Minimum wage, unemployment, and poverty in South Africa by Susanna McGrew

A host of statistics show that South African labor markets are not working for most South Africans. The country has had extremely high unemployment for decades – 2016 estimates put unemployment at 26.7% of the population, or 36.3% including discouraged workers. Making matters worse for many, the unemployment distributed unequally. More than half of young African South Africans are unemployed, but less than 10% of their white peers are, and fewer than 6% of university graduates are unemployed.

For decades, the government has been trying to improve living conditions for the worst off through policies like Black Economic Empowerment and by distributing cash grants to the poorest. No remedies so far have solved the complicated labor issues that still bear the mark of Apartheid-era inequality. In a country where unemployment and poverty are so closely tied, it is difficult to address the issues without increasing job creation, but despite government efforts, South African economic growth has been too low to have much of an effect on reducing unemployment.

The government’s latest poverty and employment related effort has been to implement a new National Minimum Wage, effective as of January 2019. For the first time in the country’s history, all employers are now required to pay their workers a base wage (currently set at 20 rand, or about 1.42 US Dollars per hour, although certain sectors have temporary lower minima). Before, only about 70% of workers in South Africa were covered by any kind of wage legislation. That coverage came either from government decrees or as the result of bargaining between firms and powerful trade unions, and the minima varied tremendously by industry and geographic region. While the new legislation does not eliminate higher bargained minima where they exist, it increases minimum wage for some of the lowest-wage sectors by over 30%.

Many economists agree on certain benefits of having a national minimum wage to cover all workers. The recent minimum wage legislation has been controversial in South Africa though, in large part because economists disagree over the level at which it should be set. Some economists point out that while there have been lots of economic studies of minimum wage, they have mostly been carried out in countries that are developmentally very different from South Africa, so the experiences of those countries may not be that applicable

In any case, it is clear that the new minimum wage level must be set at a level that is sensitive to the trade-offs that might exist between higher wages and increasing unemployment. How successful these recent efforts have been at finding that balance remains to be seen.

 

1 [NMW 2016] National Minimum Wage Panel (2016) A National Minimum Wage for South Africa: Recommendations on Policy and Implementation Report to the Deputy President

Herbst, Jeffrey and Greg Mills (2015) How South Africa Works: And Must Do Better (London: Hurst & Company)

Bhorat, Haroon. et al (2016). “Investigating the Feasibility of a National Minimum Wage for South Africa”. Development Policy Research Unit Working Paper 201601. DPRU, University of Cape Town.

4. Ibid.

5.  Bhorat, Haroon, Ravi Kanbur and Natasha Mayet (2013). “The impact of sectoral minimum wage laws on employment, wages, and hours of work in South Africa” IZA Journal of Labour & Development and Seekings, Jeremy and Nicoli Nattrass (2017). “Setting the level of a national minimum wage: What can South Africa learn from other countries’ experiences?” Transformation: Critical Perspectives on Southern Africa, Volume 92, 2017

 

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