National minimum wage backfire in South Africa

 ·17 Jan 2025

South Africa introduced a national minimum wage (NMW) in 2019 – however, as the figure has risen, so has outright non-compliance and the use of tactics like cutting work hours to get around the laws.

This is according to a study conducted for the NMW Commission by academics from the University of Cape Town.

The study examined the short-term effects of the NMW increase in March 2024 – the largest adjustment in real terms since the policy was first introduced.

The minimum wage currently stands at R27.58 per hour, applicable to all workers.

The National Employers Association of South Africa (NEASA) argues that the current economic climate makes it difficult for many employers to meet the minimum wage requirements.

This is seen through the study, which found evidence of partial compliance.

A subset of employers respond to the higher NMW by increasing wages, but not to the set level.

Employers have also responded to the national minimum wage by reducing working hours.

“The national minimum wage is a key progressive policy in South Africa, but it is also constrained by the country’s economic environment, which limits what it can achieve in isolation,” read the report.

“Relying too heavily on the national minimum wage as the primary tool for improving the economic welfare of workers does contain a level of inherent risk,” it added.

The report noted that consistent above-inflation wage increases may not always be sustainable without trade-offs.

In South Africa, concerns include potential negative impacts on employment growth and the risk of increased noncompliance, where higher minimum wages do not lead to proportional wage increases for workers.

NEASA CEO Gerhard Papenfus told the SABC that businesses need to compete for skilled employees by offering competitive wages, but when they cannot afford the minimum wage, they simply pay less.

Trade union federation COSATU strongly disagrees with NEASA’s stance, condemning a disregard for the national minimum wage by some employers.

Recently, the Commission announced its proposed NMW increase for 2025, recommending a hike of CPI+1.5%.

Following the recommendation of the 2025 increase, the trade federation said that it “will help protect the value of the NMW and workers’ ability to take care of their families.”

“It will inject badly needed stimulus into the economy, spurring growth, sustaining and creating badly needed jobs.”

COSATU representative Matthew Parks stressed the illegality of paying workers below the minimum wage threshold.

This was echoed by the Department of Employment and Labour, who posted following the publishing of the report that “every worker is entitled to payment of a wage that is not less than the NMW.

“Payment of minimum wage cannot be waived and minimum wage takes precedence over any contrary provision in any contract, collective agreement, sectorial determination,” it added.

However, Parks acknowledges that the National Minimum Wage Act allows for exemptions for employers facing genuine financial difficulties.

To qualify for an exemption, employers must consult with employees or unions, apply to the Department of Employment and Labor, and provide evidence of their financial struggles.

Exemptions are granted for one financial year, allowing a reduction of up to 10% of the minimum wage.

While some companies have allegedly abused this system, approximately half of the exemption applications have been approved.

May be easier said than done

Economics Professor Jannie Rossouw points to South Africa’s sluggish economic growth as a significant obstacle to minimum wage compliance.

Over the past decade, economic growth has hovered around 1% per annum, while the population has grown at approximately 1.5% per annum.

This imbalance has resulted in rising unemployment.

“What South Africa really needs is a 3% economic growth rate, and with a 3% economic growth rate, more employment opportunities will be created, and we will be able to get the unemployment problem under control,” said Rossouw.

The impact of the national minimum wage on domestic worker employment has been evident. Household affordability constraints have led to a decline in domestic worker employment.

NEASA reiterates its opposition to the imposed national minimum wage, calling for a shift in policy focus towards economic growth and job creation.

“Government must let the market dictate the wage which an employer is willing and able to pay its employees and not artificially, legislatively set it outside of free market powers,” it said in a statement.

“If Government stops interfering with the free functioning of the market and rather allows business to operate organically and competitively, it will inevitably lead to economic growth and increased employment opportunities,” the association argued.

Meanwhile, COSATU urges the Department of Employment and Labor to increase the number of inspectors and publicly identify employers who do not comply with the NMW regulations.

Overall, the debate over the national minimum wage will rage on as the National Minimum Wage Commission recommends adjusting the minimum wage by the Consumer Price Inflation rate plus 1.5% starting in March 2025.


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