The Free Market Foundation has warned that the introduction of a higher minimum wage in South Africa in 2022 could further damage the country’s job market.
In a submission to the National Minimum Wage Commission this week, the think tank said that an increase would be especially harmful as the country continues to grapple with record-high unemployment levels.
South Africa’s unemployment rate hit a new record high of 34.4% in the second quarter of 2021, data from Stats SA showed. It said that the number of unemployed totalled 7.826 million people in the three months to the end of June, compared with 7.242 million people in the previous three months.
“In simple terms, an effective minimum wage renders most of the affected workers unemployable,” the FMF said.
“To proceed with the imposition, or increase, of a minimum wage rate, it is necessary for policymakers to convince themselves that there is some generalized net benefit despite the negative impact on employment levels.”
The think tank said that an active policy is needed to reduce, if not eliminate the high levels of inequality in the country. It said that policy improvements could include:
- Reductions in regulatory burdens,
- Reductions in marginal tax rates,
- The simplification of the tax code.
- Improvement in police services and judicial integrity would help to reduce the costs of business and personal security.
- A reduction in the inflation rate would improve the functioning of the price system and reduce the need for cost-of-living adjustments for all wages, including the minimum wage.
“South Africa’s economic growth has been weak over the past several years and the real GDP has not yet returned to pre-lockdown levels. Unemployment levels have been extremely high over many years, with a third of the labour force persistently out of work,” it said.
“Unemployment rates are much higher for the young and for those with lower education levels. These are the people most harmed by an effective minimum wage. With youth unemployment levels now over 60 percent, most young people are unable to get the experience to gain the skills and productive habits that would enable them to earn higher wages.”
Minimum wage under review
The National Minimum Wage Commission has called for recommendations on a new hourly minimum wage for South Africa as part of its annual review.
Under the National Minimum Wage Act, the commission annually assesses and reviews the minimum wage. The minister of Employment and Labour, Thulas Nxesi, then determines an adjustment based on these recommendations.
Commission chairperson professor Adriaan van der Walt said that the recommendations would be considered before publishing its annual report later in 2021.
Nxesi introduced the most recent minimum wage adjustment for South Africa in March, taking the current total to R21.69 for each ordinary hour worked.
As in previous years, the adjustment provides exceptions for several worker groups, including:
- Farmworkers are entitled to a minimum wage of R21.69 per hour;
- Domestic workers are entitled to a minimum wage of R19.09 per hour;
- Workers employed on an expanded public works programme are entitled to a minimum wage of R11.93 per hour.
In its 2020 report, the national minimum wage commission said that ideally, a national minimum wage should apply to all employees across the country and irrespective of sector.
The commission recommended that the minimum wages of farmworkers be equalised with the national minimum wage with effect from the date of the overall adjustment in 2021. It added recommended that the minimum wage of domestic workers be increased to 88% of the national minimum wage in 2021 and 100% in 2022.
This adjustment of the minimum wage for domestic workers and farmworkers would increase about R450 per month for a domestic worker and about R350 per month for a farmworker.