Business Maverick


Tough questions for political parties (Part One) — the DA and the National Minimum Wage


Neil Coleman is Co-Founder and Senior Policy Specialist Institute for Economic Justice. @NeilColemanSA

According to the DA’s theory, the National Minimum Wage should have led to large-scale job destruction in the agricultural sector. The opposite has happened: instead of the predicted jobs bloodbath, agricultural employment has increased.

The DA is opposed to the National Minimum Wage (NMW) on the basis that it destroys jobs and worsens poverty. However, there is no evidence for this in research on the South African labour market, and the international literature.

If anything, as we show below, the evidence suggests that removing the NMW, or reducing the wages of the low-paid, will increase poverty and hunger and won’t achieve the objective of employment creation.

Let us look at the evidence about farmworker wages in South Africa, one of the lowest wage sectors in the SA economy, over the last five to six years. During this period, when the NMW was introduced, there was a significant real increase in farmworker wages — their (nominal) wages have increased by nearly 80% since 2018 (see charts below).

According to the DA’s theory, the introduction of the NMW should have led to large-scale job destruction in the agricultural sector. But the opposite has happened: instead of the predicted jobs bloodbath, agricultural employment over this period increased by nearly 12% or 91,000 jobs. This is despite the devastating loss of jobs during the 2020/21 Covid period.

The reality is that in the agricultural sector, as in all other sectors, there is no automatic relationship between the level of wages and the level of employment. Employment levels depend on a range of economic conditions, including the macroeconomic environment, industrial policies, trade, domestic demand, etc.

Following the DA’s logic, we could disingenuously argue, based on this example of farmworker wages, that the increase in minimum wages leads to an increase in employment and income. But this would be to confuse correlation with causation.

Equally, there is no credible evidence in South Africa’s history, or internationally, that depressing wages automatically leads to job creation. What it does lead to is the deepening of poverty and inequality.

The second leg of the DA’s argument is that promoting low-wage jobs would combat poverty and hunger. This argument is advanced on the assumption that additional jobs would be created and that this would combat poverty, no matter how low the wage. 

However, the logic of the DA’s proposals would be to displace workers currently protected by the NMW with ultralow-wage younger workers, desperate to accept jobs at any wage, who would sign a bizarrely named “opportunity certificate” agreeing to be employed at any wage, no matter how low. Experience and evidence suggest that existing jobs would be degraded, without any significant job creation. 

While the DA claims it wouldn’t remove the minimum wage for existing workers (probably because its members are afraid of alienating the roughly six million workers who have benefited from the NMW), exploitative employers would use the DA scheme to seize on the opportunity to replace their existing workers with ultracheap labour.

The probable result of this would be a displacement effect, which has been documented, for example, with the youth wage subsidy, which shows no meaningful creation of new jobs: instead of new jobs being created, older minimum-wage workers will be replaced by ultra-exploited young workers.

Third, the #DA assumes that getting young people into these low-paid jobs will combat poverty and hunger. But its proposals will have the opposite effect: worsening poverty and hunger among workers and their families by depressing wages below the level required to meet basic necessities. 

South Africa already has a major problem of working poverty — ie, serious poverty and hunger among workers, even though they have full-time jobs. The challenge is to improve wages to combat working poverty. This was the intention of the NMW. By depressing already low wages, the DA would plunge thousands of workers deeper into hunger and poverty. 

A 2023 Wits University national study on hunger — see below — found that the level of hunger was alarming among households with an income of less than R5,000 per month (roughly the current level of the NMW for a 45-hour working week). About 40% of households with an income of between R2,000 and R5,000 experienced food insecurity or were at risk of hunger and around 50% of households with an income of between R400 and R2,000 experienced food insecurity or were at risk of hunger. 

In other words, the DA’s proposals to suppress the wages of low-paid workers below the current NMW will, if implemented, plunge hundreds of thousands of workers and families into hunger and poverty, contrary to the noble intentions claimed.

Hunger and income

In conclusion, South Africa doesn’t have a problem of wages which are too high. We have a low-wage economy, characterised by levels of wage inequality that are among the highest in the world. Any measures which worsen this wage inequality, or deepen the apartheid legacy of ultra-exploitation of cheap black labour will only intensify our social challenges, including high levels of poverty and hunger. We need income strategies that advance a decent standard of living for all households. 

A decent NMW, combined with basic income and the provision of a package of affordable public services, is needed, not a return to apartheid low-wage policies, which are at the root of many of our social ills. 

Promoting employment requires coordinated macroeconomic, industrial, trade and labour market measures which diversify our economy, promote investment and generate job-rich growth. A race to the bottom will not achieve this. DM


Comments - Please in order to comment.

  • . . says:

    Shame on you DM, Neil Coleman entered these elections as a politician, and so any veil of objectivity has long since been ripped away. To allow such an obvious hack job 3 days before the election is shameful.

    You can imply I’m upset because I disagree, but surely even the editorial staff can admit this that the one-sideness and timing are really off on this one. This is electioneering almost as band as Cyril’s address last night.

    Please withdraw the article and republish on Thursday

  • Anthony Kearley says:

    You cannot have a minimum wage which is above the minimum education level, that is obvious and no amount of lopsided stats can beguile us from the fact. Minimum wage laws mainly protect unionized, organized labour (who are not poor) from competition in the labour market, at the expense of the unemployed (who are poor). The system should allow poorly educated people to obtain work at whatever price they deem fit to supplement their government grant, while they obtain necessary on-the-job skills training. Currently they are prevented from doing so, by law, by the minimum wage laws to be precise, which is an infringement of their basic human right to pursue their self interest in an open society.

    • Bob Dubery says:

      Have you looked at the minium wage and worked out what a recipient will get for 8 hours a day, 22 days (on average) per month? It’s a pitiful amount, from which the worker will have to pay for food, transport and whatever other costs arise.

      The wage is 27.58 per hour, dropped to just 15.16 for EPWP workers.

      Assuming some labourer on a building site, or somebody working for a gardening service, or somebody sweeping up hair in a salon is earning minimum wage they would, for the hours I stipulated, their gross would be under R5K. Expand that to 6 days a week and it’s just under R6K.

      How is this protecting people who are not poor? How is this anything to do with level of education? And how does this very minimum wage prevent employers from up-skilling workers?

  • Geoff Coles says:

    Those with jobs are indeed fortunate, those without would not agree with Coleman….or the DM for allowing history be published.

  • Mike SA says:

    Neil Coleman states that farm wages have increased by 80%, that’s because what they used to receive in kind has now been monetized.

  • John Lewis says:

    I despise the way Coleman positions himself as an academic and a think-tank wonk, when he’s a trade unionist and a SACP party hack.

  • Alon Atie says:

    To claim a minimum wage won’t ever reduce employment is obviously falacious. It would obviously depend on the amount. For example if farmworkers were to be paid a minimum wage of R1 000 000pm without adjusting the rest of the economy,we would close all farms and import all our food which would be much cheaper. This has largely happened in the mining industry where unions have been able to demand an excessive wage for labour in a difficult mining environment(in terms of BEE regulation and deep mines) making it more logical for investors to go elsewhere. I think the decimation of our mining jobs over the past decade ,and a place like West Africas growth shows that the authors comment “there is no automatic relationship between the level of wages and the level of employment”, to be untrue in many circumstances. Another obvious one is the factories we had making clothing in Natal that could not compete with chinese imports due to the labour costs(which were admitedly still very low) Chinese manufacture was cheaper due to greater eficiencies despite us having a 45% import tax on clothing. Nontheless once again proving the point that often there is a very signifigant link between level of wages and level of employment.

  • Robert de Vos says:

    Yes …. “Promoting employment requires coordinated macroeconomic, industrial, trade and labour market measures which diversify our economy, promote investment and generate job-rich growth.” Which the ANC has blatantly failed to achieve. If they had, we would not have the abysmal unemployment statistics, which relate directly to crime statistics.

    So why, other than ignorance of the real state of the nation, would anyone vote for them?

  • Rob Currie says:

    Your graph of the wage increase follows the price of food increases.

  • Chris Brand says:

    Pity that Neil Coleman only knocks the DA on a single statement (which is possibly true), whilst much bigger problems have become the norm due to State Capture with no consequences, government fraud continuing with no consequences, private company fraud with no consequences, banking community that turns a blind eye to money laundering, some very incompetent police members did not even undergone REGULAR physical fitness tests (climbing over walls/fences/running within time limits/securing their issued firearms [stolen by criminals if not friends], regular testing of legal liabilities and citizen rights, disband all unions since they promise more than they deliver and just rip of their members.
    Take mining in RSA as an example, the unions was the cause of the Mines’ management firstly introduced machines/robots to perform some mining tasks (like in Australia) due to salary demands/strikes/sabotage/etc. for and by miners, as instigated by the unions. Now Anglo has dithered to the point where it will be overtaken and possibly disappear.

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