South Africa Sets First Ever Minimum Wage

Christmas was over, but there was still a big present at the bottom of the sack: on 2 January 2019, the national minimum wage was introduced in South Africa. According to the Government, this measure is expected to benefit some 6 million South Africans. 

This minimum wage is set at 20 rand an hour (1.3 euros), i.e. 3,500 rand a month (228 euros). It will not be imposed on firms in financial difficulty, an exemption which is by no means insignificant in a country where growth is stagnant. Some also criticize the modest level of pay of this South African minimum wage, in a country where gross national income per capita stood at 5,430 dollars in 2017 (against 38,000 dollars for France), according to World Bank figures released in 2017. 

However, the fact remains that the measure is a major step forward given the soaring unemployment rate and the glaring inequalities facing South Africa. Murray Leibbrandt, Professor in the School of Economics at the University of Cape Town and Director of the Southern Africa Labour Development and Research Unit (SALDRU), is one of the seven experts of the committee which advised the Government on this project. M. Leibbrandt, who also works with AFD in the context of several research programs, takes a look at the difficult balance to be struck in introducing a measure which shakes up the economy: 
 

The economist, who is also Director of the African Center of Excellence on Inequality Research supported by AFD, is still nevertheless aware of the limitations of the system:

Those who promote the minimum wage also believe it is a first step, before forging ahead with further progress. “Above all”, notes M. Leibbrand, “47% of the labor force is already covered by this national minimum wage. Symbolically, it is also a sign that society is changing to care about our most vulnerable.” It took four years of gestation for the process to mature before reaching this stage. What were the main challenges the initiators of the minimum wage had to face?

Why introduce a minimum wage?

It had become an issue for a country which did not have one yet. “Social partners agreed that establishing a national minimum wage was a positive tool to remedy the situation of poverty and inequality in our country”, notes the report of the committee mandated by the South African presidency on the minimum wage. “On  its  own  it  will  not  solve  all  of  the  challenges we face, but it is an implementable policy which is designed to have a measurable and concrete benefit  on  the  poor.  The  minimum  wage  is  therefore  seen  as  one  of  the  tools  to  close  the  wage  gap, including between the genders, and thereby to overcome poverty.”   
 

Proof through research

The studies conducted by various researchers and institutions on the impact of this strong measure all come to the same conclusion: the introduction of a national minimum wage often has little or no negative impact on employment. If it is properly implemented, it can have positive impacts on poverty levels. Caution is, however, required, as “an excessively high level of remuneration of the minimum wage will have a negative impact on employment”. The first victims of this will be the poorest, the very people who are targeted as beneficiaries by the system. 
 

What salary level?

So, where to place the cursor? The panel of seven experts involved in the report carefully weighed the data and proposals from social partners and other stakeholders in the process to come up with the level of 20 rand an hour and 3.500 rand a month as baseline values for the minimum wage. A threshold which would “maximize benefits to the poor and minimize any possible disemployment effects” caused by the introduction of a minimum wage. “A lower number would  have  a much smaller  effect  on  poverty, and  a  higher  number  would  likely  start  causing unemployment consequences”, considers the panel, which proposes to re-assess the level of remuneration of the system once a year.
 

Who for? 

Small businesses employing fewer than ten people (with a year to adjust), young employees, “vulnerable” workers, such as laborers or domestic employees… All employment sectors where wages are potentially low are concerned by the minimum wage in South Africa. Sectors where the balance is more fragile benefit from time to adjust or a temporary exemption ranging from 75% (domestic workers) to 90% (farm and forestry workers) of the amount of the new minimum wage. These exemptions are clearly set to be “suppressed over time” to make the minimum wage a real nationwide universal system. Own-account workers and workers from the same family in informal structures remain excluded from the system.
 

And now?

It is now up to institutions to sustain and develop the minimum wage over time. But to avoid a proliferation of structures alongside already existing bodies related to working conditions and equality at work, the panel of experts has proposed the establishment of a single institution to oversee the entire system, on the theme of decent work. The “Decent Work Commission” will thereby comprise three components (employment conditions; employment equity; national minimum wage) and will have a data and research center to provide input into its research.
 

Further reading:

In South Africa, from cow manure to green energy

A lack of data hindering the fight against inequality

AFD Digital Challenge: 15 start-ups in the starting blocks

Côte d’Ivoire: At the second chance school