear at the beginning of the negotiations that they would be dragged kicking and screaming into negotiations”, but he blamed government leadership because it was them that made the final decisions.

Said Coleman: “We are extremely disappointed by the stance that government has taken in these negotiations. Agreements that were reached in June 2015 outline the definition of a national minimum wage and what the basic architecture of a minimum wage would be. The deputy president announced this agreement at the international labour symposium last year. But we have not made any significant progress since then.”

Business was noticeably absent from the symposium and Gilad Isaacs, the organiser of the event and head of the NMW Research Initiative said it was not from want of trying on his behalf.

“We tried to invite individuals and organisations from business,” said Isaacs. “Some of them were legitimately unable to attend. However, the official response from the business represeantives in the Nedlac negotiations, was that they view this as a parallel process outside of Nedlac. They have shown a disinterest in public engagement on this topic and that has been a pattern.”

To listen to the radio interview with Hanna Barry and Mike Schüssler on minimum wage and salaries: what is a fair wage? please click here.

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What about a national MAXIMUM wage in the public sector based on wages paid in the private sector? And if you are going to discriminate on the basis of the number of children, above a certain grade each additional child above a certain number (say two) should result in a penalty.

Let me tell you this britches: It is a good idea for business not to engage in this folly. Any engagement from the side of business will give this baloney a modicum of legitimacy. These “think tanks” are organised by left wing academia who have no idea of running a business and are so infected with the liberalism disease that it oozes from every pore and infects all within a radius of 100 yards. Stay away!

Let me tell ya another thing: Minimum wages can only be determined by the marginal productivity of labour. One cannot separate the marginal productivity of labour from the marginal productivity of capital but if we assume the latter is constant we can rank workers based on the output (loss) that eliminating each them, in turn, will cause. The worker with the lowest loss of output is the marginal worker.

One cannot determine wages arbitrarily by worker “needs”. If a workers output is submarginal then sales of goods will not compensate employers and the business will eventually go bankrupt. One can blame the consumer who refuses to purchase sub standard or over priced goods but the worker himself/herself will indulge in the same behaviour when shopping. One should note that at no stage does the concept “decent living wage” enter the equation.

Q: surely a low wage is better than no wage if agreed mutually by employer and employee? Both are better off?
Q: surely it is best not to raise the marginal productivity of labour and create unemployment plus lose the marginal workers’ contribution to society? A double edged sword.

Governments edicts cannot overrule consumer wants and needs. Nor can the regime via legislation coerce business to employ the unemployed masses.

The solution to poverty is not legislation but production. Capital investment raises labour productivity. Not legislation. However, capital flight is the norm is South Africa.

The ANC really have an enormous amount to answer for. They have failed spectacularly at every turn.

Richard you are talking my language but if they persist with this self-defeating attempt to impose another form of social grant, employment will become a matter of confrontation. For as long as the unemployed perceive wealth in the hands of whites as something to which they were entitled but have been robbed of at the expense of their sweated labour, we will be at cross purposes.
In the same way as Adam Smith in his “Wealth of Nations” was able to change countries’ perceptions about the benefits to both parties of international trade – by exploiting the principle of competitive advantage – we somehow have to convince blacks that employment of labour is beneficial to both employer and employee. As you and Smith point out, nobody in their right mind will offer employment which does not add to the bottom line. This is not discrimination it is survival, pure and simple.
Now there is no dispute that by remaining unemployed our youth become unemployable and resort to crime or are dependent on charity or family who are employed. These fortunate ones then use the cost of such dependents to demand higher than justifiable pay increases leading to strikes, confrontation etc. etc.The solution was given in the early 1950’s by the Manchester University School of economists e.g. Professor Mathews’ treatise titled, “Economic Development With Unlimited Supply of Labour”. His conclusion was that, until full employment is achieved, the wage rate should be limited to a subsistence level plus a margin for relocation of employees to the point where labour is required. It is time to re-open the debate.
I can assure job seekers that there are large numbers of employers who are willing to provide employment, training, skills and opportunities for self-improvement, not because they are purely philanthropic but because it is in the employers’ interests to do so. A skilled, loyal, willing staff member is gold that the employer would be stupid to lose or to restrict their development or mobility. restricted. The proposed minimum wage debate is doomed to failure as the taxpaying employer is already over-stretched. It is time for a new approach. The predictions of negligible growth in the coming year do not support the concept of a minimum wage as currently being envisaged.

The minimum wage should be determined in the same way the price of a tomato is determined. If the price of tomatoes is “set” too high, they will rot in the field. If the price of labor is set too high they will be on social grants.
The best government can attempt to do is to improve conditions for “white minority capital”, for they are the ones who pay their workers a fair wage.

Exactly. And while doing so they are condemned, blamed for everything that goes wrong, and overtaxed to punish them for being frugal with their money management.

What a lot of baloney. Let the market set the minimum wage. Those that can will earn well, those that are useless, will earn less. Ever heard of a machine??? There are machines that can do a lot, so don’t come howling in a few years time when unemployment has shot up and machines are working 24/7. machines don’t strike, be late, get drunk forget steal sabotage, the list is endless.
I used to farm, had 7 men on the farm, my son farms there now he has 2. Dogs and horses. I used to manage in the Free State, huge maize farm, had 60 men working for me. Same job being done by 14 now. Machines, and on stock farms infrastructure. Fencing, corridors etc replace men on foot.

My point exactly. Even the mine are now moving towards mechanisation. You only need to give them some servicing and maintenance and they won’t all go on random strikes and kill the income of the business either.

Let the market needs decide on what the pay will be.

What about a national minimum pension to be paid to all those who paid taxes in their working lifetime irrespective of what their financial situation is now. One should not be excluded from dipping into the cookie jar on the basis that one was cautious with their money management during their lifetime. Those who earned the same but partied and wasted their money can stand in line and be rewarded while those who thought of their future are penalised.

End of comments.





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