Academics in favour of minimum wages

The threat of job losses is not and should not be the obstacle.

The basic rationale that introducing a national minimum wage (NWM) would lead to increased labour costs and thus result in increased unemployment was not the prevailing theme at the NMW symposium, which began at WITS University on Tuesday.

If anything, the consensus was that minimum wages had little to no impact on employment, because they would usually be set at a level much lower than what the majority of formally employed workers would earn. And if set at too high a level, businesses would simply not comply or, if they did, formal employment would fall and the informal economy would grow.

“When people argue against minimum wages, they are not looking at empirical evidence,” said Gilad Isaacs, the co-ordinator of the National Minimum Wage Research Initiative. “When Germany wanted to introduce a minimum wage of €4.50, people were saying 390 000 jobs would be lost, (but that was not based on anything material).”

Day one of the two-day conference saw academia from South Africa and abroad present findings of research papers, which all but annihilated the notion that minimum wages necessarily had an adverse effect on growth and employment, reinforcing the notion that a NMW would be good for South Africa.  

From Costa Rica, Brazil and Indonesia, to China, the US and the UK, the experiences and impact of minimum wages on poverty and inequality in particular, were discussed. To the point that the only debatable question was not whether they were good for economies, but rather what was the highest minimum wage level a country could afford. This was the real NMW condundrum. The answer to this varies depending on the country in question.

A hit in the UK

Alan Manning from the London School of Economics said developed countries were under increasing pressure to introduce minimum wages, with 26 out of 34 OECD (Organisation for Economic Cooperation and Development) countries having them compared to 17 out of 30 in 1998. In the UK, where the national minimum wage was close to the equivalent of R150 per hour – the NMW was voted most successful policy of last 30 years.

Said Manning: “Economists’ views about the effects of minimum wages have changed. They used to be vastly hostile, with the attitudes that “we don’t think we should have one, but if we must, then keep it as low as possible.” Whereas nowadays the consensus is that minimum wages can be useful, with the proviso that they are set at an appropriate level.

Uma Rami from the International Labour Organisation (ILO) said that if the minimum wage was set at too low a level, it may be ineffective in ensuring a minimum living income to workers and their families. But if it is set too high or raised unexpectedly, it can trigger price inflation, hurt employment and/or lead to widespread non-compliance.

Alone, however, it was said that a NMW would be a blunt instrument in order to address challenges of inequality and poverty. There needed to be other policy initiatives that would have to complement minimum wages. Because, as Manning put it, poverty does not depend just on a hourly wage,  but also depends on, for instance, whether people were employed in the first place.

Roxanna Maurizio from Universidad Nacional de General Sacrimento in Argentina covered the impact of minimum wages on Latin America, where the results had varied but that the level of the minimum wage was inversely related to the level of compliance – with the exception of Mexico and Peru. She also said that the experiences of developed countries could not be compared to those of the developing world because the former already had high levels of employment, and institutions to enforce compliance.

Average SA income by race group

Average income

Wiseman Magasela. deputy director general of the Department of Social Development, said that South Africa needed to have a national minimum wage, because of the severe level of inequality in the country, which was inconsistent with the spirit of the constitution.

“We live in a country where there are still many children suffering from malnutrition,” said Magasela. “When you look at income distribution in South Africa, based on a community survey conducted by StatsSA in 2007, the lowest five deciles of the population command less than 10% of national income…The issue of addressing poverty cannot be left to government alone.”

Currently, minimum wages can be set by bargaining councils and sectoral determinations (SD) and some additional company level agreements. Benjamin Stanwix from the University of Cape Town said Agriculture was the only sector where, although the remaining workers are better off, the introduction of a minimum wage did cause a decline in employment.

Impact of minimum wages in South Africa 

Domestic Workers

Retail,  Private Security,
Forestry and Taxi


Clothing and Textile

•      Hertz (2005) finds disemployment effects after the introduction of the SD between 2001/04

•      Dinkelman & Ranchhod (2012) and Bhorat et. al (2012) find no disemployment effects

•      Bhorat et. al. (2012) find no disemployment effects, but hours of work reduced

•      Bhorat et. al. (2014), Garbers (2015), find negative employment effects after MW intro, and Levine (2014) finds evidence (qualitative) of gendered disemployment after SD increases

•      Nattrass & Seekings (2014) estimate that 20,000 jobs were threatened due to increased enforcement measures in the sector

It seems likely that a NMW in South Africa will be implemented, but there are questions that remain: how it will be implemented – how high will it be, how will it impact on contentious issues like outsourced labour and labour brokers, and what will the implications be on a minimum wage in the long run. Lotta Greenish from WITS said there was a research gap that made it impossible to fully answer all the questions relating to the impact of a national minimum wage.

Impacts of introducing/increasing the minimum wage




Improvements in efficiency

Efficiency wage response from workers

Wage/income-led consumption increases

Wage compression, changes in employment composition

Varied response across different categories of labour

Input-output adjustment (absorption of workers, costs,efficiency spillovers)

Reduction in profits or higher prices

Shift to informal employment or self-employment

Potential increases in taxation (wage-income and enterprises)

Increases in output demand (min wage as stimulus)

Changes in consumption patterns

Technology and skills linkages (transfer)


Reduced turnover, improved productivity

Improved motivation, productivity improvements

Focus on other labour policies that affect wages and employment

Adjustment variation by types of firms

Shift to employment of last recourse or return to subsistence agriculture

Focus on other macro policies to strengthen the positive outcomes

Changes in employment levels or hours worked

Skills development/deepening

Simplified enforcement and regulation

Changes in non-wage benefits or training


Shift focus on employment creation



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I have several problems with minimum wage in a country with high unemployment. Academics, who never run a real business, can say whatever they want, their job is secure. In today’s internationalised business environment lot of the production can be shifted to other countries in a very short time causing loss of employment. See the local clothing industry. I am sure there are far fewer domestic workers now than 30 years ago thanks to the much higher wages. In my case 30 years ago we had a live in full time maid, later once a week, now we have one half a day once a month.
Anyway, who and how determines the minimum wage? Does NMW means that increasing it to R150 per hour we can increase the standard of living to the level of the UK instantly?

The minimum wage in South Africa is 0 – Ask the 25% that are unemployed. Instead of creating more laws why not come up with concrete policies to reduce unemployment?

If you take the Social Justice Warrior (SJW) out of the equation and apply economics, what the NMW does is set the minimum value of labor. This, if you look at labor as a commodity, is technically price control. This flies in the face of free market economics. 2 things will happen. Labor that does not provide value equal or greater to the cost will not be hired and a informal/black market will be created because people are desperate for work.

Perfect example in the UK. No petrol attendants. Shops with no tellers. Gardeners, domestic workers? Very few. Because the cost of the labor exceeds the value. Imagine unemployment then.

Solution to unemployment is a mobile labor force that dictates the cost of labor , skills/education to increase the value of that labor and free market to allow people to negotiate that cost. Anything else is social engineering and price control and will fail.

Clearly these “academics” have lost touch with reality sitting in their air conditioned ivory towers. Their opinions are merely academic exercises based on happenings in first world countries. Inflexible and plain idiotic Labour Laws are the biggest cause of businesses not hiring. We need less Government interference and not more.

I am afraid many small businesses have become mom and pop businesses because of high administrated costs example Eskom .All the labour is done by the owners they cannot afford to pay a decent wage..

End of comments.



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