Professors Nattrass and Seekings have warned about the serious consequences of introducing an unrealistic minimum wage in South Africa. In particular the International Labour Organisation (ILO) stresses that policy-makers consider the “needs of workers and their families” and economic factors including “attaining and maintaining a high level of employment” when setting minimums and this approach informed the design of the Employment Conditions Commission (ECC) which Cosatu endorsed until recently.
THE Congress of South African Trade Unions (Cosatu) has called for a national monthly minimum wage of R4,125 – R5,276. This would involve doubling or even trebling many existing sectoral minimums. Cosatu insists that the level of a national minimum wage be set politically, without either the participation of independent experts or the requirement to consider likely effects on job destruction that characterise the existing Employment Conditions Commission (ECC).
Read: High minimum wage hikes will lead to job destruction, first published by Business Day on BDlive on 8 December 2015
The ECC, like most other minimum-setting institutions across the world has generally set minimum wages after careful consideration of likely job destruction. This is why, in SA and elsewhere, most empirical studies have found modest increases in minimum wages have had limited, if any, effects on employment. Substantial minimum wage increases have, however, been associated with bigger job losses, especially in developing countries; especially in tradable sectors such as agriculture and clothing.
While advising countries to consider local economic conditions when setting minimum wages, the ILO also proposes international benchmarks. For countries with high unemployment, such as SA, the most appropriate ILO benchmarks are 50%-60% of the median wage (ie, the mid-point in the wage distribution) or 30%-60% of gross domestic product (GDP) per capita. SA’s employment-weighted average sectoral minimum wage (about R2,700 per month) is about 85% of the median wage (higher than the ILO’s benchmark range) and 45% of the GDP per capita (comfortably within the benchmark range).
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Cosatu’s advocacy of a high national minimum wage — entailing a huge increase in the minimums in many economic sectors, and out of line with appropriate benchmarks and international experience — is based on its faith in an untested economic model that generates implausible results. It is hardly surprising, therefore, that Cosatu wants the national minimum wage to be set politically, without recourse to independent experts from SA or elsewhere. South African legislation provides for the ECC to recommend what is in effect a national minimum wage, by setting a wage determination for all otherwise unregulated sectors. But the legislation requires the ECC to consider the effects on job destruction.