The South African Debate on National Minimum Wages: A call to look at the social wage and asset transfer nexus, in alleviating asset and income inequality.

By Ayabonga Cawe[1]

‘We have not dealt with the fact that there is a colonial wage in South Africa. We need a national minimum wage, and labour brokers are basically a new form of super-exploitation. They are undermining the hard-won gains of workers that were secured during the days of apartheid. NUMSA will continue with the struggle to ensure that we deal with labour brokers’Irvin Jim.

Ayabonga CaweSouth Africa, post-Marikana and the industrial actions after that fateful event, have shown all of us, the difficulty of negotiating century-old legacies of inequality, dispossession and despair. After 20 years, the comments made above by NUMSA General Secretary, Irvin Jim, echo a growing recognition among the working people in South Africa that liberation is a precarious and uncomfortable place. In South Africa, a country with a history of an economy built on cheap labour, a debate on minimum wages, and how prices in the labour market should be regulated through government policy is an important one. Structural economists like Lance Taylor have long argued that capitalist economies are defined by a particular distributional conflict between recipients of profit and wages-earners. The outcome of this conflict has a particular effect on aggregate demand, output and ultimately growth. Wages play an important role in this conflict, as the price of labour and the root of not only industrial conflict, but social conflict at an important stage of our nation-building project. Indeed, no socially cohesive and stable nation can develop on the back of such poverty inequality and unemployment surrounded by islands of privilege. 

Why the Minimum Wage Discussion?

Minimum wages were first introduced in New Zealand and Australia towards the end of the 19th century. The United Kingdom introduced its first minimum wage policy in 1909.Most developed and developing countries followed suit thereafter. By the 1970’s minimum wages had fallen out of favour in the aftermath of the 1973 OPEC oil crisis. The debt crisis and structural adjustment policies of the 1980’s meant that by the end of the decade, very few developed countries had or enforced minimum wage legislation. However over the past two decades countries like Brazil, China the UK and South Africa have once again passed minimum wage legislation.

The 2014 ANC election manifesto recognised the need for a statutory minimum wage as one of the key mechanisms to address income inequality in South Africa. However, in a sea of unemployment, minimum wages will always be a contentious issue. It is a discussion that has the potential to divide the country across political, ideological and race lines. On the one end of the spectrum there is a view which suggests that minimum wages will reinforce existing structural and regulatory rigidities in the South African labour market. The argument suggests that implementing a minimum wage will make it difficult for firms, particularly small ones, to create employment at low wages, thus entrenching our unemployment crisis. Tim Harris, of the DA argues that the ANC’s minimum wage proposals would make unemployment, particularly among the youth, worse;

‘The ANC’s proposal to investigate a national minimum wage would take us in completely the opposite direction by reducing flexibility in wage determination and would probably see us drop from 144th to stone last on the global competitiveness index’[2]

The National Development Plan (NDP) in its diversified growth scenario identifies the importance of, ‘monitoring compliance to statutory sectoral minimum wages’ to promote employment creation and labour protection. The point of contestation between the different groupings however, is whether or not the introduction of minimum wages will not only, ensure a decent living wage, but will also lead to employment creation. Many believe, as Tim Harris does, that a minimum wage will lead to employment losses, and a reduction in the competitiveness of our country. There is also a view, that a national minimum wage, could improve the incomes of many of those in non-unionized and precarious forms of employment, whilst also improving consumption, aggregate demand and ultimately output growth. All of these debates are occurring in an increasingly contested political space, both in party politics, the trade union movement and civil society at large.

The political environment

The events of the 16th of August 2012 have unravelled many deep seated issues which many thought had been addressed, or were being meaningfully addressed; contemporary migrant labour challenges, casualization, stark levels of inequality and a breakdown in public service delivery at a local level. In addition to this, the poor living conditions in our country for the majority, have made protests around basic services such as water and electricity commonplace alongside industrial actions in the shafts and factory floors. The underlying cause of many of these, has been identified in many ways, however in the face of an increasing cost of living, declining real wages and increasing consumption spending demand covered through credit, it is clear to all, that in the aftermath of the most recent crisis, it is the workers that have been on the bad side of the recovery.

Most of those in formal employment experienced virtually no improvement in real wages between 1997 and 2011. The real median wage of a formal sector worker in 2011, was R 3 800 a month, the same as in 1997[3]. This coupled with high levels of indebtedness, at stagnant wages in the face of increasing public service delivery bottlenecks at local level, means that many South Africans may be working, but earning a living wage below a pay scale that would allow them to meet all their monthly financial needs. This all, while the top 10% earners experienced an improvement in their real wages from R11 670 to R15500 over the same period. The ability of workers to withdraw their labour and cause significant output losses, as could be seen in the 6-month long strike by AMCU on the platinum belt during the first half of this year, indicates the challenge that wage inequality presents at an economic and a social level, with the strike characterised by an extensive bought of hunger for many of the affected, prompting humanitarian intervention.

Secondly, the interplay between wage inequality and asset inequality prompts a discussion of other forms of socio-economic challenges that plague South African society. Any policy reflection that explores the possibilities of pursuing a statutory national minimum wage, needs to be accompanied by one that speaks to meaningful socio-economic transformation in the areas of land reform, black economic empowerment, and the delivery of key public services such as healthcare and education. This is what has been referred to as a social wage, which in addition to social grants includes free education, healthcare and other public services and utilities at a subsidised rate. There is indeed, an economic rationale to the social wage argument. It follows, that if the spending needs that one’s salary has to meet, are in part covered by the state or provided in full by the state, for the indigent, then this frees up more disposable income for consumption and saving. However, if wages remain low, and the delivery and quality of public services does not improve, South Africa will continue to be one industrial action or service delivery protest away from instability and a deep economic and social crisis.

Spaces for popular forms of policy engagement

As the space for heightened civic engagement on wage policy expands, there is an increasing need to interrogate the effect of wage and non-wage transfers in alleviating the high levels of inequality that South Africa faces. Indeed, many have called for significant asset transfer in the form meaningful community share ownership, and significant worker ownership of equity in the firms in which they are employed. A similar argument is being made by the Minister of Rural Development and Land Reform, Gugile Nkwinti, in his proposal of joint 50/50 ownership of commercial agricultural land earmarked for land reform. If this is passed into law, as the amendments suggest, then this will replace the current ‘willing buyer, willing seller’ policy. Therefore the engagement of interested civil society partners in the debate around a statutory minimum wage should aim to inform policy, taking into account existing and proposed social protection mechanisms.

In closing, the possibilities that a statutory national minimum wage has in alleviating income and asset inequality in South Africa, cannot be unlocked by regulatory wage setting alone. Without meaningful consideration of the delivery of an effective social wage, and significant transfers aimed at dealing with asset deficits among the disadvantaged, minimum wages alone will do very little. Thus, any input coming from civil society voices, needs to be informed about the role that a minimum wage can play, in addition to other existing and proposed reforms around asset transfer, public delivery and economic empowerment. The success of such a national minimum wage will rest on its ability to catalyse consumption demand and also complement the functioning of other social protection and asset transfer mechanisms.

[1] Ayabonga Cawe is a development economist and social entrepreneur. He is Executive Chairman of the Young Economists for Africa (YEA), a pan-African youth policy and advocacy organisation, part of the Rethink Africa Group.

[2] Business Report, A national minimum wage may cut jobs 14 January 2014

[3] Alternative Information and Development Centre, Economic Bulletin no. 1. 1 August 2013