The Wits School of Economic and Business Sciences has published a new research report on the minimum wage in South Africa, using international benchmarks to determine how much it should be.
The National Minimum Wage Research Initiative (NMW-RI) is an independent academic research project run by the Corporate Strategy and Industrial Development (CSID) Research Unit in the School of Economic and Business Sciences (SEBS) at the University of the Witwatersrand.
Currently, South Africa does not have a national minimum wage. Instead wages are set on a sectoral basis through collective agreements negotiated at the level of the firm or bargaining council, or through sectoral determinations published by the government.
However, according to research, as many as 2.35 million low-wage workers are excluded from minimum wage coverage, while sectoral wages take into account only a limited range of factors – usually ignoring wage inequality, and broader social issues.
It is argued that a national minimum wage will serve to address these shortcomings.
Drawing from a wealth of statistics and databases (including, but not limited to data from the department of labour, various research papers, surveys, the PALMS series and many others), the researchers were able to determine the average (mean) and median wages across industries, genders and race groups.
Overall, in South Africa, the average salary increased 35% between 2003 and 2012, to R7,443 (median: R3.897), with extremely high levels of wage inequality, where the upper decile of earners command 40% of the wages paid.
The mean and median earnings vary widely between sectors and population groups, but alarmingly, 50% of full-time employees earn less than R3,640. The average for full-time employees is R8,669, the research showed.
The poverty line in South Africa, as of February 2016, is at R1,386 a month for an individual, with the household poverty line (for a family of four) at R5,544. The “working poor” line is at R4,317.
The number of working poor in South Africa is extremely high with just below 54% of full-time employees, close to 5.5 million workers, earning below the working-poor line, the researchers said.
What level should we be at?
Using international benchmarks on minimum wages, the NMW-RI determined that South Africa’s current minimum wage structures are simply not up to standard.
International comparisons show that for different country groups, the average ratio of minimum-to-average wages is typically between 45% and 50%. The middle-income country average of 48% is considered to the “most instructive” for South Africa.
However, South Africa falls well below this, with a minimum-to-mean ratio of 36%.
Similarly, when looking at the minimum-to-median ratio, the benchmark comes in at between 65% and 80% (80% for middle-income countries) – while South Africa sits at 74%.
“We see that the private sector weighted average for bargaining council agreements is approximately R4,350 per month, which rises to just under R5,750 per month when the public sector is included,” the researchers said.
“Using weighted averages is certainly more appropriate if wishing to benchmark a national minimum wage against the current levels of collective bargaining agreements in South Africa.”
Using the methods laid out in the report, the NMW-RI found that the benchmark minimum wage figure ranged between R4,000 and R5,500, which falls in line with the group’s statistical modelling, which put the range at R3,500 to R5,500.
According to the researchers, this band would have an overall positive effect on the economy and is at a level that’s economically sustainable.
National minimum wage fallout
While the research shows that employment will be affected, it said that it would likely be a small bump (a loss of around 45,000 jobs), in line with what has been seen internationally where a minimum wage is introduced.
“Overall there is a very small negative impact with the economy-wide average annual level of employment for the indexation scenarios falling by -0.3%…driven by the service sector, in particular the construction and engineering subsector, and wholesale, retail, catering, and accommodation subsector,” the report said.
However, the benefits would likely far exceed the relatively small numbers of workers who could lose their jobs as a result.
The model also projects that inflation will fall due to strong productivity effects outweighing price pressures from increased wages. Notably, the demand for social grants falls due to higher wages and the tax intake increases.
“A national minimum wage, set at a meaningful level above the current lowest sectoral determination, lifts wages, income, and spending, and increases productivity, investment, output, and growth,” the researchers said.
“This occurs with a minimal effect on employment and sustainable movements in the current account, inflation, and debt-to-GDP ratio.”
“Most importantly, a national minimum wage is projected to reduce poverty and inequality.”