Deputy president Cyril Ramaphosa has announced South Africa’s plans to phase in a national minimum wage at R3,500 per month – but has not said much to address the key question: who is going to be paying for this?<\/p>\n
The national minimum wage (NMW) debate has been raging for some time, with supporters and critics coming forward with their views on the most appropriate level for monthly wages.<\/p>\n
According to analysis from financial research group Nomura, a NMW set around the lowest expectation (R3,000-R3,500) is a more positive outcome in the report, as it carries a lower risk for South Africa – but risks are certainly present.<\/p>\n
Chiefly, government is expecting businesses to absorb the cost through reducing profit margins to accommodate the NWM. “However, businesses simply don’t operate like this,” Nomura said.<\/p>\n
The national minimum wage will likely get passed onto:<\/p>\n
It has also been widely accepted that businesses will also look to reduce their costs to accommodate a NMW, which will be accomplished through effectively cutting their workforce.<\/p>\n
Estimates from the University of Cape Town show that there could be 500,000 job losses as a result of the NMW – while National Treasury has estimated that 715,000 jobs could be lost.<\/p>\n
Nomura says that while job losses are a risk, the number of jobs is unlikely to change by such huge margins. Rather, future hiring rates will probably drop; total hours per employee may fall; and non-wage benefits will likely also be cut.<\/p>\n
This impact will take time to be felt, due to the project’s “phase in” timelines – where the NMW is only expected to be fully implemented by mid-2019.<\/p>\n
South Africa is not ready<\/strong><\/p>\n One of the biggest\u00a0problems Nomura sees\u00a0with the NMW is factoring in the fact that South Africa is not an ideal market for such wage restrictions to be in place.<\/p>\n “A NMW can only work where there is decent national productivity growth, flexible labour markets, a low share of non-wage compensation by employers and low unemployment. South Africa fails on all of these,” the group said.<\/p>\n “It has minimal productivity growth, very poor labour market flexibility, a high share of non-wage compensation by employers (medical, housing, dependents education support etc) and 36% true broad unemployment,” Nomura said.<\/p>\n In fact, the group said that there is “significant anecdotal evidence” that\u00a0employers have cut back on non-wage benefits in response to previous sectoral minimum wage increases (especially in agriculture) and will do so further for NMW.<\/p>\n “As such while a NMW may well be accepted it will likely result in households being worse off in absolute terms, possibly working fewer hours with poorer terms of employment,” Nomura said.<\/p>\n “Fundamentally, we worry that an economy with such weak private investment growth on such weak sentiment will not be able to support a NMW without adverse effects. We see this as a step backwards not a step forwards \u2013 it is not a reform.<\/p>\n “It is a policy choice to form a social wage with business paying more to some people but government having to provide the ultimately backstop for everyone through social grants and tax redistribution,” Nomura said.<\/p>\n