Business / Personal Finance

Sungula Nkabinde
5 minute read
8 Feb 2016
1:11 pm

What the national minimum wage should be

Sungula Nkabinde

If too low, it will be meaningless. If too high, the economy will perish.

Image credit: Thinkstock

A national minimum wage (NMW) in South Africa is inevitable. But the level at which it is set will be the difference between addressing poverty and inequality meaningfully – and plunging the economy into decline.

After a general consensus that a NMW would benefit South Africa, the second day of the NMW symposium held at the University of the Witwatersrand (Wits) last week covered the level it should be set at and suggested practical guidelines for its implementation.

Bandile Ngidi, director at Rethink Africa, said the numbers bandied about as a possible NMW level in South Africa were based on minimum needs assessments from organisations such as Statistics South Africa (StatsSA) and the Southern Africa Labour Development Research Unit (Saldru), which have different views on what the poverty level is – neither of which he believes are sufficient.

The Pietermaritzburg Agency for Community Social Action (Pacsa), for example, uses a price barometer which is revised monthly and includes a static basic basket of goods. When energy and medical expenses are included, poor people would still have to turn to debt, as many already do.

“Our poor healthcare and social infrastructure means that the minimum wage might need to go far further than a bare minimum level,” said Ngidi.

Shanmugam Thiagarajan from National Wages Consultative Council in Malaysia said its NMW of RM900 (R3 470) per month, which was introduced in 2012, is calculated using a formula which takes into account the level of unemployment, inflation, productivity, and poverty line income – and is adjusted downwards.

Uma Rami from the International Labour Organisation, said that in India, minimum wages are set arbitrarily by both central and State governments, with multiple rates of minimum wages for different jobs in each state.


Minimum wages under sectoral denominations barely cover food needs


Source: NMW research Initiative


According to the International Labour Organisation, evidence from countries that have implemented minimum wages, reveal that they typically range from between 40% to 50% of the average wage in a country. In South Africa, with the current sectoral denomination, minimum wages are less than 25% of the average wage.

“There are two main methods for setting the initial rate,” said Neil Coleman, spokesperson for labour in the wage inequality task team at the National Economic Development and Labour Council (Nedlac). “The first method is based on cost of living and aims to determine a rate that will cover the basic needs of workers. This appears to be the most clear-cut method but it does give rise to some problems…. If wages are to cover the needs of the workers and their families, one needs to establish how many children should be taken into the equation….”

The second method, he added, involves basing the minimum wage rate on the lowest and average wage rates. But this could also present a problem in cases where the actual wages paid are not a true reflection of workers’ basic needs and the needs of their dependents.

In South Africa, a NMW set at 40% to 50% of the estimated average wage of formal workers, which according to StatsSA’s quarterly labour market survey is around R10 274, would be at least in the range of R4 110 to R5 137.

Poverty line estimates


Research institution Poverty line estimate (2015 prices)
StatsSA Upper-bound poverty line: R960 per person, which is R3 840 for a family* of four, or R4 840 for a family of five.
Saldru Cost of basic needs poverty line: R1 319 per person, which is R5 276 for a family of four, or R6 595 for a family of five.
Pacsa Monthly price barometer: approximately R1 400 per person, which is R5 600 for a family of four, or R7 000 for a family of five.

*’Family’ assumed to include three dependents, which is the average

Source: Neil Coleman, Cosatu


Said Ngidi: “Unfortunately, literature is very scarce on what other countries include in the calculation of the NMW. Most countries use general indicators like the inflation rate, while other countries use specific cost-of-living measures or cost of certain items, such as food, healthcare…. But ultimately, it’s a political decision.”

Business will never come around

Gabriel Sterkel, a trade unionist from Germany, said the €8.50 (R 150) NMW, which was established in Germany in January last year, was also set politically. It was the figure most often quoted in discussions leading up to its implementation.

Sterkel said unions would always think the minimum wage is too low, while business would always resist it. She said there was a massive media campaign from business and economic research institutes, forecasting the economy would collapse, with up to two million job losses predicted. And this has not been the case. In fact Germany recorded its highest employment level in December 2015.

“Our international allies tell us that the experience is the same all around the world,” said Coleman. “In fact, when we went to Germany, the NMW had already been implemented, and employers were still grumbling about it as if it had never been introduced and feeding in media information about the terrible consequence of a minimum wage.”

Coleman said business’s refusal to engage with empirical evidence around international experience with minimum wages, and refusal to participate in discussions around the NMW level at Nedlac, had stifled progress on the matter. He said “business made it clear at the beginning of the negotiations that they would be dragged kicking and screaming into negotiations,” but he blamed government leadership because it was them that made the final decisions.

Said Coleman: “We are extremely disappointed by the stance that government has taken in these negotiations. Agreements that were reached in June 2015 outline the definition of a national minimum wage and what the basic architecture of a minimum wage would be. The deputy president announced this agreement at the international labour symposium last year. But we have not made any significant progress since then.”

Business was noticeably absent from the symposium and Gilad Isaacs, the organiser of the event and head of the NMW Research Initiative said it was not from want of trying on his behalf.

“We tried to invite individuals and organisations from business,” said Isaacs. “Some of them were legitimately unable to attend. However, the official response from the business represeantives in the Nedlac negotiations, was that they view this as a parallel process outside of Nedlac. They have shown a disinterest in public engagement on this topic and that has been a pattern.”

Brought to you by Moneyweb