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Unregulated wages: the curse of the disposable worker

Bo Mbindwane is a business executive with experience in mining and other sectors. He has past experience in public administration and is an indepedent mining analyst. On twitter: @mbindwane

South Africa’s Reconstruction and Development (Reconciliation) Project is not over yet. The majority of South Africans are feeling more and more ‘reconciliation fatigued’. More has to be done in giving all South Africans a fair stake in the economy; the national minimum wage is a good start.

If you ask a business owner how best to deal with tough economic times ensuing globally, the answer is straight and unforgiving: “Cut expenses, start lay-offs, look at cutting pension contributions, cancelling medical aid benefits and negotiating reduction in salaries, but do not forget to limit hours for workers”.

Governments across the world are prone to running to business owners and managers in fancy talk shops, with mostly men in their 60s and upwards. They also get invited to head of states’ advisory councils to offer advice on country economic policies. The wisdom is that if someone could build a successful company it means they understand money matters. The problem with this, as Nobel Laureate Professor Paul Krugman has argued, “companies are not countries”. They do not navigate complex constituencies, the target market is defined and income known or easy to predict, they need not build units that just don’t make money, like a children’s swing park or a cycling route. They are the worst to consult for country economy. Yes, they may get the lingo and terminology, but are only experts of their businesses and not country treasury management or fiscal policy nor monetary policy expects. They are mostly ‘cut spending’ experts.

The success of German industrialisation policy after a devastating World War is teachable. Here is how:

Worker Unions were given a voice and not punitively restrained. Wages were increased and productivity grew. The media was freed to report unrestrained.

The first things I check before pronouncing on whether a country has freed its people or not is not how clean the streets are or how grand its economy is. I care less about how highly rated its sciences universities are; for me, it is whether worker unions are free to (peacefully) organise, to picket, to strike, to bargain. That, together with whether the media is free to insult the head of state or the wealthy businessmen, makes up the two key tests for a truly free society.

North Korea has very clean streets. Her science universities are incredible for a locked-in state.

Businessmen are the first to argue that low wages lead to more people being employed, that wage determination should be left to a free market. The thing left unsaid is that this free market imposes on un-free workers and this is sold as a moral good. Workers are deemed disposable. The low wages cause these workers to take up extra work and get minimum rest, minimum time with their children; who then grow up to be their parents’ replacement in a class-determined life. A child that is being raised in poverty, parents who leave their homes at 4am to catch a bus or train and return at 8pm. This means that child’s destiny is decided by the structural circumstances he is born into.

The German industrial sector understood much earlier that to be number one, it needed a committed work force, a participatory work force that felt well valued and valuable. Germany’s labour market is amongst the most highly regulated, though it is one of nine Organisations for Economic Cooperation and Development (OECD) countries, which had no nationally legislated minimum wage. Last year, German Parliament’s Lower House adopted a statutory national wage floor of €8.50 ($11.61 or R141.13) an hour. The minimum wage became compulsory this year, 2015, with a two year-transition period granted to some sectors.

Developed economies like Austria, Italy and the Scandinavian countries, like South Africa have traditionally relied on negotiated collective bargaining agreements to set wage floors, covering sectors and occupations which account for a very high proportion of the workforce. South Africa has had varying degree of success in reliance to bargaining agreements and the limitations of this was tested in the AMCU platinum strike that included the death of many workers.

The industry is currently bracing itself for a likely repeat of violent protests and wild cat strikes as the gold and coal sectors enter their periodic wage negotiations period from June this year.

Some workers are also not covered by these collectively negotiated wage minima and national legislation has sometimes intervened, like in the case of farm workers and domestic workers or house maids, these workers being in the forefront of severe exploitation by their employers.

Germany adopted a wage floor for the construction sector in 1997. In March 2007, lawmakers agreed to set a minimum wage floor for 850,000 cleaners, too. The most industrialised and economically successful nations have easily recognised what our Mr Herman Mashaba and his cohorts refuse to realise: that good pay does not kill businesses; labour protection laws may be a nuisance, but they are better than unregulated environments. This is about freedom and fairness – it is about protecting the vulnerable.

President Zuma has boldly taken a stronger line. In each of his State of the Nation (SONA) addresses since 2011, he has repeatedly called for a national minimum wage. In the last SONA he said, Government will investigate the possibility of a national minimum wage as one of the key mechanisms to reduce the income inequality.

ANC MP Mrs. Lumka Yengeni, the Chairperson of the Portfolio Committee on Labour, has equally got her hands dirty with consultations and public hearings in this regard. She informed me in my discussion with her that she wants to see a fair National Minimum Wage law passed this year”, a tough call but necessary, and a delayed one indeed.

The next frontier is equal pay amongst sexes. In South Africa women earn 65 cents for a similar job men earn one rand for. This wage gap is unconstitutional and unfair.

Tackling inequalities in incomes, health outcomes, education and well-being requires breaking down the barriers to inclusive growth and reaching new frontiers in policymaking and implementation. Everyone should be able to realize their potential and to share the benefits of growth and increased prosperity.”

OECD Secretary-General

There is massive prestige in belonging to the OECD, and South Africa is the only African nation to be officially inducted as a non-full member alongside Brazil and Russia. The mantra should be that we do as those in front have shown – the tried and tested ways.

Minimum wages are a long-standing tradition in many OECD countries. Twenty-three of the OECD’s 30 member countries have statutory minimum wages, and in just over half of these countries minimum wages have risen slightly faster than average wage levels in recent years.

The national minimum wage in the United Kingdom’s has an impressive gain for “at least 1.5 million people” – National Minimum Wage Act 1998.

The most rated country in the Social Progress Index, New Zealand, was first to introduce minimum wage was in 1894. It did not kill business. It gave her a century of glory.

Another of South Africa’s competitors in minerals and other commodities (like commercial fishing and mining), Australia, introduced a minimum wage in 1897, following in New Zealand’s footsteps. Today Australia shames South African labour and industry in the productivity stakes, yet good wages are never given credit.

We are often bombarded with the US as a beacon of capitalism, free markets and entrepreneurship, yet few make mention of the fact that the US federal (national) minimum wage was passed into law in 1938.

President Obama in 2014 used his State of the Union address to call for a national minimum wage of $9.00, up from the current $7.25. Democrats Union, Obama’s political party, argues that the purchasing power of the 1968 minimum wage, if indexed to inflation would make today’s rate over $10 an hour.

Let’s look at other most advanced nations that are often used as beacons: the Benelux countries and many countries in central and eastern Europe have minimum wage floor, travel to Japan and Korea or France, Greece, Portugal, Spain too; Ireland and the UK.

It is important to note that all the countries aforementioned with legal minimum wages have low unemployment rates. The boogieman never arose.

Appropriately set minimum wage does not have negative effects on job creation, creation prospects or success of businesses.

Together with minimum wage, the taxation policy should continue to ease tax on low earners to boost their take home wage. Hungary, Belgium, France, Ireland, and the Netherlands, in spite of recent large increases in minimum-wage levels, have displayed vibrant industry.

Here at home, as legislature looks at the best method in introducing minimum wage – that alone and not the tax threshold adjustment might lift labour costs, but not necessarily boost net wages if SARS drinks at the same pool. The labour costs that show appreciation increase productivity and limits the amount of off days. The cost becomes a remarkable benefit. The net wage to worker is the most important aspect of designing a responsive minimum wage. This is the one of the ways South Africa can tackle in a meaningful way the widening gap in incomes and lifestyles.

The black majority in South Africa is fast settling into “reconciliation” fatigue. The results of this fatigue have been so far restrained in townships and black settlements, but it is not going to be so forever and without notice the risk that this fatigue may create internal chaos will come if nothing is done.

The OECD released a report this month saying: “Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago. Only in Turkey, Chile, and Mexico has inequality fallen.” This is a harsh indictment to the Mashabas of this day.

The ANC policy makers will be best served by looking at true data and not cowing to businessmen on this matter, since business people do not understand economics; they are narrowly focused and are only interested in their bottom line – the key area to gain bottom line appreciation from is labour. They are good at making their own money, not for their competitors or neighbours. This is counterproductive to creating an equal society which is able to join the middle class, and where workers can afford the shop floor products they produce.

Each month where there is a delay on introducing minimum wage, justice is delayed. DM

bo wages graphic

Image Source Acknowledgement: The Independent and Statista (from OECD)

Parts of this article previously appeared in site,