Economic recovery is the keynote of finance minister Tito Mboweni’s every public statement – but will the government tackle the one thing that’s most likely to help South Africa’s millions of unemployed young people: getting rid of the minimum wage?
In August, Treasury’s Towards an Economic Strategy for South Africa listed‘a number of challenges’ to small business in the country, which included – in bold – the criticism, ‘Rigidities in labour market institutions and regulations raise costs for SMMEs’.
This basic observation is heresy to the ultra-left bulk of the tripartite alliance, but socialists are even more offended by what followed, in particular that ‘the introduction of the National Minimum Wage could potentially have an adverse effect on small businesses who cannot afford the increase.’
Tito Mboweni’s implied call through the Treasury document to halt the ‘new dawn’ minimum wage is widely predicted to be ‘the one thing’ the minister of finance wants but will not get. Nedlac, long headed by Ramaphosa, called for the minimum wage law in the first place and will (try) to force its implementation through. Evidence-based arguments that this further jeopardizes SA’s 55%+ unemployed youth be damned.
Critics have been vocal. Peter Bruce called the minimum wage ‘stupid’. Adriaan Basson, editor-in-chief of News24, wrote that ‘South Africa has one of the highest legislated minimum wages in the world, which makes us uncompetitive for big companies to invest here.’
Yet, in fact, at R3 500 per month, or R20 per hour, South Africa has one of the lower minimum wages in the world. By comparison, the UK’s national minimum wage is £8.21 per hour or eight times more than SA’s. Brazil, Turkey and (Jakarta) Indonesia each have a higher legislated minimum wage than SA, though their implementation levels are (like ours) at world record lows.
A real effort at backing Mboweni’s criticism starts by checking what made anyone think R3 500 in the middle of an unemployment crisis would be a good idea in the first place. That requires reading A National Minimum Wage for South Africa, a 2016 Treasury document produced for Ramaphosa.
‘[T]he approach we find most appropriate for SA,’ said the report, ‘is based on the UK’. Basson was therefore right to think that international comparison is germane to minimum wage debate, but insight follows detail; so exactly what do we learn from the global trendsetting UK?
The UK Labour government imposed a minimum wage in 1998 and subsequently grew its economy while reducing unemployment, forcing the Economist and conservative politicians to rethink their attitude. Key to the UK’s success was that it disciplined the minimum wage in relation to the median wage, which is the wage of the worker in the middle of the income distribution and is practically always lower than the average income.
In 1998, the UK minimum wage was set at 40% of the median. The equivalent in SA would be a minimum wage of R1 400 per month. Since things have gone so well so far, Boris Johnson’s Conservatives want to raise the minimum to 60% of the median. That would be R2 100 here.
Understanding Ramaphosa’s panel’s inspiration – UK success – also highlights the problem. Relative to the median wage, our minimum is higher than anything implemented in human history – a hard fact anyone can check.
And that is only part of the story since median wage rates totally overlook the unemployed. If you factor unemployment back into in the minimum-median level you find that by a simple quantitative measure SA’s ‘new dawn’ labour law is nominally the most anti-‘elementary’ workers in the world.
Cameron Morajane, director of the CCMA, said the ‘new dawn’ minimum will cause ‘more referrals on large-scale retrenchments‘. William Thomson, acting commissioner of the CCMA, said that job cuts have ‘far more‘ to do with the minimum wage – in our economic context – than with global breakthroughs in automation.
Why not take inspiration from Nigeria whose minimum wage is R1 200 per month instead? Make our minimum wage the same as Africa’s largest economy in absolute terms, or make it the same as the world’s trend-setter in minimum-to-median relative terms – either way our minimum wage would be between R1 200 and R1 400. Geared for growth.
Instead we are geared for reducing ‘income inequality’ even if that means annihilating low-skilled jobs. Bashing inequality sounds nice but it can backfire.
Here is an example from BUSA which called for companies to be forced to publicize pay differentials. Thus high levels of income inequality can be named and shamed at company level, which sounds virtuous indeed.
But BusinessTech did a study of the JSE top 25 companies that indicates just why one might admire high inequality enterprise rather than shame it. Shoprite’s CEO earns R50 million per annum, more than 600 times the average salary across its 140 000 employees. There is high inequality precisely because there are so many jobs that can be done by unskilled labour.
On the other end is Remgro, an investment holding company, which has the lowest income inequality on record. Its CEO actually earns less than the average employee, at R20.5 million and R24.5 million respectively. Number of employees: 173.
Inequality reduction would destroy Shoprite while leaving Remgro be. Would Ramaphosa really want that if he knew it? Surely not. Anti-inequality dogma has evident anti-poor consequences, evidence very few can afford to overlook.
Treasury was right to criticize the absurdly high national minimum wage. This criticism must get traction in the Union Buildings. The future productivity of the country is literally at stake.
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