Nedlac Draft National Minimum Wage Report
The South African landscape in 2016 demonstrates a number of very urgent challenges, as well as systemic problems that we as a country have been unable to rectify. There is an inextricable link between low levels of wages, high unemployment rates, the great number of people living in poverty, and the massive inequality in South Africa. We know that out of a population of 55,900,000 people, 29,733,210 are living below the poverty line. This means that over 51% of the people in our country live on less than R1,036.07 per month in 2016.
While there are different poverty indicators, for the purposes of this Report we used the Upper Bound Poverty Line. However, we also found it useful to look at the most severe situation which describes the absolute minimum calorie needs per person per day, what that would cost, and how many people live on less than this minimum. A minimum diet of 2,100 calories per day is estimated to cost R445.55 per person per month. And yet, over 11 million people in South Africa live below that level.
It is important to place South Africa’s employment situation within this overall poverty profile. There is consensus that the country should look urgently at ways of creating jobs that are secure, pay decent wages and are able to lift people out of poverty. This is particularly the case given that unemployment in South Africa is currently around 26.7%; if people who have given up looking for work are included, that number rises to over 36%. One of the main reasons why people are poor is that they do not have access to employment. Only 36% of the poorest households have access to employment opportunities. But even those people who do have jobs often earn such low wages that they are unable to help their unemployed and dependent family members. The working poverty line has been estimated to be approximately R4,317 in 2016. Over 6.7 million people earn less than R4,000 a month. Over half of the workforce in South Africa earns below R3,700, and 4.6 million people don’t even earn R2,500 per month. If you were supporting a family of five, that R2,500 would only cover your minimum food requirements.
The data thus paints a clear picture of poverty being a combination of low wages and very high levels of unemployment. Added to this are the exceptionally high levels of inequality in the country. South Africa is known as being among the top three most unequal countries in the world. The World Bank estimates our Gini coefficient to be between 0.66 to 0.70, where the richest 10%of the population accounts for 58% of the country’s income while the poorest 10% accounts for 0.5% of income.
It must be clearly stated that the people at the bottom of the wages and poverty picture are overwhelmingly women. It is women who are most vulnerable to unemployment, earn the lowest wages in the most vulnerable sectors, and who dominate the care-work and unpaid sectors. These realities create power imbalances in households. Because of gender discrimination in access to the labour market, households that comprise only women or are headed by women are more likely to experience poverty than households with men. This is not about income alone; a 2014 study by the World Bank also showed that a lower household wealth index increases the chance of intimate partner violence by up to 45%.
Thus we need to acknowledge the very gendered nature of poverty in South Africa, and how the related societal crises of unemployment and inequality contribute to the discrimination against women. This all takes place in a country of very low growth, where National Treasury has predicted a 0.5% growth rate for 2016, rising to 1.7% for 2017. Government has previously noted a growth rate of 5.6% is needed to start addressing the unemployment crisis.
National Minimum Wage Research Initiative
The National Minimum Wage Research Initiative (NMW-RI) is an independent academic research project run by the Corporate Strategy and Industrial Development (CSID) Research Unit in the School of Economic and Business Sciences (SEBS) at the University of the Witwatersrand. It is undertaken in the context of a national dialogue on wage inequality and the potential introduction of a national minimum wage in South Africa. Information on the NMW-RI can be found at www.nationalminimumwage.co.za.
Minimum wages establish wage floors below which no employers are permitted to pay the employees covered. According to the International Labour Organization (ILO), the purpose of minimum wages is to ensure wages are able to cover the basic needs of workers and their families, taking into account relevant economic factors. A national minimum wage sets a single economy-wide wage floor. In South Africa, a national minimum wage is also being explored as a tool to reduce inequality and transform the inherited apartheid wage structure.
Such a national wage floor would be an advance over the current sectorally-set minima in South Africa. Compared with a sectorally-differentiated system, a national minimum wage covers all workers, is easier to enforce, and does not set lower minima for sectors with high proportions of vulnerable workers (as has been shown to occur under differentiated systems). Further, a national minimum wage can be set to take account of broad policy objectives such as reducing inequality, and economy-wide economic impacts rather than only narrow sectoral considerations.
This report shows that a national minimum wage in South Africa, if set at an appropriate and meaningful level, can achieve its central objectives of reducing working poverty and inequality. As the ILO insists, economic factors must also be considered. This report shows that a national minimum wage can also support economic growth. Minimum wages do not aim to raise employment levels – for that, other policies are needed – but a national minimum wage can be implemented without significant employment effects.
These findings are supported by an extensive international literature, showing the success of minimum wages in reducing poverty and inequality without negative employment impacts, and by the statistical modelling undertaken for South Africa itself. This evidence confirms the logical assumption that firms and the economy adjust to higher wage costs through a variety of mechanisms and that higher wages – particularly for low-income households – can spur a positive growth- and output-enhancing demand stimulus.
South Africa has the highest level of inequality in the world (see Section 2); in 2014, the average income of the top 10% of full-time employees was 82 times the average income of the bottom 10%. Inequality in South Africa is driven by wage differentials. There is a growing international consensus, led by the IMF, World Bank, and OECD, that inequality retards economic growth. Inequality also undermines social cohesion. Working poverty is also dire in South Africa: 54% of full-time employees – 5.5 million workers – earn below the working-poor line of R4 125, and so cannot meet the most basic needs of themselves and their dependents (see Section 2.3). High dependency ratios mean wages in South Africa stretch to cover many dependents. Higher wages for low-wage workers would benefit both the employed and the unemployed.
Collective bargaining, covering approximately 32% of lower-wage workers, has managed to maintain wage levels but is unable on its own to combat working poverty. Sectorally-set minimum wages, enacted via eight sectoral determinations, cover approximately 46% of lower-wage workers. Since their institution the levels of the sectoral determinations have increased by between 16% and 81% in real terms (see Section 3.1). However, many workers in these sectors still earn exceptionally low wages: 75% of agricultural workers earn below R2 600, 90% of domestic workers below R3 120 (see Section 2.4). Read the full report below.